A significant portion of Canadians turning to payday lenders are not just financially desperate — they also struggle with impulse control, according to a new Bank of Canada report that raises questions about how to regulate high-interest credit markets.Blacklock's Reporter says the report, High Cost Consumer Credit: Desperation, Temptation And Default, found that roughly 33% of payday loan borrowers fall into households with “self-control issues,” suggesting that for many, the problem isn’t only a lack of funds but also poor financial discipline. The rest were driven by necessity, the authors noted.“Borrowers may be willing to borrow at high interest rates during bad times or they might be tempted to consume more in the present than is desirable for them in the long run,” the report explained. .It suggested that while policy should protect access to short-term credit for those in temporary financial distress, it might also restrict access for households prone to overspending.The findings are based on an analysis of 100 million payday loan transactions over 15 years in Florida, gathered by the state’s Office of Financial Regulation. Researchers noted that the U.S. market for payday, pawn, and title loans is tightly regulated, with ongoing debate about how best to balance access with protection from predatory practices.The average payday loan analyzed was $404 with a 17-day term, carrying a monthly interest rate of 22.4%, which translates to an annual rate of 268%. Borrowing typically spanned a four-month cycle, and about 2% of transactions were repaid late..Canadian research aligns with some of the U.S. findings. A 2023 report by the Financial Consumer Agency of Canada found most payday loan users were wage earners hit by sudden expenses, such as medical emergencies or car repairs. Meanwhile, a 2009 Ontario government study contradicted industry claims that borrowers were “average Canadians.” That study described the typical client as a 39-year-old renter working full-time for low wages and often unaware of the true cost of borrowing.It also found that 37% of borrowers mistakenly believed payday loans were as affordable — or cheaper — than credit cards. According to the Ontario report, titled Capping Borrowing Costs: A Balanced Approach To Payday Loans In Ontario, lenders’ average profit margins were 7%, while operational costs, including storefronts, drove loan costs up to 22%. About 4% of payday loans ended in default.
