Alternative Consumer Credit Market (in French only)

Author

Luc Rochefort

Organization

Union des consommateurs

Published

2006

Summary

Among the most disadvantaged households, who, often, lack access to traditional forms of credit, the vicious cycle of debt may be linked to certain alternative sources of credit. The term “alternative sources of credit” refers to payday lending, cheque cashing services, pawnbroking, etc. In recent years, between 1 and 1.4 million Canadians may have had recourse to these types of credit, which may have annual interest rates exceeding 1,000%. Based on the studies they’ve conducted, consumer associations denounce the abuses committed in this credit industry. While not subject to specific regulation, the parallel small loans market is, however, subject to Section 347 of the Criminal Code, which stipulates a maximum interest rate of 60%, beyond which a loan qualifies as usury, an illegal practice. Although interest rates exceeding these limits do exist, prosecution is extremely rare. In this study, we devoted particular attention to two services offered by the “alternative” banking sector: cheque cashing and, especially, payday lending. The first part of our report provides an overview of the issues and existing research pertaining to the parallel small loans market and, more specifically, the industry’s avid interest in the users of payday lending services. The second part presents the results of our field research, in which 300 interviews were done just outside of payday lending and cheque cashing establishments in Montreal, Ottawa and Vancouver (100 per city), in order to draw a portrait of the users of such services. Finally, the 3rd part presents a rapid overview of the existing alternatives to payday lending in Canada and elsewhere.

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OCA Funded Research
This research received funding support through the Office of Consumer Affairs' Contributions Program.

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Source: Consumer Policy Research Database