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Financial Crisis caused by lack of Corporate Social Responsibility

Today, there are many money lenders in Canada who can be tagged as outside of the mainstream financial system. One of them is the controversial Payday Loan Lender. Payday Loan companies charge their customers as high as 800% per annum but many Canadians still find this the easiest way to get some extra funds when they need it. An amendment to the Payday Loan Act became effective this February in Ontario as the government fought to protect Ontario citizens from what is called “abusive practices” of Payday Loan Lenders. In the amendment, the maximum interest that can be charged for a Payday Loan is 60% per annum. Companies who sell short term, high cost loans, even if they are not calling them Payday Loans, are required to get a separate license which is entirely different from the Payday Loan permit. This is to enable the government to monitor this industry and to make sure that everyone is following the new regulations.  Failure to comply would mean that their license will be revoked. The new revisions to the Payday Loan act also tries to protect the borrowers from themselves by not allowing “Rollover Loans”, which is the reason why many borrowers get buried in debt and accumulating interest fees. A borrower can only renew the loan once it has been fully paid.
Financial Crisis caused by lack of Corporate Social Responsibility

Financial Crisis caused by lack of Corporate Social Responsibility

These new developments are all beneficial to people but still it doesn’t address the failure of mainstream financial institutions to address the rising need of Canadians. Low income families are left with no other option but to pay exorbitant interests, while high income families can avail of a maximum interest of 16% per annum for credit card loans. Understandably, banks and credit unions are just protecting their investment. But in the meantime, Payday Loan companies are getting rich out of the people’s lack of options. Not everyone who patronises Payday Loans is “unbanked” – a term used to describe people who do not have bank accounts or are not members of a credit union. Some of them actually maintain bank accounts. But due to convenience and fast approval, they still choose to go to Payday Loan lenders instead of their banks – even though the banks offer a significantly lower interest.
Currently, 3 to 15% of the Canadian adult population can be classified as unbanked. However, if we look at the booming Payday Loan industry, you can determine that there are a higher percentage of people availing of Payday Loans. It’s no longer just a matter of credit standing which drives people to Payday Loans. Fast and convenient access to funds are also additional factors.
While the government of Ontario has done a good thing in amending the Payday Loans Act, it would be better if they also highlighted the need for banks and institutions to open its coffers and take a risk on the rest of the population. Surely there’s money to be made from loans given to people with a less than perfect credit standing. Payday Loan Lenders are putting up branches all over Canada and it’s a booming business. Maybe they should give people with a bad credit standing a chance to redeem themselves, based on their current capability to pay – and make the loan process more convenient. This way, people would gravitate back to their banks and credit unions instead of burying themselves in debt due to high interest fees. There is still such a thing as Corporate Social Responsibility. Although there are a lot of other financing companies offering alternatives to Payday Loans – with more flexible payment terms – it is still best for everyone if mainstream financial institutions review their current business processes to provide a more positive impact on society.