Liberals cutting off millions of Canadians this Christmas
Op-Ed as appeared in POSTMEDIA, December 28th 2023
Just in time for Christmas, the Liberal government in Ottawa has published new regulations restricting access to credit for many Canadians. The message is clear: Only those with strong credit have made the government’s “nice list.” Any Canadian with low credit is on the “naughty list,” and will no longer be supported.
This holiday season, if you are new to Canada, if your car should break down or your family has a personal emergency, Justin Trudeau’s Liberals have a solution for you: Turn to payday lenders or “to family, friends, or community organizations to borrow funds.”
Trudeau’s finance minister continues to ignore our mature installment lending community that currently supports Canadians trying to build their credit. While the minister points consumers to payday lenders or suggests they turn to family and friends, her new regulations do not even mention the well-developed ecosystem of lenders that currently services all Canadians in need of credit.
After years of working with the government to explain the consequences of this misguided policy, I can only conclude the Liberal government is putting political gain ahead of the public interest.
The politics are easy. Lowering maximum interest rates for consumer borrowers makes for great headlines. Who wouldn’t want to make life more affordable for consumers in need of credit? But in reality, it will not make life more affordable. It will simply make these loans unavailable for millions of Canadians.
Quebec is a perfect illustration. Lowering its maximum allowable rate of interest cap reduced non-prime Canadians’ access to installment loans and opened up a shadowy unregulated and often violent loan sharks marketplace often operating from behind faceless websites. The original purpose of criminalizing a rate of interest was to create a tool to stop loan sharks. These changes do the opposite.
If the Liberals truly aim to address the issue of predatory lending practices, they should focus on tackling the underlying causes, such as the current exemptions for payday lenders who charge upwards of 300% interest on loans, and the alarming gaps in financial literacy in our country.
Economists, banks, consumer credit advocates, and law enforcement agree: These changes will drive consumers to loan sharks. Independent studies, provided to the minister long ago, back this up.
What is most irresponsible is that the government continues to leave open the payday loophole, meaning a consumer who used to get a loan from an installment lender may have to resort to payday lenders charging six times the interest.
Installment lenders adjust their interest rates to the risk of the borrower. A useful analogy here is to insurance companies. Insurers charge more to a 45-year-old smoker with health issues than to a healthy 25-year-old athlete seeking life insurance. Likewise, a consumer with a low credit score starts at a higher interest rate when they need a loan – but now the government is making it illegal for them to even qualify.
These new policies are not a Christmas present to Canadians in need of credit. This change will not make life more affordable for desperate Canadians struggling with rising costs of living. You cannot regulate away the need for credit. The government knows that consumers will be much more likely to seek out unsustainable, illegal and dangerous sources of credit.
If the Liberal government were serious about helping Canadians in need this holiday season they would listen to mature installment lenders. I ask they allow an exemption in their regulations — not for payday lenders but for installment lenders who have served as an emergency lifeline to non-prime Canadians in need of credit.
It’s time for Justin Trudeau and his Liberal government to stop playing politics with affordability and to implement serious solutions that won’t just cut access to credit for the families who need it most.