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.”
Before making a purchasing decision, consumers who are considering a payday loans may benefit from information provided by the Financial Consumer Agency of Canada (FCAC) at: http://www.fcac-acfc.gc.ca/Eng/resources/publications/creditLoans/Pages/PaydayLo-Precirct-4.aspx
Consumers seeking to improve their financial security and avoid high cost borrowing should consider credit counseling. FCAC also provides information for consumers seeking to find a credit counselor: http://www.fcac-acfc.gc.ca/Eng/resources/publications/budgeting/Pages/GettingH-Obtenirl.aspx
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.