The debt engine

“All I did was cry,” says Kathleen Miller-Zane. She’s retelling the story of realizing her loan from easyfinancial was more than she bargained for. After thumbing through her contract, she found out her initial $5,000 loan would eventually cost her $3,500 in interest – $8,500 in all. “Here I am crying away,” she says. “I can’t believe I’m so stupid. What did I do?”

Miller-Zane – a retired resident of Grimsby, Ontario, and member of multi-issue community union ACORN – already had a small loan with easyfinancial when the COVID-19 pandemic first hit. But when shutdowns seemed imminent and the Canada Emergency Response Benefit (CERB) wasn’t yet on the table, the company contacted her. They offered a quick and easy $5,000 top-up, saying she just had to sign in a few places. 

Not only had her mother recently died, but Miller-Zane had just been given a leave of absence from work, and the anxieties – especially around paying rent – began mounting. Desperate, she took the exorbitant loan.

She’s not alone. Recent data shows that borrowing from predatory lenders increased substantially during the pandemic. Despite the Bank of Canada’s rock-bottom interest rates, many people still pay steep interest charges on predatory loans and credit cards.

“I’m not paying $3,500 in interest. It’s not going to happen. Of course, they’re gonna torch my credit rating. Nothing new.”

Peter Jongeneelen, an ACORN member from Moncton, New Brunswick, found himself in a similar situation. “I was in a bind,” he says. He’d gone through bankruptcy and a divorce, and his children live with their mother in another city. “Communication with them was extremely important,” and with email being the preferred method, he needed a laptop. “I went over to easyhome and bought a computer without realizing all the different fees and interest charges.” 

The $500 laptop loan at 45 per cent interest was sealed with a promise that taking the loan would help him rebuild his credit, a common claim among predatory lenders. Not only did his score not budge despite successfully paying off the laptop, but he ended up spending $850 with all the fees and interest charges.

Around the same time, he also needed furniture and bought a couch and loveseat from easyhome. It was then that Jongeneelen – who lives with a partial disability – missed payments after experiencing health issues and struggling to find work. The company retaliated by putting a lock on the laptop he’d fully paid off, and when confronted, they accused him of putting a virus on it. With Jongeneelen overwhelmed financially, the pricey loan for the furniture has now gone to collections. 

Predatory lending: a ballooning business 

A new ACORN survey on high-interest loans showed nearly half of the 376 respondents had taken “instalment loans”. These loans, which vary from $500 to $50,000, can carry annual interest rates of 60 per cent or more, not including insurance or fees. Their lucrative nature has made them a new focus of predatory lenders, in addition to loaning out things like furniture and electronics. Companies like easyfinancial often advertise instalment loans as a good way to rebuild credit and actively distinguish instalment loans from payday loans. 

Payday loans remain popular. While they come in smaller sums, they often charge up to 500 per cent in annualized interest and fees. Though the Criminal Code stipulates that charging above 60 per cent interest is illegal, exception is given to payday loans so long as provinces have regulatory legislation in place. Some provinces – and, increasingly, cities – have taken some action, but most still permit enormous annualized percentage rates (the total cost of borrowing spread over a year). 

These loans, which vary from $500 to $50,000, can carry annual interest rates of 60 per cent or more, not including insurance or fees.

Lenders also make a killing off punitive charges. As the Canadian Centre for Policy Alternatives (CCPA) points out, “Late payments are penalized with additional fees on top of recurring interest charges” and “[i]n the case of default, payday lenders may resort to suing the borrowers, seizing their property, and garnishing their wages.” 

ACORN members like Miller-Zane and Jongeneelen are part of the organization’s End Predatory Lending campaign. In 2021, members took to the streets for a day of action to demand change. One focus was pushing the federal Liberal Party to make good on their 2021 budget pledge to investigate lowering the threshold for what’s considered an illegally high interest rate, a move that would make instalment loans more affordable. Clearly, organizing is working: the minister of finance’s December mandate letter included a commitment to “crack down on predatory lenders by lowering the criminal rate of interest.” 

Who borrows?

Who uses payday loans? A 2020 CCPA study found that “financial insecurity is the common feature of all payday loan users.” Of all payday borrowers surveyed in 2016, 76 per cent were tenants, and single-parent tenant households were six times more likely to borrow from a payday lender than the average household, with female-led households most at risk.

Countrywide, there are more payday lenders than Shoppers Drug Marts, and lenders “cluster” in low-income areas. In fact, Cardus reports that “of the over 2.1 million payday loans taken by Ontario consumers in 2016, 93 percent of those were made in person,” though transactions increasingly happen online. Predatory lenders also typically offer extended operating hours, and when asked why they chose payday lenders, 90 per cent of payday loan users surveyed in 2016 said those companies were the “fastest or most convenient option.” 

“Unless you have a 900, perfect score on your credit rating, you can’t get a goddamn thing out of a bank in Canada,” Miller-Zane says.

Research also shows that roughly 300,000 Canadians can be considered “unbanked” – living without a chequing or savings account. The CCPA thus writes that “fringe financial institutions are filling a void” left by mainstream banks. For users who have declared bankruptcy or have poor credit and can’t rely on friends or family, there’s often no other choice. 

“Unless you have a 900, perfect score on your credit rating, you can’t get a goddamn thing out of a bank in Canada,” Miller-Zane says. She recently tried to get a balance transfer onto a lower-interest line of credit through CIBC but was denied. The stated reason was her being retired. (She is working again, part time, to supplement her CPP payments.) “Heaven forbid that during a pandemic you help people,” she says, noting that banks made billions in profits last year. 

How payday loans are spent is telling. The Financial Consumer Agency of Canada found that “[r]oughly 45 percent of respondents reported typically using payday loans for unexpected, necessary expenses such as car repairs, while 41 percent used them for expected, necessary expenses such as utility bills.”

Of all payday borrowers surveyed in 2016, 76 per cent were tenants, and single-parent tenant households were six times more likely to borrow from a payday lender than the average household, with female-led households most at risk.

Borrowers are often so vulnerable that they become repeat customers and, as ACORN writes, “end up in a cycle of debt.” In fact, Cardus concluded that “that the industry relies heavily on repeat borrowing to drive profitability.” 

The costs, of course, are not purely financial. As the Debt Collective write in their call-to-arms, Can’t Pay Won’t Pay, “We are hounded by collectors via telephone and mail, our credit scores plummet, and, along with them, our chances for housing, loans, and even employment. Our self-esteem, self-worth, and physical and mental health take a dive too.”

Where predatory loans came from

In the modern period, “fringe” lending – lending outside of banks – emerged around the mid-to-late 19th century. Concerned legislators started intervening at the turn of the century with regulation, though in Canada early laws proved toothless. But the 1939 Small Loans Act capped interest on money lent by fringe actors, setting the stage for a more legitimized small-loan industry that grew throughout the postwar period. Even so, these lenders typically had high rejection rates. “It was this unfulfilled demand for credit that set the stage for the emergence of the modern payday-loan institution,” Cardus notes. 

Mainstream credit exploded in the 1970s, driven by interrelated phenomena: the financial sector’s desire to earn money off interest, the need for households to make ends meet during a period of widening inequality, and the growing availability and legitimization of buying on credit. Relatedly, in 1989, credit scores rocketed into importance with the introduction of the “FICO” score, which aggregated consumer credit files so banks could determine the risk of lending to their customers. Household indebtedness ballooned over the following decades as a result of credit’s expansion. 

“In this sense,” the authors observe, “our bosses and lenders collude to rob us twice: first, by underpaying us, and then by charging us interest to borrow the money we need to make ends meet.”

At the same time, major changes in banking were underway. Canada’s big banks began charging higher fees and divesting from cities, focusing more on servicing wealthier suburbs and rich neighbourhoods. Branches closed, further unbanking an already underserved urban poor. Meanwhile, access to mainstream credit remained elusive: the working class’s vulnerability to economic crisis – the likelihood of missing a bill payment, for example – has meant credit scores, and therefore access to credit, can easily crater. 

To profit from the gap outbound banks left, the cheque-cashing industry arose and charged fees to front cash to customers. In 1996, U.S.-based Dollar Financial Group acquired prominent cheque-casher Money Mart and added a new dimension to the business: payday loans. The industry quickly ballooned. “From 1999 to 2005,” the Cardus report writes, “the number of payday-loan outlets in Toronto, Vancouver, and Winnipeg grew by 149 percent.” 

In the last decade, predatory lenders have diversified their business with instalment loans. For Zane-Miller, repaying her loan isn’t even an option. Her plan now is to let it go to collections. “I’m not paying $3,500 in interest. It’s not going to happen. Of course, they’re gonna torch my credit rating. Nothing new.”

The financialization of the economy

Predatory lending emerged out of shifts in the financial sector, but that’s not the whole story. In fact, the industry’s rise belongs to a much larger account of capitalism’s 40-year global transformation. 

After the Second World War, high rates of unionization and a generally stable, healthy economy led to 30 years of relative prosperity in Canada, the U.S., and other Western nations. But by the late 1970s, the shaky peace brokered between capital and labour came under pressure. Globally, profits began stagnating in the “productive” sectors – manufacturing, agriculture, and services – leading capitalists to hunt for profit elsewhere, while a new era of globalization began freeing companies from restrictive borders. 

Still, crisis was on the horizon. From 1990 to 1992, a punishing recession gripped the country. In Briarpatch Todd Gordon and Geoffrey McCormack point out that “capitalists and the state seized the opportunity to aggressively attack social programs, [...] unions, and workers’ rights more generally – all moves intended to increase worker vulnerability.” 

Indeed, governments have eagerly helped design the optimal conditions for business: slashing taxes, regulations, and social programs while starving social housing, employment insurance, and social assistance to push desperate workers into the job market. And falling unionization rates and other defeats in the labour movement have caused labour power – and its share of wealth – to drop considerably, a phenomenon that increases the gap between rich capitalists and the poor working class. 

“We are hounded by collectors via telephone and mail, our credit scores plummet, and, along with them, our chances for housing, loans, and even employment. Our self-esteem, self-worth, and physical and mental health take a dive too.”

Following the 1990–1992 recession, Gordon and McCormack point out, profitability shot up “as wage growth was contained and labour productivity boosted, both outcomes of the recession itself and state policy.” As a result, Canadian capital coasted through the 2008 financial crash. But from 2005 to 2017, the authors write, “the fortunes of Canadian capitalism have shifted. [...] Canada has not seen such poor profitability for three decades, just before the Great Canadian Slump of 1990–92.”

Facing falling profits, capitalists in Canada and abroad have poured more wealth into unproductive ventures – Succession-style exploits that primarily enrich themselves and shareholders. Instead of investing the money into their businesses (through job creation or producing valuable goods and services), mergers, acquisitions, stock buybacks, equity, and speculation now capture huge amounts of capital. This situation, often described as the financialization of the economy, leaves us with fewer jobs, lower wages, and more economic insecurity. 

The left has long pointed out that the money poured into financialization could be better spent, but even the business press has rung the alarm that failures to invest in jobs or to create value will lead to major stagnation down the line. A recent OECD report found that Canada will likely have the worst-performing economy in the G7 over the next few decades. 

Taken together, these factors have made life significantly more expensive for ordinary people. Canada’s runaway housing crisis is a perfect example – a direct result of capital’s flight from productive sectors and into more profitable speculation, buoyed by favourable policy, low interest rates, and emaciated public housing. 

Seeing Moncton’s housing costs balloon before his eyes influenced Jongeneelen to join ACORN. He saw investors take advantage of New Brunswick’s lack of rent control by jacking up rents and, frustrated by his own experiences with landlords, felt pushed to take action. 

Over the last 20 years, housing costs across the country have inflated as wages stagnate comparatively. It may seem untenable, but debt keeps things moving.

The debt engine

For the last 40 years, relatively easy access to credit has been crucial for keeping people’s heads above water amid an increasingly sluggish and financialized economy, austerity, and weak public programs. People have amassed huge balances simply paying the bills – or getting a university education – leading to an ongoing personal debt crisis, buoyed by ballooning mortgage debt. In 1980, Canada’s debt-to-income ratio was 66 per cent. In the first quarter of 2020, it was 175 per cent – meaning Canadians owed $1.75 for every dollar of disposable income they had. 

“The fact that employers refuse to provide living wages enables creditors to loan more money, with interest, to desperate workers,” the Debt Collective writes. (Only recently have personal debts – which don’t include mortgage debts – seen a significant decline with the help of CERB and COVID lockdowns. ) “In this sense,” the authors observe, “our bosses and lenders collude to rob us twice: first, by underpaying us, and then by charging us interest to borrow the money we need to make ends meet.”

Facing falling profits, capitalists in Canada and abroad have poured more wealth into unproductive ventures – Succession-style exploits that primarily enrich themselves and shareholders.

The predatory loan industry is thus an intersection where neoliberal capitalism’s roads meet: the demise of the welfare state, the destruction of labour power, the financialization of our economy, and the banking sector’s quest for profit. The story of predatory lending is embedded in a story of the financial system and the entire economy.

The Debt Collective puts it simply: “Most people are not in debt because they live beyond their means; they are in debt because they have been denied the means to live.”

A different future 

ACORN’s campaign offers many solutions, including lowering the criminal rate of interest to 36 per cent and ensuring all additional costs – like insurance, fines, and late fees – are reflected in that rate. They also demand the repeal of Section 347(1) of the Criminal Code, which exempts payday loans from the criminal interest rate; that all banks offer affordable access to credit and small loans; and that non-sufficient fund (NSF) charges be lowered from $45 to $10. It’s not a pipe dream: recently, Capital One announced they were dropping overdraft and NSF fees for U.S. customers. 

Unions like the Canadian Union of Postal Workers (CUPW) advocate an even bigger idea: postal banking. CUPW explains: “Thousands of towns and villages across our country do not have a bank. But many of them have a post office that could provide access to financial and banking services.” The idea isn’t abstract: not only do postal banks exist in countries like New Zealand, Switzerland, and Italy, they existed in Canada until 1969. 

That solution is one Jongeneelen is particularly passionate about. “Postal banking offered reasonable short-term loans that could be quickly paid off,” he says. “We need to see a resurgence of that in Canada. Fair banking for everyone.” In the meantime, he encourages people to sign ACORN’s petition against predatory lending. 

“[Predatory lenders’] idea is profits over people. What we really need is people over profits.” 

“Most people are not in debt because they live beyond their means; they are in debt because they have been denied the means to live.”

Financial reforms are necessary, but predatory lending exposes the broader crises within the Canadian economy. Removing the conditions that create desperation at their source would require a seismic shift in the way our society is structured: increased labour power, a generous welfare state, and democratizing how capital is invested all have a role to play. 

One area of social services that needs work, Zane-Miller suggests, surrounds seniors. “There really needs to be action,” she says, describing the rocketing price of living relative to what the CPP doles out. “How are they supposed to live?”

Of course, winning major changes like those above won’t happen overnight. But the depth and ubiquity of problems gives organizers ample jumping-off points. In their activism, organizations like ACORN drive home the political causes of debt and the ubiquity of the problem, opening up opportunities to organize and win. 

“I thought I was one of the few ones,” Zane-Miller says, reflecting on her time talking to people with similar problems. “But I’m not.”