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Fast loans: an infernal spiral

Payday loan services thrive while high interest rates and high fees increase the spiral of over-indebtedness.

In less than two years, reveals Journal of Montreal, the number of companies offering loans has increased by more than 50% in Quebec. Around 217 lenders currently hold a license from the Office de la protection du consommateur (OPC), a condition for legally carrying out this activity, and 147 dealers are authorized to enter into credit agreements with interest rates of up to 35%. In 2019, the Quebec government thought it had closed the door on high-cost loans. But these companies benefit from an exception in the variable rate credit law that allows them to charge extra fees without including them in the initial calculation of the credit rate.

Money at any time

Some payday lenders have a storefront, others appear on the Internet. Everyone relies on simplicity and speed to attract customers. Their promise: to provide “money at any time”, sometimes “in less than 24 hours”, “with no proof or credit check”.

Easy access to these loans encourages many households with an insufficient credit rating to use this type of credit to get by or meet an unforeseen expense. They thus worsen their situation due to the very high rates charged by these companies.

More than 700 complaints

Often these private lenders’ contracts do not comply with the Consumer Protection Act. “Over the past year, the OPC has received more than 700 complaints for illegally billed fees, rates that exceed the legal level or questionable collection methods,” notes its spokesman, Charles Tanguay. To inflate the bill, these companies convert the loans to variable credit to legally add membership and insurance fees, which can increase the rate up to … 220%, whereas it cannot exceed 60% under the Criminal Code of Canada!

Quickly, the burden of interest to be repaid can overwhelm vulnerable people who resort to quick loans. They connect loans with different firms and sink into the spiral of debt, as noted by the Cooperative Association of Family Economy (ACEF) Rive-Sud de Montréal, which publishes a guide on financial intermediaries. In addition, the use of this type of loan can affect the credit rating and the ability to obtain financing from traditional financial institutions.

Solutions to get out

There are other solutions for straightening the rudder when the boat takes to the water. Debt consolidation, consumer proposals, voluntary payment or even bankruptcy offer the possibility, with the help of professionals in the field, to overcome certain debts in a sustainable way.

>> Read also: Debt, how to get out of it?

Households who can afford it may also consider other options, such as applying for a personal loan from their bank or requesting a salary advance from their employer, reports the website of Groupe Leblanc, an authorized insolvency practitioner, which mentions that around 40 % of its customers on the verge of bankruptcy have at least one payday loan.

Before going to the edge of the abyss, ACEF advises to carefully examine its budgetary situation. Drawing up a complete balance of expenses and income as well as the various debts and their interest makes it possible to see more clearly in one’s finances and avoid sinking even deeper into debt by resorting to payday loans.

>> To also read: Some tips for paying off your debt and budgeting: resources to help you

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