Federal government to cut off access to loans for millions of Canadians
Changes to drive borrowers to payday and illegal lenders
OTTAWA, ON, Jan. 29, 2024 /CNW/ - In response to customer outcry, the Canadian Lenders Association is calling on the federal government to pause changes to the maximum allowable rate of interest which will result in millions of Canadians losing access to loans from regulated lenders. These changes are expected to hurt families and drive them towards predatory or illegal lenders.
"Lowering the allowable rate of interest will force lenders to deny millions of borrowers access to a loan," said Gary Schwartz, President and Chief Executive Office of the Canadian Lenders Association (CLA). "Canadians turn to non-prime lenders because they are looking to rebuild their credit – but now they won't even have that chance."
In recent weeks, CLA non-prime members have heard from nearly 30,000 borrowers who are concerned they will lose access to credit. To support them, the CLA has launched a campaign to highlight their stories and shed light on the almost 5 million Canadians who could lose access to regulated and licensed sources of credit.
"These changes will punish Canadians who are not able to get credit from banks," continued Schwartz. "Maybe they're new to Canada. Maybe they had a tumultuous life event. Maybe they just need a second chance. Whatever the reason, these loans are key to building their credit and securing alternative options."
More than one-in-four Canadians rely on these non-prime sources of credit and 92 per cent of those who use them do so primarily to pay bills and other essential expenses.
The government's policy will have unintended negative consequences for these Canadians who are already feeling the squeeze. From deciding between paying their rent and putting food on the table, to turning to payday loans or even loan sharks, Canadians will be faced with impossible choices to support their families.
The CLA is looking for urgent cooperation from government to avoid eliminating credit for millions of Canadians.
For more information, please visit www.butnowwhat.ca and add your voice to help ensure the government does not close the door on your financial future.
- In Canada, nearly 8.5 million Canadians are considered non-prime borrowers, resulting in more than one-in-four Canadians not meeting the threshold of eligibility for credit from a traditional financial institution.
- Many non-prime Canadians rely on these non-prime sources of credit and 92 per cent of those who use them do so primarily to pay bills and other essential expenses.
- The Liberal plan to lower the maximum allowable rate of interest to 35 per cent will hit almost 5 million Canadians. But the government is consulting on reducing the rate even further, which could see up to 8 million Canadians lose access to credit.
- CLA members have already informed more than 1 million borrowers of these changes, advising them they may lose access to credit as a result.
- Most non-prime borrowers use the credit for essentials, such as paying bills, car or home repairs, health-care expenses, etc.
- Under the existing maximum interest rates, nearly half (45 per cent) of non-prime borrowers have been denied access to credit loans over the past year by traditional financial institutions, such as big banks.
- According to a study done by the Centre for Social Justice in the United Kingdom, 80 per cent of loan shark victims were originally denied access to credit from legal and licensed sources.
- Non-prime loans are not payday loans. Unlike payday loans, non-prime loans are regulated through federal law, have a longer window to be paid back, and help consumers rebuild their credit.
- Restricting access to credit for non-prime Canadians could remove up to $186 billion of consumer spending from the Canadian economy.
The Canadian Lenders Association (CLA) supports the growth of bank and non-bank companies that are in the business of lending. We also support lending adjacent sectors including BaaS, Core Banking, Open Banking, DE&I and Sustainable Finance Frameworks. We currently represent and advocate for over 300 companies across Canada that participate in SMB, consumer, home, equipment, automotive and mortgage financing. The CLA does not represent the Payday lending sector.
SOURCE Canadian Lenders Association
Media contact: Daniele Medlej, [email protected]
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