How to Avoid the “Debt Trap” of a Payday Loan to Give Kids the Christmas They “Deserve”


During the holiday season, it’s easy for Canadians to cut a hole in their wallet, especially when it comes to shopping for gifts for children. But payday loan services are targeting vulnerable parents in a vacation debt trap, a think tank warns.

A new report from North American think tank Cardus says payday loan stores are using sophisticated marketing strategies to target cash-strapped parents this holiday season.

“They said, listen, ‘it’s Christmas time, your kids deserve it, why don’t you come here and take a loan and then you can afford the presents to give your kids.” “said Brian Dijkema, director of labor and economics at Cardus.

“They kind of target this guilt complex, that if you don’t do that you’re really not a good parent.”

READ MORE: “They Like People To Be In Debt” – Your Payday Loan Stories

For example, a company called Bucks for Canucks, which does not offer loans but advertises payday loan services, features an infomercial from a “loan seeker” who wanted to give their children a “Christmas. they deserve ”.

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Contacted by Global News, Bucks for Canucks said the infomercial on its site was written by a hired writer.

“Our writers create content based on keyword phrases used by people in Canada who use major search engines like Google, Yahoo, Bing, etc. This article was written because people in Canada search often.” READY FOR CHRISTMAS “during crazy season. (Unfortunately),” a company spokesperson wrote in an email.

But according to Dijkema, the problem with Christmas payday loans is that borrowers who are already struggling to pay their bills could find themselves trapped in a cycle of repeated loans that will create unsustainable long-term debt.

“What ends up happening is that cost eats into people’s cash flow. And what seems like a small loan in one place can end up costing you a lot, a lot more in the long run. “

When you borrow an amount of money from a payday loan service, you have to return that amount along with the high interest within a short period of time, explained Dijkema.

What often ends up happening is that borrowers are not able to pay this large sum on time and are forced to resort to another payday loan, which could end up turning into a vicious cycle, a he added.

The president of the Canadian Payday Loans Association, Tony Irwin, says how individual businesses advertise their services is up to them.

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“Our members give a small amount of short term loans because there is a need for them. It’s not about targeting specific groups or individuals, our members provide much needed service and customers come to their stores when they have a shortfall, ”said Irwin.

“Whether it’s now or 365 days a year, that’s what our members do for their customers. “

READ MORE: Into the payday loan cycle

For a 14-day $ 300 payday loan, consumers can expect to pay an additional $ 63 in fees, according to the Financial Consumer Agency of Canada. It’s much more than a cash advance on a credit card for the same amount ($ 7.42 additional fee), overdraft protection on a bank account ($ 7.19) or borrowing on a line. credit ($ 5.81).

A payday loan has an equivalent interest rate of 500 to 600 percent, according to Credit Counseling Society, a nonprofit credit counseling agency.

This is why Dijkema wants people to know that there are cheaper alternatives for people who cannot afford to buy gifts.

“Giving gifts is a wonderful and beautiful tradition. But I think we should all realize that gifts should be something that really brings everyone to life, not something that is done to create long-term stress and damage, ”said Dijkema.

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He recommends borrowing from a friend or pooling money as a family to buy a big gift for your child.

Or if that’s not an option, borrowing with a credit card or getting a line of credit is much cheaper than a payday loan, he said.

You can also get small, community-supported loans from places of worship, charities, and community foundations that partner with credit unions and offer lower borrowing rates, he added. .

READ MORE: How to survive a financial emergency

Ultimately, however, Dijkema says the government needs to do more to reform and regulate the payday lending industry.

In the report, it recommends taking the same approach as Colorado in 2010, which requires all payday loans to be repayable over a period of at least six months.

Currently, you have to pay it back in 62 days, but most loans require a 10-day term, Dijkema said.

“We suggest that the government put in place regulations that require lenders to offer these loans over a longer period. And it would help alleviate the cash crunch that many people experience when they have to repay these loans. “

–With files from Leslie Young, Global News.

© 2016 Global News, a division of Corus Entertainment Inc.


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