The increased cost of living in B.C. coupled with the country’s highest rate of working-age people living in poverty is likely behind a sharp increase in the use of payday loans in this province, according to Canada’s largest credit union.
A study by Vancity shows the use of payday loans in B.C. jumped 58 per cent between 2012 and 2014 to the point where nearly 200,000 adults use the service.
“The surprise for us is just how the numbers have changed so rapidly,” said Vancity senior vice-president Linda Morris. “To see payday loan usage up nearly 60 per cent [is] troubling to us.”
She said even more troubling is more people now have many loans — “people with 15 payday loans has skyrocketed by 600 per cent.”
Vancity’s report showed 5.56 per cent of this province’s adults (198,000 people) use payday loans, 5.43 per cent of Albertans, 5.42 per cent of Saskatchewan adults and 4.02 per cent of Ontario residents.
The total amount borrowed in B.C. rose to $385 million in 2014 from $318 million two years earlier, while fees and interest associated with payday loans in B.C. increased by 19 per cent to more than $84 million in 2014.
Perhaps most disturbing is the fact most people surveyed said they were relying on payday loans to meet their personal financial needs.
About 54 per cent of payday loan users in B.C. say access to emergency cash to pay for necessities is the top reason for borrowing.
“Over 50 per cent are taking them [money] out because they just can’t make ends meet, can’t pay for necessities, and B.C. has the highest level of working-aged adults in poverty. We have an issue here,” said Morris.
B.C. restricts the service charge on a payday loan to 23 per cent. In order to cut down on the use of these high-fee loans, Vancity is recommending the banking industry improve access to small, lower-interest loans.
“[People] looking for something that helps them in the short-term [and] we think there can be alternatives that not only help short-term, but in the longer-term instead of them following down a path that can hurt them,” said Morris.
Vancity launched an alternative to the payday loan in 2014 called the Vancity Fair Fast Loan. That loan allowed members to borrow small amounts and pay interest only on the period of time the loan is outstanding, unlike payday loan centres that charge the amount of interest that would be due over the course of a year.
Morris said it has done fairly well with 1,700 small loans written, which she estimates has saved nearly $4 million in fees and interest. She is hoping both Vancity and other financial institutions can find a way to expand the offering. “[Growth of payday loans] is troubling because behind these statistics are real people with challenging lives,” she said. “But we have seen we can take another approach.”
Vancity has recommended that the federal government research the industry and that the provinces should consider standardizing payday lending legislation.