Esteban Uribe
Public Interest Advocacy Centre (PIAC)
2008
This study has examined a number of factors that would appear to have contributed to the growth of the subprime, high-interest lending market. One such factor is the underlying economic conditions of Canadian society. Over the last twenty-five years, income levels have stagnated or decreased in constant dollars for lower and middle income Canadians. In real estate markets, where prices have been surging, there is little chance for the participation of Canadians from these income levels in the housing market financed by traditional lenders. As well, the increasing retreat of traditional banks from the retail and consumer banking through branch closures has further driven increased recourse to high cost lenders. This report contains the results of several focus groups sessions carried out in Edmonton, Toronto and Vancouver with users of subprime, high-interest lending in the particular areas of payday loans and subprime mortgages. The focus groups were conducted to inquire into the experiences of consumers who use these services and gather their insights with respect to why and how they had recourse to these services. The focus group participants referred to several factors that had contributed to them falling through the cracks of the credit system and having to use subprime providers. A key driver was the existence of problems with the use of credit as a young adult when their financial skills and judgment were not well developed. In particular, debt problems associated with student loan debt were frequently mentioned as a contributing factor in the worsening of personal finances when the education was finished. Ironically, for many subprime borrowers, the effort to improve educational status had catastrophic results on credit standing and shut them out of traditional lending markets.
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OCA Funded ResearchThis research received funding support through the Office of Consumer Affairs' Contributions Program.
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Source: Consumer Policy Research Database