A new study released by Vancity says that usage of payday loans in B.C. jumped 58% between 2012 and 2014. This is a shocking statistic given that payday loans can charge an annual rate of 600%. The study determined that British Columbians are among Canada’s highest users of payday loans with more than half (54%) of payday loan users in B.C. saying access to emergency cash to pay for necessities is the top reason for borrowing this way.
Vancity is at the forefront in challenging the explosive growth of the payday loans industry in Canada. In 2014 Vancity launched the “Fair & Fast Loan” to its credit union members in amounts up to $1,500, and borrowers can take up to two years to pay back the loan, rather than the traditional two-month term of most payday loans providers. This has the added advantage of allowing a credit rating to be built up. Given that one in five payday loan users in B.C. take out between 6 and 10 payday loans in one year, this is a type of credit that has been underserved by financial institutions, including credit unions.
The Fair & Fast Loan charges a 19% annual rate, or APR, well below the nearly 600% APR charged by some payday lenders for the same loan. Canadian payday lenders have faced criticism in recent years from government officials and other groups that said the lenders prey on customers with bad credit.