Marcia Bryan was one of many Canadians who took out a loan from an alternative financial services lender, only to find herself swamped with steep monthly payments and debt that wouldn’t budge.

At first, she borrowed a small amount of $2,700 in 2019, then incrementally more. She made her payments each month but her debt kept ballooning. It took years before she realized the steep interest on her loan was to blame.

“I’m looking at my statement and I’m thinking, ‘This isn’t going anywhere.’ I’m not putting a dent in it really,” she told in a phone interview last week. 

Bryan, chairperson for the Cooksville Chapter of social advocacy group ACORN Canada, recently celebrated new proposed limits on consumer interest rates for loans introduced in this year’s federal budget – but she said more clarity is needed on the proposal, and more work must be done to reign in so-called “predatory lending” in Canada.

“We call this a victory, but it’s still not over yet,” she said.

Tabled last Tuesday, the federal Liberals’ 2023 spending plan proposed lowering the criminal rate of interest for consumers to 35 per cent annual percentage rate (APR) from the current 47 per cent APR.

It also proposed adjusting the Criminal Code exemption for payday lenders, which are regulated provincially, to no more than $14 per $100, borrowed, and announced plans to hold consultations on further revisions to alternative and payday lending regulation.

ACORN advocates, including Bryan, had called on the federal government to tackle the practice of “predatory lending,” where businesses offer loans at high interest rates to people who can’t access credit from traditional banks. ACORN had pitched a cap of 30 per cent APR to start.

Bryan said she wants more clarity on whether the new interest rate will apply to all existing customers, and when it will come into effect. She’d also like to see efforts to create more options for customers at mainstream financial institutions, recalling to her own inability to obtain a loan from a major Canadian bank, despite being a longtime customer with good credit.

Alternative lenders have raised concerns about the proposed regulatory changes.

The Canadian Lenders’ Association warned that the lower interest rate cap could have the opposite of its intended effect and make life costlier for low-income Canadians by eliminating their access to non-prime credit. The organization argued that could drive people to take out payday loans at even more expensive interest rates, and urged the government to focus on further regulations for payday lenders.

Jason Mullins, president and CEO of goeasy, told BNN Bloomberg in a television interview that his company already offers rates below the new federal limit. He is not concerned about his business’ ability to adapt to the new rules, but said he worries about the industry and its customers.

“It’s the consumer and the industry that we’re more worried about and unintended consequences for them,” he said.

Doretta Thompson, director of corporate citizenship and financial literacy leader at CPA Canada, said governments are walking a fine line when it comes to regulating alternative lenders because if the businesses can’t make money, people could be driven into a completely unregulated black market to acquire credit.

She said the alternative lenders’ framing of their operations as essential services points to an “important systemic issue” in Canada: that many low-income people aren’t served by the mainstream banking sector.

“The question becomes: how does one develop or offer more fair, reasonable services for those people,” she said in a telephone interview.

She said the federal budget proposal is an “important first step” in tackling predatory lending and shining a light on the practices that trap people in cycles of high-interest loans – noting that more people tend to seek out alternative lenders during economic tough times, such as today’s high-interest rate, high-inflation environment.

There are also other means of offering more mainstream loan options, Thompson said. She referenced a program launched by Canada Post and TD Bank that offered loans based on credit scores before it was paused last fall.

Greater education around financial literacy would also help Canadians make informed decisions for themselves, she added.

“There's a role a really important role for all parts of the financial ecosystem to start thinking about all people in Canada … having access to fair, reasonable credit services,” she said.