Small Consumer Loans: What to Do? (in French only)

Author

Sophie Roussin

Organization

Union des consommateurs

Published

2009

Summary

In recent years, the traditional financial institutions have withdrawn from the small loans market, thus leaving the door open to the parallel market of consumer credit, which has seen phenomenal growth. This parallel market gives consumers access to short-term credit (loan sharks, payday lenders, etc.) and makes credit available to people who otherwise would probably not have access to it (bad credit record, no bank account, etc.). The present study identifies and examines alternatives that might be offered to consumers to give them adequate access to small loans without their having to use the parallel market of consumer credit. The first chapter draws a portrait of the current situation, including an evaluation of the small loans market and of consumers’ need for small loans. The following points are discussed in turn: the disappearance of small loans from the traditional financial institutions; the consequences of that disappearance for consumers; the emergence of a parallel consumer credit market; and the consumer need for small loans. This chapter examines the overall need for small loans and cites a case study based on thirty budget consultation files assembled by four Associations coopératives d’économie familiale (ACEFs) across Quebec; the study attempted to identify consumer needs and their sources. The disappearance of small loans from the traditional financial institutions, and the flourishing of a parallel consumer credit market, is not limited to Canada. We observe it in many other countries. Various alternatives have been implemented to extend small loans to consumers: legislative initiatives and programs offered by cooperatives, municipalities, communities, financial institutions, etc.
The second chapter reviews measures and programs established in Canada and abroad (United States, United Kingdom, France and Belgium) to give consumers access to small loans. A more in-depth examination is made of a Quebec program in which consumer rights associations participate - Desjardins Mutual Aid Funds. The third and final chapter presents solutions that should be advocated in Canada. The best programs or practices observed are discussed, along with restrictions to the implementation of those programs in Canada. Currently, the major financial institutions, with the exception of Desjardins, don’t appear willing to assume their social responsibility and re-enter the small loans sector. Setting up palliative programs therefore seems necessary in the short term, particularly to slow the development of the parallel consumer credit market; the latter is contributing to the impoverishment of consumers forced to use it, and it is locking them in a cycle of debt that eventually leads many of them to irreversible debt overload, and even bankruptcy. Based on the budget consultation files gathered in ACEFs and on the assessment in those files of the need for small loans, our study leads us to conclude that certain initiatives appear more likely than others to meet consumer needs. The report concludes with recommendations addressed to the federal and provincial governments, particularly regarding an intervention that would compel all financial institutions to meet the credit needs of middle and low-income populations. Recommendations are also issued to establish various small loans programs that would meet consumer needs until the financial institutions fill this niche.

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French only

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

Contact information

Source: Consumer Policy Research Database