House Standing Committee on Finance (May 31, 2024):
ISSUE: FCAC’s Research on Payday Loans and Financial Well-Being in Canada

FCAC payday loan research

• While FCAC does not regulate payday loans, it conducts research and monitors trends and issues that could impact financial consumers, including on payday loans. The data gathered through this work informs our consumer education efforts, contributes to policy development, and is shared with provincial regulators to support their regulatory efforts.
• Past research conducted by FCAC has shown that:
  • Payday loan users are often unaware of the high costs of these loans versus alternative sources of credit.
  • Many Canadians used these small-value, short-term loans of typically $500 or less to cover unexpected expenses or a loss of income, where a household emergency savings fund could help.
  • Though most payday loan users are low- to moderate-income earners, some earn higher-than-average incomes.
• • FCAC will be publishing new research results about payday loans this year. To help regulators understand how consumers interact with payday loan providers, FCAC analyzed:
  1. Data from its Monthly Financial Well-Being Monitor gathered through online and telephone surveys.
  2. A comparison of separate 2016 and 2022 online surveys on high-cost credit.
• This analysis shows that payday loan users face greater challenges than non-users across many behavioural indicators of financial well-being.
  • For example, they are more likely to borrow to buy food, be behind on bills, and not have emergency funds.

Conclusion

• FCAC’s research findings highlight concerning trends. Namely, that the most vulnerable Canadians are using these loans to a greater extent.
• Ultimately these loans have a negative impact on their users’ financial well-being and inclusion – and this is particularly true for those who experience vulnerabilities.
• Not all payday loan users face the same degree of financial challenges. Therefore, tailored financial products and services that best support an individuals’ financial well-being are needed.
• Echoing the call to action from FCAC’s National Financial Literacy Strategy, achieving financial resilience for all consumers in Canada takes an inclusive financial ecosystem in which tailored, rather than one-size-fits-all approaches, become the norm.