SOURCE: Vancity Credit Union

Vancity Credit Union

January 28, 2016 08:30 ET

Payday Loan Usage Jumps Nearly 60% in B.C.

British Columbians Among Canada's Heaviest Users of Payday Loans

VANCOUVER, BC--(Marketwired - January 28, 2016) - The usage of payday loans in B.C. jumped 58 per cent over just two years between 2012 and 2014, says a new report released today by Vancity.

The report, Short-Term Gain, Long-Term Pain: Examining the Growing Payday Loan Industry in B.C., found that British Columbians are among Canada's highest users of payday loans. In 2014, 5.56% of British Columbia adults (more than 198,000) used payday loans, compared with 5.43% of Albertan adults, 5.42% of Saskatchewan adults, 3.89% of adult Manitobans, and 4.02% of adults in Ontario.

The report also found that British Columbians who use payday loans are relying on the product more frequently to meet their personal financial needs. Between 2012 and 2014, the number of people in B.C. with more than 15 payday loans skyrocketed by nearly 604%.

The size of the payday loan industry in B.C. (measured by the number of dollars lent) also grew to more than $385 million over that time, up from about $318 million.

Vancity commissioned the report to examine trends in the payday loan industry, measure regulatory differences and how usage in B.C. differs from the rest of Canada.

Other findings include:

  • More than half (54%) of payday loan users in B.C. say access to emergency cash to pay for necessities is the top reason for borrowing.
  • Fees and interest associated with payday loans in B.C. has grown between 2012 and 2014 by 19 per cent to more than $84 million (from $68 million).
  • Almost three-quarters (72%) of payday loan borrowers in B.C. say they would take out a payday loan if they needed $300, compared with just over half (56%) of Manitoba residents.
  • One in five payday loan users in B.C. take out between 6 and 10 payday loans in one year.
  • In the United States and Australia, about one-third of all payday loan transactions are conducted online, with online lending expected to grow substantially in Canada as well.
  • Most payday loan users in B.C. are employed and have completed post-secondary education.
  • B.C. has the highest rate of working-age people living in poverty, which along with increased unaffordability in the province, may contribute to the sharp increase of payday loan usage.

The report also notes that online lending has made it faster and easier to access payday loans, and has opened the ability for people to borrow in other jurisdictions. Younger people are also more likely to use online lenders.

Recommendations include:

  • The federal government should commission research to better understand the Canadian payday lending industry.
  • In lieu of federal legislation, provinces should consider standardizing payday lending legislation.
  • Financial institutions should provide improved access to small-dollar loans.
  • B.C. consumers are encouraged to research payday loan alternatives and use Consumer Protection BC's licensee search tool to ensure potential lenders -- including those offering online payday loans or alternatives -- are licensed.

The report follows a poll commissioned by Vancity in 2014 that found two-thirds of payday loan users in the Lower Mainland and Greater Victoria were trapped in cycle of debt. Vancity is one of the first mainstream financial institutions to offer an alternative to payday loans.

Quotes

"There is a real need for more affordable small loans to help working people in B.C. and across Canada to avoid getting stuck in a cycle of debt. All lenders need to look beyond meeting the short-term need of emergency cash to the long-term well-being of the people they serve."

- Linda Morris, Vancity senior vice-president

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Methodology

Secondary research and data analysis for this report was conducted by Thea Garon and John Thompson at the Center for Financial Services Innovation (CFSI). In addition to secondary sources, the researchers spoke with local consumer protection agencies and additional data was obtained from Consumer Protection BC. The research for this report was conducted in November and December of 2015.

About Vancity

Vancity is a values-based financial co-operative serving the needs of its more than 509,000 member-owners and their communities through 59 branches in Metro Vancouver, the Fraser Valley, Victoria, Squamish and Alert Bay. As Canada's largest community credit union, Vancity uses its $18.6 billion in assets to help improve the financial well-being of its members while at the same time helping to develop healthy communities that are socially, economically and environmentally sustainable.

Tweet us @vancity and connect with us on facebook.com/Vancity.

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