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Beyond Payday Lending

For the past several years Momentum has partnered with residents, community agencies, financial institutions, and government to bring about payday lending reform. The result of this collaboration is exciting: in 2016, both the City of Calgary and the Government of Alberta introduced significant changes to the rules that apply to payday lenders. You can read about these changes here. Credit unions are also taking the initiative to develop more affordable and accessible short-term credit options. This reform is cause for celebration, and we can also build upon this success.
High-Cost Alternative Financial Services
Through the research into payday lending, it was discovered that a variety of high-cost credit options exist in our city—many of which merit the same level of concern as payday loans. These products and services include title loans, instalment loans, pawn loans, rent-to-own financing, cheque cashing, and sub-prime and extended-term auto loans. With interest rates that can meet or exceed the 60% Criminal Code maximum, added fees, lengthy terms, and unreasonable conditions, many of these alternatives are expensive and unsafe. As was the case with payday loans, high-cost alternative financial services often leave borrowers trapped in debt, making it more difficult for an individual to maintain positive financial health or exit poverty.
In speaking with Calgarians, we discovered that many people turn to these high-cost alternative financial services for the same reasons they take out payday loans: when they need a quick fix for a financial problem, or if they are unable to obtain a loan at a bank. Though the costs and conditions of many of these products are alarming and unfair, we have learned that for many Calgarians they are the only option.
Consider Margaret’s experience
Finding it increasingly difficult to take laundry for four people on transit, Margaret told us that she initially went to a rent-to-own store to find a washer and dryer. At first, she could keep up with weekly payments, and she was grateful for how much easier day-to-day tasks were with a washer and dryer at home. However, as weeks passed she began to struggle with payments. This was stressful for Margaret, as she was also feeling increasingly anxious about making ends meet. Margaret eventually decided to pawn the washer and dryer to ensure that she could afford to put food on the table in between Income Support payments. She is now scrambling to save enough money to pay back the pawn loan, while continuing to make weekly payments to the rent-to-own store. This has left her stressed, in worse financial health, and with the same problem she had in the first place: carrying laundry for four people on public transit.
Policy options
With the intention of building on the payday lending successes achieved in 2016, Momentum’s Public Policy team has spent the past six months researching the high-cost alternative financial products mentioned above. We are excited to share with you the following publications, which are the product of this research:
Summary Brief
Issues and Impact
Customer Experience
Momentum is now working to develop a series of policy recommendations for all three levels of government, which we will publish in a fourth report this fall. It is our hope that changes to the rules that govern high-cost lenders will strengthen consumer protection for Alberta’s most vulnerable borrowers, many of whom live in poverty. We would be happy to connect with you if you have any suggestions or a perspective to share.

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