New Brunswick residents are increasingly resorting to payday loans to manage their household finances, as indicated by data from the New Brunswick Financial and Consumer Services Commission. The borrowing amount surged from $5.4 million across the province in 2020 to $20.2 million in 2024, despite the fact that payday loans are acknowledged as a high-cost and high-risk form of credit.
Jacalyn MacLean, a certified financial counsellor from Saint John, expressed concern, stating, “I think there’s a lot more people who are feeling a desperation.” She highlighted the growing struggle in communities compared to a decade ago, emphasizing that this reality presents a challenging issue to address.
The Cost of Credit Disclosure and Payday Loans Act in New Brunswick is designed to safeguard consumers by ensuring transparent disclosure of the actual borrowing costs upfront. This legislation covers various financial transactions, including mortgages, credit card deals, leases, and lines of credit, with a specific focus on payday loans. These loans typically involve amounts under $500, to be repaid on the borrower’s next payday or within a maximum borrowing period of 62 days. Only five companies hold licenses as payday lenders in New Brunswick.
In 2024, the average payday loan amount in New Brunswick was $415.56, marking a 20% increase from 2020. However, borrowers face the challenge of repaying the loan along with fees by their subsequent pay cycle, contributing to financial stress.
To regulate the payday loan market, a fee cap of $14 per $100 borrowed was introduced on January 1. This fee structure translates to an annual interest rate of approximately 365%, significantly higher than alternative options like cash advances on credit cards. Defaulting on repayments may result in a maximum $20 charge for insufficient funds.
Licensed insolvency trustee Tara Silliker highlighted the issue of individuals resorting to multiple payday loans to navigate their financial obligations, creating a cycle of debt. A survey revealed that less than half of payday loan borrowers managed to repay their loans with their following paychecks, with some having to take out additional payday loans to settle existing debts.
Randy Hatfield, the executive director of the Human Development Council in Saint John, expressed concern over the rise of other high-cost credit options, such as instalment loans. These loans, often for larger amounts, are repaid biweekly or monthly over an extended period.
Financial literacy experts recommend thorough research on credit options and contract terms before borrowing. Working with licensed payday lenders is advised to avoid potential risks associated with unlicensed lenders, including aggressive collection practices and harassment tactics.
The growth in high-cost credit alternatives, including payday and instalment loans, underscores the necessity for borrowers to make informed decisions to manage their financial well-being effectively.