In less than two years, the number of private quick loan services has increased by 52% in Quebec. Today, cash-strapped Quebecers can obtain financing from a network of 145 lenders at interest rates of 35%.
Since the implementation of a specific permit for high-cost credit in 2019, the number of lenders in business in Quebec has increased sharply. At the end of 2020, the Consumer Protection Office (OPC) counted 95 permits. There are now 145, or 52% more.
“Obviously there is going to be a big growth because people are struggling to make ends meet. The more people will be in financial difficulty, the more these companies will be able to profit from it,” said Pierre Fortin, president of trustee in bankruptcy Jean Fortin et Associés.
A fast loan company based on the South Shore of Montreal contacted by telephone confirms the increase in the use of fast loans: “The requests are higher, that's for sure”, says Pascal Boivin, sales representative for Prêt Fidèle.
People who turn to these credits are often badly taken and desperate. They need money quickly to pay off other debts already incurred or meet an unexpected expense and do not have access to financial institutions, credit cards and lines. “Often it's bankruptcies, credit losses, divorces, or illness,” explains Mr. Boivin. often make the debt situation worse. “He really is a plaster on the bobo. The sad thing about doing that is that they just get bogged down more,” comments Mr. Fortin, from the bankruptcy trustee. The expert affirms that on the contrary it is often necessary to reduce its debt to be able to get out of the trouble.
Eight loans at the same time
“The problem with these loans is that if you take one, you will take others. People go to one lender, then to another and so on,” says Sophie Desautels, financial recovery specialist at Raymond Chabot Inc.
“When you're really at your wit's end, and all that matters is feeding your family, you're going to get yourself a $750 loan. But then another glitch occurs. You go get yourself another loan to pay off the first one, and the wheel clicks into place. Most have two or three, but I've seen a few in the last year that have up to eight ready! she adds.
“We've helped millions of Canadians like you when the banks turned their backs on them. […] We can get you the loan you need today. […] Our goal is to help you improve your credit”, can we read on the Easyfinancière website.
The high-cost loan company has 29 branches in Quebec and promotes its services enticingly on the radio. However, when you go to its website, the bill announced is salty to say the least: 35% interest for personal loans. And it increases after doing the online simulation.
For $5,000 borrowed over 24 months, the bimonthly payment is $156. At the end of the 24 months, without any late payment, the borrower will have finally paid $8,139, or 63% more than the capital borrowed. In small print, we can read that insurance is added.
Other companies like Easyfinancière are well established and offer loans up to $50,000. But the market also has a multitude of small lenders, whose activity is done entirely online. The Diarytried to meet several players. Well-established institutions refused to answer us this week. As for the smaller lenders, no employees worked at the address of their offices indicated on the internet.
A vacuum created by the banks
If companies of this type abound, it is because demand is increasing and banks have, over the years, abandoned low- or less-profitable activities within their organization.
“The granting of loans for smaller amounts is obviously all the less profitable as the cost of this service is proportionally higher. If financial institutions continue to offer certain types of loans, they do so more for customers who are likely to obtain other products that are more profitable for them. Customers with lower incomes or with less assets are therefore left behind, while the offers of small loans have practically disappeared from the range of services offered by financial institutions”, can we read in a brief filed by the Union des consommateurs within the framework of the Consultation on the fight against predatory loans of the Ministère des Finances, which was held from August 9 to October 7, 2022.
The advocacy organization of consumers “argues that it is the social responsibility of these institutions, whose profitability is in no way at risk, to provide universal access to small loans to Canadians who need them”.
– With the collaboration of Sylvain Larocque
Interest rates of up to 200%
Only three years after the new provisions of the Consumer Protection Act came into force, several high-cost loan companies have found subterfuge to charge rates of up to 200%, and the complaints keep pouring in.
Sabrina Douwis worked in reception and investigations for the company Micro-Prêt, which no longer exists. “The person in charge of the company is returned to prison. He scammed everyone he asked for loans and invested the money in cryptocurrencies and hard-to-trace places. But it didn't end well for him. »
Fear for his safety
It is often difficult to obtain the address of a lending company. The reason is simple, according to Sabrina Douwis. “We don't want to see them, the customers! Everything is done over the phone. I received death threats. If people had come to see me, I wouldn't have tripped. Even my surname I did not give. Often I invented one because I did not want to be found. It's a matter of security. »
The company's collection methods were also questionable. Often, there were no funds in the clients' account. “We found a way to get our money directly from their pay, even if we weren’t allowed to do that. My boss called the employer, and it worked a few times,” she says.
Clients are also sometimes “crooked,” she adds. Many falsify their bank accounts or lie about their identity to obtain a loan.
Multitude of complaints
In the past, lenders were already using several subterfuges to add hidden costs and increase the already steep bill.
“Administratively, we consider that 35% is the ceiling of the rates that they can claim in their contract, explains Charles Tanguay, spokesperson for the Office of consumer protection (OPC). For a long time it was said: “I am not the one charging the $400, it is a loan broker, so you have to pay the broker.” But for us it was window dressing. »
In 2019, the government decides to close the door. High-cost lenders must now obtain a license from the OPC and include in their rate calculation all fees charged to the client.
“We thought we had plugged that hole. But they invented the idea that you can charge fees when you do variable credit,” adds Mr. Tanguay. There is an exception in the legislation for variable credit to accommodate credit cards that charge an annual fee. It is therefore not necessary to have a permit to make variable credit and you can charge additional fees without including them in the calculation of the credit rate.
Some very high cost lenders have understood this and have started to say that they do variable credit.
Guylaine Fauteux is a budget advisor at ACEF Lanaudière. She regularly helps people who have used high cost loans. And examples of abusive or dubious contracts, she has several.
For a loan of only $900, one of his clients was charged no less than $24 in membership fees per week. The lender claimed to do variable credit. Thus, in addition to an already very high interest rate, the borrower paid 12% monthly in membership fees.
Another example, this time for higher loans. One of Ms. Fauteux's clients had borrowed $7,000 at 35% interest. “The person hadn't realized, but the company had added a $4,000 insurance premium and over $1,000 of other costs. »
The budget advisor doubts that the information is properly transmitted to clients.
Complaints to the OPC regarding loan money have not faltered despite the new law. Between April 1, 2017 and March 31, 2018, the OPC had received 728 money lending complaints. After the legislative change, the Office still counted 803 complaints in 2020-2021 and 704 complaints in 2021-2022.
Mr. Tanguay affirms that the OPC is aware of these issues and ensures that it conducts audits and investigations. Several criminal proceedings are also underway. “It is a permanent concern […]. We are aware that it is really to abuse the most vulnerable people ”. According to its spokesperson, the OPC will make suggestions to the government to change the law and plug the holes.
EXAMPLES OF COMPLAINTS
Invoice for $5,000 insurance, which the person never asked for, on a $12,000 loan.
Pre-authorized debits in the customer's bank account, without his consent.
Voluntary confusion about the amount to be repaid monthly, so that at the end of the year an unpaid balance, which allows the company to charge interest charges of a few hundred dollars during the following year.
Wrong amounts, debited on the wrong dates.
Loans much higher than requested.
Abusive charges of any kind and difficulty in obtaining account statements.
Source: Office de la protection du consommateur
Ottawa could change interest rate deemed criminal
The federal government wants to fight predatory loans, as announced in the 2021 budget. To this end, it has launched a consultation on the reduction of the criminal rate provided for in the Criminal Code of Canada, which applies in particular to loans offered by payday loan companies.
David Descôteaux, Le Journal de Montréal
In 1980, the Canadian government, for the first time, defined in section 347 of the Criminal Code the criminal interest rate. This rate, which stands at 60%, has not changed since.
Here is what Ottawa must take into account in its reflection.
Should the criminal interest rate be fixed or should it be based on prevailing market conditions?
Why do consumers of financial products and services access high-cost installment loans?
What impact would lowering the criminal interest rate have on the availability of credit for consumers of commodities and financial services that use high cost installment loans?
The lenders' lobby reacts
Consumer advocacy groups put forward their points of view, but also the Canadian Lenders Association (CLA), which “supports the growth of banking and non-banking businesses that are in the lending business.”
In its brief, the organization argues, among other things, that if the government's intention is to protect Canadians from predatory lending, it would be counterproductive to eliminate access to middle market loans, when consumers rely on access to credit for their day-to-day financial needs.
“The need and demand for credit will not decrease, but many consumers will be forced to turn to less desirable and more expensive, even illegal”, can we read in the brief filed by the CLA. “There are many ways to help Canadians, but reducing the maximum interest rate allowed in the Criminal Code of Canada will have unintended consequences that will hurt more Canadians than it helps,” warns the Minister. organization.
The consultation was organized from August 9 to October 7, 2022.
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Katrine Johns has been a reporter on the news desk since 2013. Before that she wrote about young adolescence and family dynamics for Styles and was the legal affairs correspondent for the Metro desk. Before joining The Gal Post, Katrine Johns worked as a staff writer at the Village Voice and a freelancer for Newsday, The Wall Street Journal, GQ and Mirabella. To get in touch, contact me through my firstname.lastname@example.org 1-800-268-7128