Easing financial woes

Miriam Ostermann
Times Associate Editor

 

As the payday loan regulation expires at the end of June and with a proposed legislation to abolish predatory lending on the horizon, Connect First Credit Union in collaboration with a community partner, Momentum, is launching a micro-lending solution pilot program in a few months’ time.
For over a year, First Calgary Financial and Chinook Financial – the two divisions of Connect First Credit Union – have teamed up with Momentum to produce an official alternative to payday lending – the Cash Crunch Loan – in August.
Payday loans consist of borrowing a maximum dollar amount of $1,500 for a term of 62 days or less, and in Alberta payday lenders can charge $23 per $100 borrowed making it the second highest rate in Canada, just behind Prince Edward Island with $25.
With Bill 15: An Act to End Predatory Lending pending, a legislation that would reduce borrowing fees from $23 to $15 per $100 borrowed and make it the lowest rate in Canada, Chinook Financial expects to offer their pilot project to Strathmore residents in August with a possible interest rate of 10 per cent – lower than most credit cards at 18 per cent and lower than the proposed legislation.
“This cash-crunch loan is making it more official for people with short-term needs, but I think we’ve always been here to help people,” said Scot Hadden, president of Chinook Financial.
“Payday loans can cost anywhere, if you do it in percentage, from 300 to 600 per cent. Which is crazy. This works in the favour of Albertans. I think the legislation of payday lending in the province of Alberta will be as tight as anywhere else in Canada. But even at that it’s still an expensive alternative for people who need short-term cash and they need it in a hurry.”
Bill 15 further attempts to allow borrowers to repay loans in instalments instead of at once, require lenders to refer borrowers to financial literacy resources, and include all fees in calculating cost of borrowing.
“Many participants we work with struggle with payday loan debt, and these changes will support people living on low incomes to exit the cycle of debt,” said Jeff Loomis, executive director of Momentum in a statement. “We are also very supportive of the government working with financial institutions to develop more affordable alternatives.”
Yet Hadden said while the legislation is better for Alberta citizens than the current payday loan options, it affects those living from paycheque to paycheque who may feel shame for their current financial situation and are uncomfortable approaching larger financial advisories or credit unions. Thus they often turn to payday lending solutions – a problem apparent specifically in smaller towns.
“I think people think it’s not a problem in small communities, because sometimes there may be a payday loans business and sometimes there isn’t, but in some ways the online solutions are even less regulated than the payday loans solution,” said Hadden.
The pilot program will be available to Strathmore residents in August.