Let’s help people avoid the trap of payday loans
High interest rates create cycle of debt, writes Graham Wetter
Re: “NDP government to look at new rules for payday loans,” Sept. 28.
The Alberta government is on the right track with its review of payday lending. A 2014 report by Calgary- based community economic development group Momentum indicated “payday lenders charge interest rates that, when annualized, top 400 per cent.”
The report also identified that 35 per cent of Alberta respondents use payday lending to help pay for daily necessities, despite working on average more than 40 hours per week. The high interest rates and fees charged by payday lenders, coupled with repeated use, have created a concerning cycle of unsustainable debt for many Albertans. This isn’t responsible lending, and Albertans deserve better.
The renewed focus on the payday lending industry by the Alberta government is a good step forward in addressing unjust lending practices that often affect a vulnerable segment of the population. Further scrutiny by the Alberta government will help raise awareness of the inequities associated with payday lending and highlight alternative financial products and services available to help Albertans break this concerning cycle.
As co- operative financial institutions, credit unions believe we have a responsibility to provide Albertans with sensible alternatives to payday lending. For instance, Momentum has partnered with First Calgary Financial to offer the Cash Crunch Micro Loan. These microloans are intended to assist individual consumers break the payday lending debt cycle by offering flexible terms and fair interest rates.
On a payday loan of $ 1,000, rolled over for 12 months, a customer can expect to pay annualized interest of almost 600 per cent, or nearly $ 6,000. In comparison, a First Calgary Financial micro loan of $ 1,000 would result in approximately $ 66 in interest annually. Albertans have far better lending options at their disposal than payday loans.
Offering alternative products to payday lending is only one part of the solution. Financial literacy is a key component in raising consumer awareness of the risks of payday lending. Credit unions believe financial institutions play an important role in ensuring Albertans are wellequipped to make informed financial decisions.
In- school programs such as Dollars with Sense, a collaboration between Servus Credit Union and Junior Achievement, Your Money’s Worth, promoted by Rocky Credit Union, and real- world economics partnerships with local schools and service organizations facilitated by Lakeland Credit Union, are a few examples of financial literacy initiatives sponsored by Alberta credit unions.
Progress is being made on promoting financial literacy within the province, but much work remains to further educate Albertans about predatory lending practices.
In Alberta’s current economic downturn, many families may regrettably find themselves in need of financial assistance. Therefore, it’s important that Albertans understand their options and are aware that payday lending carries a high risk of further financial hardship, particularly when job opportunities are scarce.
Albertans don’t have to resort to payday lending — we’re fortunate to have access to a number of financial service providers in our province that offer better solutions toward secure financial well- being.
Albertans considering a payday loan should first seek financial advice from a certified professional. Credit union financial advisers are available to assist individuals facing difficult times and will work with them to develop debt repayment strategies and savings plans. Tools for prudent financial planning and debt management advice can help ensure Albertans avoid the pitfalls of high- interest payday loans.
Credit unions believe the Alberta government’s concerns over payday lenders are well founded, and we applaud the government’s desire to review payday lending industry business practices in our province. Collaboration between government, community organizations and mainstream financial services providers, such as credit unions, can lead to the development of innovative public policy solutions that will in turn, reduce Albertans’ reliance on payday lending.