“The Agency is currently analyzing the data collected,” said FCAC spokesperson Léonie Laflamme-Savoie, according to Blacklock’s Reporter. “It plans to make the research publicly available later this year.”
The findings are the result of a July 17 study titled “High Cost Credit Users” that asked 2,307 Canadians coast-to-coast about non-standard loan behaviours, typically the use of lenders that charge relatively high interest rates on borrowing.
“Some of the more well-known alternative lenders in Canada include Cash Money, Money Mart, Easy Financial and Fairstone Financial,” said the questionnaire used by pollsters with Léger Marketing Inc.
Spending $95,356 to conduct the study, FCAC undertook the most comprehensive study yet on Canadians who take out payday loans and high-interest lines of credit.
“The objective of this research was to support the Agency’s mandate by deepening its understanding from a consumer perspective of Canadians’ use, awareness, understanding, and impressions of certain high-cost credit products,” wrote the researchers.
“The study included participants who had obtained products including payday loans, high-cost lines of credit, and high-cost installment loans in the past three years,” wrote researchers. “Many Canadians who lack access to conventional banking services, referred to as ‘underbanked,’ often have no choice but to seek out financial products and services from alternative finance providers.”
“These providers typically offer products or services with higher interest rates than those offered by retail banks or traditional financial institutions,” added the researchers. “As a result these Canadians end up paying significantly higher borrowing costs.”
A study undertaken in 2009 by the government of Ontario, called “Capping Borrowing Costs: A Balanced Approach to Payday Loans in Ontario,” “challenged the picture painted by some members of the industry that payday loan borrowers are ‘average Canadians.’” It estimated a typical customer is 39 years old, a renter, and working full-time for low pay and, for the most part, unaware of the cost of borrowing from loan service companies.
According to the report, around 37 percent of respondents said they believed borrowing rates were in the region of those typically charged for credit card purchases.
The report also said payday lenders achieved an average profit margin of 7 percent. This is in contrast to the loan costs, which averaged 22 percent, primarily attributed to the expenses associated with maintaining physical storefront operations. Additionally, approximately 4 percent of the loans ended up in default.
The FCAC report, “Consumer Vulnerability: Evidence From the Monthly Covid-19 Financial Well-Being Survey,” the results of which were collected between August 2020 and September 2022, said 38 percent of Canadians “borrowed money to cover daily expenses” including food and accommodation. It also reported approximately 5 percent of Canadians used payday loans.
