Since the collapse in the price of oil, a few regions in Canada have faced an economic crisis. Alberta, the once oil-rich behemoth that generated enormous revenues for the province and the federal government, is now a wasteland looking to recuperate from the immense losses.
Over the last 18 months, there have been numerous horror stories occurring from Edmonton to Calgary, from Fort Vermilion to Red Deer. Most of the tales consist of families looking to sell their homes, households going into debt and unprecedented cases of bankruptcies. Akin to other oil-rich nations and states, Alberta has been Canada’s biggest victim in the oil price drop.
With many Albertans in financial destitute, numerous services have been booming. One of them is the payday loan industry. As Albertan consumers now live paycheck to paycheck and are on the brink of a personal collapse, they are desperate for funds. Lenders in partnership with lead aggregators are “raking in the dough”. If a light bill is due or the car breaks down then they may have to turn to a payday loan store in their community.
Canadian authorities are concerned that a large number of Canadians will set themselves up for an endless cycle of debt. Officials warn payday loans come with excessive interest rates, exorbitant fees and other costs that prompt customers to return for the second or third time. This is why the Financial Consumer Agency of Canada will initiate an investigation into the industry.
“From my perspective, it’s always been a concern,” said Brigitte Goulard, deputy commissioner of the FCAC, in an interview with the Globe and Mail. She added that the watchdog organization will release the results from its pending investigation into what she refers to as “predatory” payday lending and how the industry may or may not impact Canadian consumers.
At the same time, several provinces, including Alberta, will review current regulations. With 20,000 job losses last year and a large increase in bank loan defaults, Alberta New Democratic Party Cabinet Minister Stephanie McLean is concerned that the province’s economic recession will encourage Albertans to turn to alternative financial services, especially payday loans.
“There is a unique vulnerability at the moment given the economic environment and predators take advantage of such vulnerability, so I do have significant concerns about an increase in the uptake of these loan products,” McLean told the newspaper.
Despite the fact that a majority of payday loan customers are low-income, it’s reported that oil workers, who made incredible livings just two years ago, are resorting to payday loans. A part of the reason is because they have usually maxed out their credit cards and lines of credit.
Last week, the Ontario Government announced that it would be accepting feedback from the general public regarding lower rates for payday loans and new consumer protections. Meanwhile, municipalities across the province are proposing their own regulations.
In the last few years, Canada has seen a surge in the number of payday loan businesses. With an estimated 1,400 stores now open, about two million Canadians take out a payday loan per year. Critics say it places consumers at risk of being deeply indebted, while proponents present the case that there is a demand for payday loans and it helps those without access to credit.