Opinion: Budget a chance for Ottawa to reverse course on misguided lending cap
Tucked away in the depths of last year’s federal budget, the federal government outlined bold plans to crack down on payday lenders — but instead, they’ve gone after Canada’s non-prime lenders.
Reputable non-prime lenders support Canadians with imperfect credit to raise their scores and access better loans. Payday lenders charge unregulated, predatory rates, that drive consumers into a deep cycle of debt.
The government’s goal led to an ill-informed decision to cap the amount of interest lenders can charge Canadians at 35 per cent. Of course, at first blush the proposal seems reasonable. But unfortunately, the government failed to do their homework.
Over the past 12 months, academics, law enforcement, think tanks and industry representatives have poured over the proposal in detail. All reached the same conclusion: capping interest rates would do nothing to lower costs for Canadians. Instead, it will cut people off from the regulated financial sector and drive them into the hands of predatory and illegal lenders.
Research from Ernst & Young and the C.D. Howe Institute shows more than two million Canadians are at risk of losing access to a regulated loan as a result of these changes. The harsh reality is that Canadians with low or no credit, simply will not qualify at rates below 35 per cent. Just as car insurance companies charge more to insure a newly licensed driver or someone who has been in an accident, lenders must account for borrowers with no credit history, or a low credit score.
People in need of these loans, which are often less than $1,000, have already been turned away by corner banks. Non-prime alternative lenders offer them somewhere to turn when faced with an unexpected car repair or an emergency visit to
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