Payday lenders offer short term loans to customers, usually for a maximum of 31 days and with rates which are sometimes in excess of 500%. There are various reputable payday lenders, such as Wonga, however there are many who are not properly regulated and as a result, are charging disproportionate fees to borrowers. Payday loans are designed to deal with short term financial problems, such as an unexpected bill. They are not supposed to be used on an on-going basis to make ends meet; however, many borrowers are using them in this way and are sometimes paying back as much as four times the amount of the initial loan.
Vancity Talk Payday Loans
Financial establishment, Vancity have reported on payday loans, saying that there has been an increase in the amount of borrowers turning to payday loans during periods of financial difficulties. They say that the number of people using payday loans has increased by 58% in two years, with an increase of 604% in those who have taken out 15 or more of these loans. The report also talked about how borrowers are finding themselves trapped in a spiral, whereby they can’t afford to pay back the loans.
Industry Opinion
The payday lenders don’t share this opinion though and are not quite sure where the figures have come from. The Canadian Payday Loan Association spoke out about the comments, saying that they believe these numbers are incorrect and that in fact, there has been a decline in the number of payday lenders, due to regulation changes. Payday lending may have decreased but it still prominent within our society, due to the credit crunch and the fact that many people are still struggling to keep their heads above water.
Why Borrowers Turn to Payday Loans
There are many reasons why a large number of Canadians are turning to payday loans as an answer to their financial troubles. Many Canadians don’t have bank accounts as a result of where they reside or the fact that they feel the charges would be too high. A large number of borrowers are unaware of how much it can cost to take out a payday loan. There are high rates of poverty in some areas and low earners are finding it difficult to make ends meet. Although it can be a temporary fix for urgent needs, the payday loan is not supposed to be used over and over, which is where the trouble starts.
Potential Changes to Legislation
There have been a number of reports about payday loans in the news recently and recommendations have been made about potential changes to legislation. Some of these would be a greater transparency over the fees being charged, a tailored approach to lending, i.e. carrying out checks to ensure the borrower can afford to pay it back and providing customers with information on financial management. Some of these changes have already been implemented in the US, but Canada is yet to fully follow suit.
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