Consumer loans offered by non-bank firms or “Alternative” Financial Services include “instalment loans, payday loans, money transfers (remittances), cheque cashing, pawnbroking, and rent-to-own,” (Ontario, 2015, “Strengthening Consumer Financial Protection”). To this we might add “title loans” - a newer service appearing on-line in the Ontario market. These loan products are categorized as “consumer loans” since they provide short term loans to cover household spending shortfalls.
- Total cost of the loan (including interest, fees and insurance) is often above the Canadian Criminal Code Limit of 60%.
- Transparency in lending costs is lacking. Annual Percentage Rate, if quoted at all, may or may not include all required fees and insurance.
- High costs of borrowing may have undesirable distributional consequences. People who use these financial services are often those who are “struggling financially, and they usually have trouble covering ordinary living expenses from month to month,” (Pew Charitable Trusts, 2013, “Payday Lending in America”).