To whom it may concern,
On behalf of the National Indigenous Economic Development Board (NIEDB), please accept this letter as a formal response to the “Consultation on Cracking Down on Predatory Lending Faster by Further
Lowering the Criminal Rate of Interest and Increasing Access to Low-Cost Credit”.
The NIEDB recognizes that there are a vast number of reasons that Canadians seek out credit to address short-term financial shortfalls, however, financially vulnerable populations face significant barriers in accessing credit from these types of financial institutions. This is particularly apparent in Indigenous communities, many of which are located in remote and rural areas.
Specific to your questions within your consultation, we have outlined recommendations that must be considered in addressing predatory lending below.
Part 1 Consultation Questions and NIEDB Response:
- What are the features of credit products that can help Canadians improve their financial positions? Providing free and reliable access to financial counselling services would greatly improve the financial well-being of Canadians. Financial counselling services could include budgeting assistance and managing debt. The Aboriginal Peoples Survey (2017) found that 30.4% of the First Nations population had a seasonal job. Allowing flexibility in repayment can be advantageous for individuals who have fluctuating incomes like Indigenous Peoples involved in seasonal work. Credit products should also come with educational resources and tools that can help consumers understand the cost of loan (e.g. clearly stated interest rate and fees showing the total cost of borrowing along with simplified calculators that show the total cost of the loan and the risks involved). There must be public disclosure of interest rates. Most payday lenders should be required to publicly disclose their range of interest rates for low, medium, high or very high risk. You cannot find their interest rates anywhere on their websites or in their advertising. Individuals are blindly accepting loans where predatory lenders are arbitrarily setting extremely high interest rates. Vulnerable individuals do not know the impact of these high interest rates on the amount they are required to repay. The right of rescission, where borrowers have the right to cancel the loan without penalty, would give vulnerable consumers the opportunity to reconsider their options without facing financial consequences. Finally, limits on rollovers, renewals and additional fees for refinancing could prevent borrowers from falling into a cycle of debt. Regulations would limit the number of times a payday loan can be rolled over or refinanced from the same institution. This would help ensure that loans are repaid in a reasonable and manageable timeframe.
- What protections from unreasonable fees for credit products, including payday lenders, could help Canadian consumers? All fees for credit products that applicable in accessing a loan, particularly from payday lenders, must be clearly stated upfront before a loan is entered into by the borrower. A clear loan offer should be provided as a first step to the potential borrower with all of the terms and conditions clearly stated in plain language before a separate loan agreement is entered into. The fees and interest rates should be in clear, bold print. A two-step process would ensure that more thought goes into entering into a payday loan agreement. In addition to supporting ways to increase financial literacy in Indigenous communities, updated and reliable data is needed on the experience of Indigenous Peoples, notably urban First Nations, Métis and Inuit populations. We must increase resources for research in these areas.
- What marketing techniques target vulnerable Canadians into taking on high-cost debt, and what measures would protect Canadians from deceptive advertising? Many marketing techniques include messaging that payday loans are fast, easy, no-credit, and require no employment. More specifically, they provide seemingly easy solutions that speak to vulnerable Canadians. This type of marketing preys on those who are desperate for a quick remedy, even though the long-term consequences can be severe. We must prevent payday lenders from using misleading and aggressive marketing techniques. This should include the implementation of strict guidelines or legislation on how loans can be advertised. Within those guidelines or legislation, regulations that prohibit lenders from targeting vulnerable populations (such as those with no credit or those with poor credit) should be included. This could also include developing a public service announcement around predatory lenders to educate individuals about the potential risks. There is also the issue of car dealerships that use such payday/predatory lenders for vulnerable populations seeking vehicle loans. Such loans are often provided with 46%+ interest rates over terms greater than 5 years, even if the loan is for less than $10,000. When the person receiving the loan for the vehicle defaults on the loan, the vehicle is repossessed and sold to other vulnerable individuals. These car dealerships never disclose to the borrower the fees or interest rates as they indicate that the loans are provided “OAC” a term that many borrowers do not understand as ‘on approved credit’ by a third party. So, they enter into such agreements without clearly understanding the terms and conditions. It should also be up to the car dealerships to publicly disclose the range of fees and interest rates being charged, as the borrower only deals with the car dealership directly and never the predatory lender. This practice needs to stop as it is negatively impacting Indigenous Peoples and their ability to establish a good credit record.
- How could all types of credit lenders better provide Canadians with information on the costs of credit products, including associated fees and interest? Maintaining transparency and mandating clear and simple language in all communications and marketing materials, without industry jargon, including terms, costs and risks. This could include a pamphlet that summarizes all of the loan details in simple terms, and information about community organizations that provide credit counselling.
- What barriers do Canadian consumers face in accessing low-cost, small-value credit? Inability to establish a good credit record, Many remote Indigenous communities do not have access to financial institutions. Therefore, they are unable to establish a good credit record. Indigenous people in remote communities also deal on a cash basis for such industries as fisheries, logging, trapping, tourism as banking services are unavailable. This also limits the ability to build a credit record. Indigenous people new to residing in urban settings are unable to function in those settings if a credit record has not yet been established, so they are unable to access conventional banking services. There must be a stronger foundation to build financial literacy within Indigenous communities in Canada. With increases in access to financial capital, the Organization for Economic Cooperation and Development’s (OECD) case studies have indicated that equal attention should be given to the education of Indigenous borrowers in financial literacy and capacity. This is particularly important for youth and women, where data demonstrates larger gaps in participation and outcomes, suggesting the need for higher levels of support. Specifically, attaching financial literacy and capacity education to lending requirements has been suggested as a possible means of providing such support.1 Additionally, Indigenous Peoples in urban, rural, and remote communities sometimes feel unwelcome in mainstream financial institutions as evidenced by the 2021 Vancouver BMO incident2, systemic racism harms Indigenous communities/people. These circumstances contribute not only to increased reliance on fringe financial services, but also to difficulties effectively managing day-today finances, including paying bills on time and regular saving for the future.3 In this regard, all financial institutions in Canada should be subject to training on improving the understanding of how Canada’s history has negatively impacted the inclusion of Indigenous Peoples in this country’s economy, including the banking industry, and reminding all that Canada’s economy was built on the traditional lands and resources of Indigenous Peoples. Additional barriers that Indigenous Peoples face in accessing lowcost small-value credit:
- Remote and isolated communities have very limited access to banking and credit unions due to lack of physical conventional banking infrastructure in remote communities. Agency banking has assisted where banks work through an agency in the community, but these are primarily for cheque cashing services and they do not provide the full range of investment/saving advisory services.
- Digital exclusion due to poor or no connectivity in many rural and remote Indigenous communities. The shift towards digital banking excludes many individuals who lack access to the internet or who are not comfortable using online platforms. This can limit their ability to increase their credit knowledge and to explore credit alternatives.
- Lack of alternative credit reporting which may not capture all forms of creditworthiness including regular payments for rent, utilities, or cell phone payments.
- Low credit scores or no credit due to the points listed above.
- What barriers do financial institutions, banks, and credit unions in particular, face in increasing their offerings for low-cost, small-value credit to a broader consumer base? Financial institutions face regulatory barriers that drive them to serve low-risk, high-income clients. Many vulnerable populations are not able to fulfill the loan requirements of these institutions. The financial system is not designed to serve low-income consumers or address the biases that may exist amongst frontline staff. Indigenous Peoples are unique in that they have entrenched Constitutional rights that demand representation in institutions of health, education, justice, and finance. Systemic racism and discrimination are realities that are clearly illustrated by demographic imbalances in institutions.4 These imbalances must be remedied.
- What could various levels of government, including provincial governments, do to improve, promote, and support access to lowcost, small-value credit? Governments and financial institutions must establish mechanisms to protect vulnerable peoples and need to build trust with low-income populations. Many Indigenous Peoples distrust financial institutions because of predatory and discriminatory policies, and practices that have continued to cause harm. Policies that bar people from accessing loans, mortgages, and insurance, including outright discrimination at service branches from bank personnel all must be addressed. These barriers drive vulnerable Indigenous Peoples to expensive fringe financial services and ultimately strip wealth and economic security from individuals, families, and communities. Additionally, governments and financial institutions must mandate a requirement that all employees be educated on Indigenous Peoples, which includes the history of residential schools, the United Declaration on the Rights of Indigenous Peoples, Treaties and Aboriginal Rights, Indigenous Law, Indigenous-Crown Relations, and skills-based training in intercultural competencies, conflict resolution, human rights, and anti-racism.
- What could financial institutions, banks, and credit unions in particular, do to improve, promote, and support access to low-cost, small-value credit? The World Bank addressed this issue a few years ago and suggested that the development of low-cost, innovative financial products that addressed the unique obstacles and financial needs of underserved populations was important. This would require that policymakers establish regulatory frameworks that encourage the development of appropriate financial products such as basic bank accounts and microinsurance that address the needs of lowincome populations. Having a bank account is the door to the financial mainstream. They went on to recommend customer-centric product design that overcome behavioral barriers should be promoted. A formal study should be undertaken to help address this need for basic bank accounts and microinsurance in Canada. Perhaps existing Indigenous-owned Co-ops and/or the network of Indigenous Financial Institutions could be considered as a mechanism to provide consumer lending services in remote, rural and urban areas of the country.
- Are there practices to improve the availability of low-cost, smallvalue credit within Canada or abroad that could be learned from? We reviewed the DUCA Impact Lab whose mission is to help individuals break free from predatory lenders, but their reach to Indigenous communities/Peoples is limited for all the reasons listed above. But a similar Indigenous-owned and led entity could potentially assist through establishing partnerships that exist within Indigenous communities such as Co-Ops and Indigenous Financial Institutions who already provide financing to Indigenous businesses. Credit unions across Canada should implement escalator loan type products that feature loans based on cash flow and not credit score, ongoing money management and financial counselling, and repayment without penalty.
Part 2 Consultation5 Questions and NIEDB Response:
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How much further beyond 35 percent APR should the criminal rate of interest be lowered?
Interest rates should never go beyond the range of regular credit card rates of Canada’s conventional banks.
DUCA has been able to offer loans at prime plus 8%. It is understood that financial institutions will need to recover costs and should be allowed to make a reasonable profit, but the amount should be regulated for payday lenders.
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How can the government improve enforcement of the criminal rate of interest to protect Canadian consumers?
Enlisting an Indigenous ombudsman specifically for the payday lending industry would be extremely beneficial for Indigenous communities. As well as offering free financial counselling with each payday loan and the ability to back out without penalty.
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Should further revisions to the Criminal Code’s provincial or territorial-requested payday lending exemption be considered?
The matter of car dealerships or those dealerships that provide recreational vehicles such as ATVs, etc., through third party lenders should also be investigated for their predatory practices.
It’s important to note that individuals taking out payday loans are extremely vulnerable and already underbanked, and they must be protected. The predatory lending industry needs to be regulated at a level that is fully transparent while finding ways to encourage the conventional banks and credit unions to provide the basic financial services needed for those who are most needing financial resources.
These recommendations must be considered by the federal government as part of the “Consultation on Cracking Down on Predatory Lending Faster by Further Lowering the Criminal Rate of Interest and Increasing Access to Low-Cost Credit” . Of all the policy and program tools available to the government to advance the Indigenous economy, increasing financial literacy within community, addressing systemic racism through meaningful acknowledgement, improving data processes and policy reform is the most impactful. We also encourage the reading of the National Indigenous Economic Strategy for Canada which promotes institutional development of Indigenous-owned and led who are better able provide services to Indigenous People.
When countries take a strategic approach and develop national financial inclusion strategies which bring together financial regulators, telecommunications, competition and education ministries, research indicates that they increase the pace and impact of reforms.6
Thank you for your consideration of the recommendations articulated within this letter, and please know that the NIEDB is open to a continued dialogue on this matter.
Sincerely,
Dawn Madahbee Leach
Chairperson
National Indigenous Economic Development Board
C.c :
Mark Radley
Mark.Radley@fin.gc.ca
Ana Bowles
Ana.Bowles@fin.gc.ca
Anne Loosen
Anne.Loosen@fin.gc.ca