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Canadians enjoy little protection against the high prices and sales practices of instalment lenders, whose loans challenge legal expectations, a just-released Consumers Council of Canada research report found.

Consumers, business, government and elected officials are all strained to know what the law expects and interpretations vary widely, the report found. However, some business practices observed across Canada appeared similar to those that prompted a cease and desist order issued September 13, 2017, by the British Columbia Superintendent of Financial Institutions against Western Life Assurance Company, Venue Financial Lt.d and Cashco Financial Inc.

As part of the research, the Council sent representatives to the premises of 93 instalment lenders across Canada and the websites of leading online lenders to conduct sales practices audits, to determine what takes place in practice.

Lenders engaged in a number of practices which placed consumers at a disadvantage, the research found.

Many lenders embed optional charges in quoted periodic repayment amounts, but leave it out of interest rate calculations. These charges often add 50% or more to the total amount repaid.

The audits identified that lenders frequently choose long loan durations, subtly inflate borrowed amounts, mis-inform borrowers about how interest rates work and can improperly adjust payment amounts for more frequent repayments, resulting in borrowers paying interest at higher rates than disclosed. The effectiveness of required contractual disclosures is blunted by industry practices that often prevent consumers from viewing the contract until they decide to take out the loan.

"Consumers would be better protected if there was some clarity about the Criminal Code usury limit," said Consumers Council of Canada President Don Mercer. "Most lenders price to this limit. Provincial governments should look seriously at licensing lenders, adding a suitability test for borrowers and limiting optional charges."

The report recommends that federal consumer literacy initiatives could address more directly the scenarios that lead to high-interest borrowing, and help consumers identify alternatives.

"The need to help Canadians better understand credit and fair terms for obtaining it is urgent," said Mercer. "The research found reason to fear Canadians are more commonly turning to expensive instalment loans without knowing the associated terms and conditions of agreements."

Consumers Council of Canada has received funding from Innovation, Science and Economic Development Canada’s Contributions Program for Non-profit Consumer and Voluntary Organizations. The views expressed in this report are not necessarily those of Innovation, Science and Economic Development Canada or the Government of Canada.

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