Just received a pamphlet in the mail from my MP. It listed all the recent achievements. One caught my eyes. It says that the maximum annual interest rate of payday lenders is lowered from 60% to 35%. The maximum amount payday lenders can charge is lowered to $14 per $100 borrowed.
The above is in the Federal government’s 2023 budget. On March 28, 2023 the Federal Government tabled a notice to introduce changes to the Criminal Code lowering the rate to 35%. However, I read it here says this applies to all types of loans except payday loans.
For payday loan, the maximum interest is $15 per $100 currently, but what is the annual interest rate? $15 per $100 for how long? Time span matters a lot! Why was it an exception? Let’s dig deeper. On this Ontario Government websites on Payday loan – know your rights, it lists a very informative table below with comparison with credit card interest. It breaks down what $15 interest per $100.
The maximum cost of borrowing a payday loan is $15 for every $100 that you borrow. This means:
| If you borrow $300 for 2 weeks: | Payday loan (fee) | Credit card (fee with interest at 23%) |
| 1 loan will cost | $45 | $6.15 |
| 2 loans will cost | $90 | $12.29 |
| 4 loans will cost | $180 | $24.59 |
| 6 loans will cost | $270 | $36.88 |
The $15 interest on $100 loan is for 2 weeks only!!! This means 390% annual interest rate! What the heck! I can see the sinister intent on NOT spelling out the annual interest rate on purpose. Some “genius” know that this astronomical figure will anger people, so they figure out a way to disguise it by only using 2-week worth of interest which is $15 per $100. Oh my god!
The government is lowering it from $15 to $14. What the heck! The annual interest rate of payday loan is lowered from 390% to 364%. That is just sick! I don’t know whether I should laugh or cry or both. I guessed the lobbying power of the industry is too powerful?
I used to think that the maximum annual interest rate in Canada is 60%, but I didn’t know payday loan is an exception to this criminal code. I would love to know what percentage of payday loan count towards all the payday lending in Canada in terms of dollar amount and transaction volume.
In the pamphlet, it purposely didn’t lay out it was $15 interest per $100 now because the before and after comparison is not great. 😊 It only lowers by a dollar. And of course, it didn’t say $15 is for only 2 weeks. That is the art of communication. Isn’t it? Hiding, distorting, and highlighting to fool the audience.
Hope we never need to use payday loan or borrow anything from payday lenders.
Worthfy Financial Literacy Counselling 