Income insecurity, housing insecurity, and food insecurity are closely correlated and have common causes, including suppressed wages, unregulated markets, and profiteering. Social policies in these areas are more effective when coupled with regulation to rein in economic inequality. This should go without saying. But in these times of free market consensus, governments tiptoe around regulation. Free markets run wild and social policy try picking up the pieces.
Examples abound.
In response to high inflation rates, the federal government recently announced a one-time GST credit top-up and a one-time $500 housing allowance to low-income tenants. Money put in the right hands, no doubt. But in the absence of strong anti-price gouging legislation and a national rent freeze, much of this money will flow to the corporations and landlords that have been pushing up profit margins.
There are also concerted efforts to channel funds from the federal $10-a-day child care program to for-profit providers. Experts argue that allowing profit-making will serve to maintain the broken, unaffordable system the new plan is trying to fix. Decades in the making, Canada’s national child care program may fail because some provincial governments won’t tell private providers to keep their hands out of the cookie jar.
Then there is predatory lending.
We examined payday loans in detail a 2020 report. Here’s the gist of it: the federal government sets the criminal rate of interest at 60%; anyone who charges more than that is committing a crime. But the federal government allows provinces to exempt payday loans, so the interest charged on short-term loans is four to six times higher than the criminal rate.
Nonsense? Quebecers thought so. They imposed a 35% maximum interest rate, squashing the payday loans business in the province. End of story.
Elsewhere, the issue persists. The Financial Consumer Agency of Canada (FCAC) recently concluded a consultation on whether the federal government should lower the criminal rate of interest. Doing so would immediately reduce the cost of instalment loans, defaulted payday loans, title loans, and other loans products. It would make credit cheaper for people without savings faced with a crisis situation.
My original submission to the FCAC consultation read, “See Quebec.” Colleagues convinced me to do more, so I pulled data from three recent Statistics Canada surveys that collect information on housing and financial insecurity. All three datasets show that people faced with high housing costs are more likely to use payday and other forms of loans – an obvious link but one worth stressing.
Here’s the data:
Statistics Canada’s Survey of Financial Security (SFS) asks respondents whether they borrowed money through payday loans within the past 12 months. In 2019, tenant households were ten times more likely to have used payday loans than homeowners without a mortgage, and three times more likely than homeowners with a mortgage. As Table 1 shows, the trend holds across the country.
The reason behind this discrepancy is that homeowners have access to cheaper credit options because they can borrow against their assets. In turn, a share of tenants, especially those living on low incomes, have to use these expensive loans, which further limits their ability to achieve economic security.
The Canadian Housing Survey (CHS) asks respondents if they experienced economic hardship that led them to take out loans or sell assets. In 2018, 19% of all tenant households and 11% of all homeowner households answered Yes. As Table 2 shows, the percentage was higher for households in core housing need, and the higher the share of income spent on shelter costs, the more likely the household was to take out loans or sell assets. An astonishing 40% of tenant households that reported experiencing economic hardship due to rent increases reported taking on debt or selling assets.
In 2020, City of Toronto staff identified and mapped 14 payday loan cluster areas across the city. The study defined clusters as areas with three or more payday loan establishments within 500 meters of each other.[i] Upon our request, city staff provided a list of the 36 census tracts comprising these clusters.[ii] We bundled tracts into one group and calculated key housing indicators for it using 2021 Census data.[iii] Table 3 compares the combined cluster averages with City of Toronto and national averages.
Here’s what we found: payday loan cluster areas have a higher share of households spending 30% or more of their income on shelter costs, a higher share of households in core housing need, and a higher share of households in subsidized housing. Overall, a household located in Toronto’s payday loan cluster areas is 2.4 times more likely to be in core housing need than the average Canadian household.
It is clear that payday lenders target areas with high rates of housing insecurity, and their activity in these areas is likely to aggravate the problem.
There is so much talk about housing insecurity in this country. So many housing strategies, housing reports, housing-related promises and announcements. Yet governments allow payday lenders to set up shop in neighbourhoods where high rents perpetuate financial insecurity. Why are we shooting ourselves in the foot?
A much lower criminal rate of interest would be a start. The next step – which doesn’t not require consultation – would be to revoke the payday loans exemption.
Notes
[1] City of Toronto, “Supplementary Report on Payday Loan Establishments,” 2022.
[2] The City of Toronto’s Social Policy, Analysis and Research Unit kindly shared the census tract locations for all payday loan clusters; all calculations and interpretations thereafter are the responsibility of the author. A map of the clusters is available online.
[3] Note on methods: We used census tract combined counts to calculated housing indicators for this new group.
