Payday lending
An online payday loan is a short-term, small-dollar loan (up to $1,500) provided by a non-traditional service provider that is financial. It really is built to bridge a debtor through a money shortfall until their payday that is next usually the loan needs to be paid back in complete.
Their prices are typically according to a collection dollar quantity per $100 borrowed—for instance, $21 per $100, which represents a percentage that is annual (APR) of 546 %. Footnote 4 the most set-dollar that is allowable differs among the provinces that regulate pay day loans. Borrowers whom cannot repay their loans in complete as well as on time may face extra fees—including charges and non-sufficient-funds fees.
Regardless of the costs that are high more Canadians are switching to payday advances. In 2014, four per cent of Canadian adults reported that their home resorted to a loan that is payday the last 12 months, up from 2 % last year. Footnote 5 The Canadian Payday Loan Association states that nearly 2 million Canadians utilize pay day loans each year. Footnote 6
The Criminal Code causes it to be a unlawful offense to charge a lot more than 60 % interest annually. Footnote 7 nonetheless, in addition it offers up an exclusion, where provinces decide to control payday advances. Many provinces have actually used customer security measures such as for instance:
- restricting rollovers and concurrent loans
- ensuring complete and accurate disclosure of agreement terms
- permitting borrowers cancel brand new loans penalty-free within one working day
- needing a complaint resolution mechanism that is independent
- adopting appropriate debt-collection techniques
Provincial governments are continuing to adapt their regulatory frameworks as the market evolves.
3.2. Survey methodology
Into the spring of 2016, FCAC carried out a nationwide study of 1,500 loan that is payday. Footnote 8 participants had been 18 years old or older along with used a loan that is payday the prior 36 months. The 63-question study had been conducted online in both formal languages. The entire report that is methodological available through Library and Archives Canada. Footnote 9
Participants were arbitrarily chosen from the pool that is broad of who volunteer to take part in web surveys. While these study outcomes may not be generalized to all or any pay day loan users, meaningful conclusions may be drawn with this test. Web surveys have grown to be prevalent in Canada, and findings have already been proven to generalize well. Footnote 10 nevertheless, one of many downsides of experiencing participants report to their very own behavior in studies is their reactions might not be completely accurate.
4. Research findings
4.1. Demographics
Many borrowers inside our sample were of working age.
Figure 1: Respondent age bracket
| Respondent age group | per cent |
|---|---|
| 18-24 | 6 |
| 25-34 | 24 |
| 35-44 | 27 |
| 45-54 | 21 |
| 55-59 | 10 |
| 60-64 | 7 |
| 65+ | 6 |
As shown in Figure 1, 72 per cent of participants were between 25 and 54 years old. Eighty-three % 
lived in a metropolitan area, and 55 % rented their house (while 32 per cent owned a house with home financing and nine percent owned one without a home loan.)
More participants had incomes that are low-to-moderate.
Figure 2: Domestic earnings
| home income | % |
|---|---|
| not as much as $32K | 28 |
| $32K – |
As shown in Figure 2, over 50 per cent lived in households with yearly incomes under $55,000, and over 70 per cent lived in households with incomes under $80,000. Nevertheless, 20 per cent reported home incomes surpassing $80,000, with seven per cent over $120,000, demonstrating that cash advance use just isn’t limited to low-income Canadians. Footnote 11
This demographic information will assist FCAC to tailor academic resources.
4.2. Understanding expenses
Pay day loans can be a way that is expensive borrow funds. As shown in Figure 3 Footnote 12 , they’ve been a lot more costly than many other credit that is short-term.