Interest rate caps won’t solve the payday loan problem in Canada

FOR IMMEDIATE RELEASE

5 June, 2025

OTTAWA – Canada needs to prepare today for a possible rise in payday loan use over the next year. If the country faces an economic downturn—or even a recession—because of US tariffs and trade turmoil, unemployed Canadians may increasingly turn to high-cost, short-term loans to cover unexpected expenses. Leaders in government and banking need to get ahead of the problem.

“When the federal government lowered the criminal interest rate recently, it made payday loans less bad, but it didn’t make them good,” says Renze Nauta, Work & Economics Program Director at Cardus. “But where is the effort to encourage or find new ways for low-income, marginalized people to get access to the mainstream credit market so they don’t run the risk of getting caught in a payday loan trap? When will that become part of banks’ corporate citizenship initiatives?”

Cardus has studied payday loans since 2016 and plans to release a new report later this year on how the payday loan landscape has evolved. Meanwhile, governments at all levels, as well as the big banks, can do more to help:

• PUBLIC EDUCATION – Governments can ramp up their own efforts to warn consumers about the high cost of payday loans, encouraging them to seek out safer alternatives.
• FINANCIAL LITERACY – Provincial governments can bring in industry experts to help teach high school students about managing personal budgets and debt.
• CORPORATE CITIZENSHIP – Canada’s banks can take some of the billions of dollars they’re spending for corporate citizenship initiatives and redirect that funding toward helping consumers who wouldn’t normally qualify for loans get emergency cash, avoiding payday loans.
• CONSTITUENCY-LEVEL HELP – Federal, provincial, and municipal-level politicians can ensure their constituency offices are prepared to offer information on where to get emergency cash through rent banks, charities, or faith communities without using payday loans.
• BETTER DATA – Good policy comes from good data. Federal and provincial governments need to get better data on the people who use payday loans, including their debt levels, the number of loans individual borrowers hold, and the types of loans they’re accessing.

“If governments really want to come up with new solutions to the payday loan problem, they’ll need much better information first,” says Nauta. “They should study borrowers—who they are, why they turn to payday loans, and how much debt they’re racking up. That work hasn’t been done yet. And then governments will need to connect with the big banks, credit unions, and even civil society to explore ways to create alternatives to payday loans.” 

Existing Cardus research on payday loans is freely available at Cardus.ca.

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MEDIA INQUIRIES
Daniel Proussalidis
Cardus – Director of Media & Public Relations
media@cardus.ca
613-241-4500 x508

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Cardus is a non-partisan think tank dedicated to clarifying and strengthening, through research and dialogue, the ways in which society’s institutions can work together for the common good.