FOR IMMEDIATE RELEASE

March 28, 2023

With many families struggling because of high inflation, the federal government is right to target predatory lending. However, Cardus is disappointed the budget focuses entirely on the cost of loans without addressing the real challenge of inequitable access to credit. Where is the support for payday loan alternatives? Where is the effort to track consumer borrowing or use of payday loans? Working class families are almost always the folks getting caught in payday loan debt traps. If the federal government wants to help working class families, it needs to build a better credit market by enabling innovative ways for financial and civil-society institutions to meet the demand for short-term loans. Potential options for the government to encourage this innovation include:

• Creating social impact bonds that could provide capital for, and a return to, those who achieve a social-policy objective—offering small-dollar loan alternatives, or the achievement of a defined social return associated with payday lending.
• Dedication of a small amount of funds to act as a backstop to loan losses for alternative start-ups, again tied to clearly defined objectives, and with a defined sunset.
• Removal of regulatory barriers standing in the way of civil-society institutions, including charitable institutions such as churches, mosques, synagogues, temples, and community foundations, from providing capital and partnering with community-based financial institutions.
• Consultation with financial tech firms and banks to discover where regulatory hurdles are preventing innovation.

In each case, the government’s focus should be on assisting financially prudent, community-based, market-oriented alternatives to enter and change the market.

• Brian Dijkema, Vice-President of External Affairs at think tank Cardus