Bank of Canada says cold weather tied to crippling payday loans to pay energy bills

Spikes in cold weather are tied to higher levels of payday loans at cutthroat interest rates, according to a Bank of Canada report released ahead of one of the coldest winter snaps to descend on the prairies in years.Credit card transactions also tended to rise as people struggled to pay higher energy bills, according to Blacklock’s Reporter.“There are many reasons why low income households may face additional financial hardship during extreme temperature days due to unequal exposure resulting in lost wages, health issues with associated medical costs, inadequate emergency funds, outdated infrastructure and appliances, higher energy bills and limited knowledge of available insurance options,” said the report, entitled Extreme Weather And Low Income Household Finance: Evidence From Payday Loans..38% of Canadians use credit cards to cover daily expenses like food and shelter in 2022, up from 26% in 2020..Researchers based their findings on timing of extreme temperature events with trends in credit card balances, student borrowing, online payday loans and other credit sources. “Our findings highlight the heightened financial vulnerability of low income households to environmental shocks and underscore the need for targeted policies,” they wrote.The report found the typical payday borrower is 39 years old, employed full-time, rents their own home and is largely unaware of the higher borrowing costs. More than a third said they believed they were paying roughly the same or less than they would with a credit card, according to a 2009 government of Ontario study.Statistics Canada numbers suggest about 4% of Canadian households relied on payday loans to pay their bills prior to the pandemic, which was up from 3% in 2005. The Financial Consumer Agency of Canada found that number rose to 38% of Canadians who used credit cards to cover daily expenses such as food and shelter in 2022, up from 26% in 2020.Almost a third of Canadians, or 31%, said they were “short of money at the end of the month.”