Two-thirds of payday loan users in the Lower Mainland and Greater Victoria resort to the high-cost lenders at least three times a year, according to a new poll.
The Insights West survey was conducted for Vancity Credit Union, which has launched its own lower cost loan offering for payday loan users.
The poll found 35 per cent of users took out payday loans at least once a month, while another 32 per cent said a few times per year.
The main reasons given were having an unexpected expense, getting behind on bills or because a debt came due.
Insights West vice-president Mario Canseco said he was surprised by the frequent use of high-cost payday loans among those surveyed.
“There’s no light at the end of the tunnel if you’re relying on these services several times a year,” he said. “You may be happy you’ve subdued some of the debts you have, but down the road it’s really going to get you.”
More than 100,000 B.C. residents – about three per cent of the adult population – took out 800,000 payday loans in 2013, according to Consumer Protection B.C.
Vancity vice-president Linda Morris said the credit union’s new Fair & Fast Loan is a low-cost alternative to help members who might otherwise turn to payday loans get out of the cycle of debt and rebuild their credit history.
Members can borrow $300 for a minimum two-month term and pay it off after two weeks at a total cost of $2.20, equivalent to a 19 per cent annual interest rate.
In contrast, B.C. legislation lets payday lenders could charge a maximum of $69 on the same $300 loan, equivalent to a 600 per cent annual interest rate.
The maximum Vancity will loan is $1,500 and the ability to repay over two years in addition to the credit union’s more lenient approval criteria is pitched as a way for borrowers in financial trouble to repair damaged credit ratings.
Ernie Bodrogi, a credit counsellor in Burnaby at Credit Counsellors of B.C., said provincial legislation passed five years ago to rein in predatory payday lenders has done little to stop the problem.
“The fees are astronomical and they still are after the legislation,” he said. “I see very expensive products coming across my desk and folks that have no chance of repaying it.”
But Bodrogi isn’t convinced Vancity’s offer of kinder, gentler payday lending is the answer.
He questions what would stop someone from getting the Vancity loan and then also using other payday lenders.
“It’s the serial borrowing that’s the problem,” Bodrogi said. “People go into one place, then they go down the street to get some more, then they go to a third one to pay off the first one.”
He said more borrowing should never be a central strategy to solving financial woes.