Financial Literacy within Payday Lending Legislation

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dc.contributor.advisorKneebone, Ron
dc.contributor.authorKluska, William
dc.date.accessioned2018-12-12T19:09:05Z
dc.date.available2018-12-12T19:09:05Z
dc.date.issued2018-09-04
dc.description.abstractPayday loans are becoming a larger part of the Canadian credit industry. The most recent report from the Canadian Consumer Finance Association (formally the Canadian Payday Loans Association) indicated that in 2014 there were 4.47 million loans made worth $2.19 billion dollars, which is almost double the number of loans and value from 2010. In the past 30 years, information gathering techniques about borrower credit history have improved in the credit industry. Some have suggested that this has caused many low income or high-risk borrowers to become displaced or pushed out of traditional credit markets. Payday loans have become one alternative credit product that many of these borrowers have substituted to fill their credit needs. A recent report from the Financial Consumer Agency of Canada, (FCAC), indicated that 45% of all respondents used a payday loan to pay for an unexpected expense such as a car repair, and 41% of respondents used a payday loan for an expected expense such as paying for an overdue utility bill. Additionally the FCAC report indicated that 43% of respondents did not understand that a payday loan is more expensive than alternative forms of credit. The net benefit of payday loans has mixed results in academic research, with many indicating that the current regulatory structure of payday loans has led to negative outcomes for many borrowers within the industry. Legislation in Canada has traditionally looked at lowering the price ceiling for payday loans or limiting the amount of a loan that a borrower can obtain, yet this has had little positive effect and has likely caused additional credit rationing behaviours by lenders. Recently, suggestions have been brought forth to focus on improving financial literacy among borrowers so they can make more well informed decisions. To counter some of the gaps in consumer financial literacy some provinces have implemented mandatory financial literacy material handouts to assist borrowers to gain a better understanding of budgeting, credit and overall financial health. Alberta and New Brunswick are the most advanced in their requirements, mandating financial literacy informational material be provided in addition to contact information for credit counselling services for all borrowers. Manitoba has mandated that contact information for credit counselling services be provided to all borrowers, but has not required any form of financial literacy information material be provided. Finally, Ontario has mandated that a portion of the licensing fees paid by payday lending institutions be used to fund the Ontario Payday Lending Education Fund, but do not have any provisions within the legislation as to what the fund is intended or required to provide. The academic literature has fundamentally suggested that financial literacy is most improved through customized, one-on-one training interactions. However, very little effort has been put forward to investigate the effectiveness of financial literacy handout information, and for good reason. It can be difficult to ascertain the retention abilities of the general public from complicated financial handouts. Most survey data analysis is unavailable to properly assess or address these concerns. Payday lending legislation is complicated and heavily influenced by political actors. It is unlikely that regulation focused solely on improving financial literacy outcomes through payday lending regulation will be successful given the research available, however, more data collection and analysis may provide some additional insight into the validity of such efforts.
dc.identifier.citationKluska, W. (2018). Financial Literacy within Payday Lending Legislation (Unpublished master's project). University of Calgary, Calgary, AB.
dc.identifier.doihttp://dx.doi.org/10.11575/PRISM/34928
dc.identifier.urihttp://hdl.handle.net/1880/109306
dc.language.isoen
dc.publisher.departmentSchool of Public Policy
dc.publisher.facultyFaculty of Graduate Studies
dc.publisher.institutionUniversity of Calgary
dc.titleFinancial Literacy within Payday Lending Legislation
dc.typemaster thesis
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