Organizers of a new program helping people get off the payday loan cycle of debt have been inundated with applications from Ottawa residents.
"It was quite overwhelming," said Doug Pawson, with the Causeway Work Centre, a non-profit community group in Ottawa..
"We received a lot of inquiries and it's been challenging to figure out who could we serve and who we can't."
The Causeway Work Centre launched the new program in November, working with three credit unions in Ottawa to create a $100,000 fund, offering up small loans at low interest so people can avoid payday loans, or pay off their current debt.
'Nobody held a gun to my head to re-borrow, but how do you live on nothing when you're already surviving on very little to begin with'- Robbie McCall
Payday lenders hand out short-term loans at high interest and require pay-back within two weeks.
The Ontario government has lowered the maximum interest per $100 from 21 to 18 per cent but, even at that rate, the interest could approach 500 per cent over the course of a full year if the initial payday loan is never paid off.
Payday loan companies are often called predatory lenders, since their clients — often low-income earners who need emergency short-term loans — end up in a cycle of debt with mounting fees for not paying on time, forcing many to take out new loans to pay old ones.
Trapped in a cycle of debt
"I wasn't forced," explained Robbie McCall, who started with a small $300 loan that cost $80 in fees and interest in a single month.
"Nobody held a gun to my head to re-borrow," said McCall. "But how do you live on nothing when you're already surviving on very little to begin with?"
The lender also charged large fees to cash his Ontario Disability Support Program cheque, including an overall fee for the cheque, then three per cent interest on each $100 of the cheque.
"And so I was trapped into borrowing again," said McCall.
He said it wasn't long before he was shopping at three different lenders, to pay off the loans that had quickly ballooned to over $6,000.
McCall said the new Causeway program could be a life saver for someone like him. He said the large debt caused a number of health issues including anxiety and depression.
Already a dozen people have had their loans accepted through the Causeway Community Finance Fund.
"I think in some cases it was heartbreaking that some people had been in this cycle for months, even years in some cases," said Pawson.
"I found that frustrating," he said.
Since the program began, Pawson said he's beginning to see the underlying financial barriers facing many low-income residents in Ottawa, with the cost of housing — sometimes more than 80 per cent of the budget of many low-income earners — topping the list.
Debts shed light on larger problems
"The loans are shedding light on some of these other complexities folks are facing."
"We're trying to find a solution for people struggling to get by and forced to use predatory programs," said Pawson, "And we're just scratching the surface."
In some cases, some applicants don't actually need the loan, but do need access to resources, like a food bank, he said.
"So we can find other ways to make things happen to get people in a better spot."
Pawson said the program gives borrowers three years to pay loans of up to $1,500, acknowledging that he's already seen applications for much more.
In one case, one of the credit unions has decided to approve a larger $5,000 loan.
Worth the risk
"We think they're worth the risk," said Pawson, acknowledging that these borrowers are not undergoing the usual risk assessment performed by a traditional bank.
"We're not looking at a credit score," said Pawson. "We're looking at their capacity to pay. Will taking one of our loans get them out of the payday loan trap?"