A payday loan is a cash advance on a paycheque or government assistance like the Canada Emergency Response Benefit (CERB). All you need is a pay stub (or proof of income), an address, and bank account information. It can be done online and can take just a few minutes.
But they are the most expensive credit available. According to the U.S. Consumer Financial Protection Bureau, interest charged on these loans over a year ranges from 260 to 780 percent. A recent report by the think tank Canadian Centre of Policy Alternatives (CCPA) shows that payday lenders charge the maximum they can get away with under provincial laws—up to 652 percent over a year in Prince Edward Island and 391 percent interest over a year in Ontario, Alberta, British Columbia, and New Brunswick.
In the U.S., the short-term loan industry is just as lucrative. In 2015 payday borrowers, often people with bad credit or few options, paid more than $60 billion in fees and interest. Things are even worse under President Donald Trump, who rolled back consumer protections and gutted the federal agency tasked with fighting predatory lending.
Younger people are often more likely to have a payday loan than older debtors. In one survey of Ontarians by the insolvency firm Hoyes Michalos, people ages 18-29 used payday loans more than any other age group. The same survey found that early half of those under 30 who file for bankruptcy or insolvency—meaning they’re broke and have no other financial options—have payday debt.
And now, amid the coronavirus pandemic, consumer advocates warn of a debt storm brewing as millions of financially desperate people look for ways to stay afloat. There’s an opportunity for fast-cash and payday lenders stand to make even more because they’re considered essential services. Unlike banks and credit card companies that have lowered interest rates on loans and credit and are offering deferral options, payday lenders are, for the most part, running their businesses as usual.
Guaranteed Loans in the U.S. is still charging as much as 780 percent interest over a year for a 2-week payday loan. In Prince Edward Island, iCash is still advertising as much as 650 percent interest a year.
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