TORONTO – Canadians seeking to find sources of payday loans or arrange a payday loan online over the Internet are more likely to encounter unlicensed lenders than a licensed compliant lender, according to a research study by the Consumers Council of Canada.
A number of unlicensed lenders request that borrowers provide personal banking information -- account numbers, online passwords and answers to security questions -- that would provide direct access to the borrower's bank account. Many also claim to be compliant with all the requirements of legislation, but clearly are not in compliance.
The study evaluated payday loans websites from the consumer perspective in each of Canada's provinces and the Yukon Territory. Researchers used common searches to identify providers, and completed applications up to the point of acceptance. Sites were evaluated on more than 50 different criteria, most importantly whether they were licensed to provide payday loans to residents of that specific province. (Six Canadian provinces have functioning laws that govern the industry; two others have passed laws that have yet to take effect.) The growing threat posed by unlicensed lenders has been the focus of recent provincial reviews in Manitoba, Ontario and Nova Scotia.
Other key findings from the Consumers Council of Canada study:
To the extent the research could determine, licensed lenders show a high level of compliance with regulations, while unlicensed lenders show virtually no compliance with regulations.
In provinces without regulation, consumers who seek a payday loan online are likely to encounter only the least compliant and least consumer-friendly lenders.
For consumers in most provinces, unlicensed lenders have the dominant presence in the online marketplace. Consumers are much more likely to encounter unlicensed lenders, and until they encounter a licensed one, may not even be aware of their province’s licensing requirements.
Many unlicensed lenders use paid search advertising to promote their services to online consumers.
"As the payday loan industry increasingly moves online, consumers need to avoid additional risks that come from contracting with unlicensed lenders, particularly those that seek direct access to a borrower's bank account," said Consumers Council of Canada President Aubrey LeBlanc: "Payday loan customers take on new, extraordinarily high costs to meet short-term financial needs. A consumer who finds themselves repeatedly using a payday loan within a year should consider this a signal to obtain good quality, trusted credit counselling and other advice about how to manage their financial future."
The Council’s report includes a number of recommendations to improve consumer protection in the industry.
The Consumers Council of Canada has received funding from Industry Canada’s Contributions Program for Non-profit Consumer and Voluntary Organizations. The views expressed in the Council’s report are not necessarily those of Industry Canada or the Government of Canada.
The Consumers Council of Canada is pleased to announce its participation in the Canadian Partnership for Public Policy-Oriented Consumer Interest Research, which will develop a Canadian interdisciplinary network of researchers and practitioners interested in consumer interest research and to support the conduct and dissemination of such research.
The partnership has an end objective to improve public policy approaches to the well-being of consumers. Partnership activities will focus on:
Conducting rigorous policy-oriented research to benefit Canada and its consumers;
Training graduate students to help build the next generation of PPOCIR expertise; and,
Sharing PPOCIR results broadly with both academic and non-academic audiences.
The project unites a multidisciplinary group of academics from universities across Canada. It involves partners from major federal and provincial government organizations with responsibilities for consumer policy, Canada's main consumer groups, and private sector representatives. A complete list of members is available on the PPOCIR Partnership website, at http://ppocir.uwaterloo.ca.
The PPOCIR initiative is supported by the Social Sciences and Humanities Research Council through a Partnership Development Grant.