A new research report by the Conference Board of Canada states that “despite its unfavourable reputation, the licensed payday loans industry provides a necessary service for cash-strapped Canadians who lack access to alternate sources of credit in times of need.” Commenting on the regulatory environment of the industry, the Conference Board of Canada notes that “placing inappropriate regulations on the industry may reduce access to credit for the financially vulnerable.”

The executive summary of a new report by the Conference Board of Canada, Canadian Consumer Finance Association: Filling the Gap – Canada’s Payday Lenders, released today, states that “imposing inappropriate regulatory requirements on an industry that is already significantly regulated may only serve to reduce access to credit for a financially vulnerable segment of the population.”

The Conference Board of Canada’s executive summary continues to state that “provincial legislation governing the licensed payday loans industry in Canada provides considerable safeguards against the exploitation of households.”

Instead of tightening regulation, “a public policy approach favouring consumer education is advised… Distinguishing licensed online payday loan lenders from illegal lenders would be a critical step towards protecting the financial welfare of Canadian payday loan borrowers, and deterring the growth in unscrupulous, unregulated channels,” the Conference Board of Canada writes.

Imperfect payday loan substitutes

The executive summary of Filling the Gaps – Canada’s Payday Lenders notes that “imperfect payday loan substitutes… include illegal online lenders or more expensive, regulated forms of short-term credit such as overdraft fees, late bill payment fees, and service cancellation fees.”

In 2014, the licensed Canadian payday loan industry provided nearly 4.5 million short-term loans to Canadian households, at a total value of $2.2 billion, the Conference Board of Canada reports, adding that data they analyzed shows that 80% of payday loan customers borrow a maximum of twice annually. 

The Conference Board also notes that the licensed payday loans industry “generates a substantial economic footprint for the national economy in the process… 6,930 full-time equivalent jobs for the Canadian economy, with accompanying total salaries of $273.3 million.”

“The findings in the Conference Board of Canada report are a fair representation of the downside of over-regulating licensed payday lenders, harming Canadians who need safe access to small-sum, short-term credit, “says Tony Irwin, President, Canadian Consumer Finance Association, recently renamed from the Canadian Payday Loan Association to reflect the evolution of consumer finance products to include instalment loans, lines of credit, and term loans, as well as continuing to offer payday loans and cheque cashing services.

“The Canadian Consumer Finance Association agrees with the Conference Board of Canada that a focus should be to increase financial literacy among Canadians, and our member companies continue their efforts in this consumer education.”