DUCA Impact Lab: Helping Canadians Escape the Trap of Overpriced Debt

If there’s one thing I hate, it’s companies who take advantage of people who struggle with their finances. I especially hate companies who brand themselves as financial services companies when they are really just loan sharks selling high-interest loans to people who think they have no other options. You may even remember my video from this summer when I was shocked to see that Money Mart had added “Financial Services” to their signage.

The reality is, even though I’ve never been in a situation where I’ve been refused credit from a traditional lender, many people are such as new Canadians and social entrepreneurs. So, where do they go when they need to take out a loan? Where else? Those dodgy payday loan companies could charge as high as $15 for borrowing only $100 for two weeks (the maximum rate permissible by law).

With all the advancements in financial technology and financial literacy, this isn’t good enough. There are some major flaws in the financial services industry that seriously need to be addressed.

That’s why I’m teaming up with DUCA Credit Union to promote their new initiative that just launched this month — DUCA Impact Lab. It’s a registered charity that will act as a hub for the exploration of solutions to the inequities in today’s financial system. The goal of the DUCA Impact Lab is to help make financial services for all because right now not everyone in Canada is getting a fair deal.

Problem #1: People Who Can’t Obtain Affordable Credit Resort to Expensive Payday Loans

You may not know this fact, but in Canada, everyone has the right to open up a bank account at a bank or federally regulated credit union as long as you can show proper identification. That means that as long as you can show a piece of I.D., you can’t be refused a bank account even if you don’t have a job, don’t have any money to put into the account, or have been bankrupt.

This is great, however, it’s not the same when it comes to credit. Not everyone in this country has access to affordable credit. And no, it’s not always because they’ve abused credit in the past and thus have a low credit score. Sometimes it’s because they don’t have enough credit history. For instance, stay-at-home parents who used credit in their partner’s name (instead of building credit in their own). Or new immigrants to Canada who are just starting to build their credit profile here. It could also be a case that they are considered low-income and the banks consider them high-risk for that reason.

Traditionally, when these people are seeking credit, the only places that will help them are payday loan companies. Unfortunately, although it’s easy to access these types of loans, there’s a huge lack of transparency and usually, after obtaining a loan, customers can’t afford to pay it back due to the incredibly high interest and short loan term. This usually results in these customers getting trapped by expensive debt, which is very difficult to get out.

Solution: Provide Education & Advice in Addition to Credit

So what’s the solution to this problem? The DUCA Impact Lab believes that the biggest solution could be providing education and advice in addition to loans, so people can avoid or better understand how to get out of high-interest debt.

At the end of the day, a big portion of payday loan borrowers resort to credit because they don’t have any savings, are given bad financial advice, and don’t have the proper financial literacy to make sound financial decisions. According to a 2016 survey by the Financial Consumer Agency of Canada, 45% of respondents said they took out a payday loan to pay for necessary expenses like car repairs.

Something needs to be done so these borrowers aren’t restricted to impossibly expensive credit, but are also given the proper counseling and education to know their options and make a sound debt repayment plan.

Problem #2: Foreign Trained Professionals Have a Hard Time Obtaining Canadian Credentials

Back in high school, I worked part-time as a cashier at A&W. When I worked weekend mornings, I would work alongside a group of 30-40-year-old women who were all immigrants from Malaysia and the Philippines. They were incredibly hard workers, and it was because they needed their jobs not only for their livelihood but also to earn enough to afford to get accreditation in Canada. You see, these women were all experienced nurses or teachers in their home countries. But when they immigrated to Canada, none of their accreditation transferred over. This meant they had to take a low-paying job at a fast food restaurant to live and pay for school.

This is a very common story throughout Canada. Newcomers often have to work long hours at low-paying jobs to survive and earn their Canadian credentials. As you could guess, most of the time what they earn from these jobs isn’t enough to afford both. Sadly, because they are new to the country, often they are denied credit due to a lack of credit history, collateral, or income.

Solution: Provide Financing for Credential Assessments & Training

Unless you’re of indigenous descent, then your family immigrated to Canada once upon a time. On my mom’s side, we immigrated from France in the 1600s. On my dad’s side, we immigrated from Scotland when he was a baby. I’m a child of immigrants, so I’m very passionate about supporting new immigrants in this country. After all, immigrants are what makes Canada so vibrant, diverse, and amazing to live in!

So, what is there to be done to help newcomer professionals reach their earning potential sooner? The DUCA Impact Lab believes providing financing more easily for credential assessments and training requirements is a good first step. Then, leveraging government and foundation guarantees to provide additional opportunities for impact lending through credit unions like DUCA.

Problem #3: New Entrepreneurs & Small Business Owners Face Issues with Cash Flow

It’s not easy starting a business. And I know I’m one of the lucky ones. My business essentially consists of me, my phone, and my laptop. Most small businesses have way more overhead costs such as an office or retail space, staff, and equipment. Because of this, many small businesses struggle to get off the ground due to a lack of cash flow.

Do you know the saying “You need to spend money to make money”? Well, it’s absolutely true! The more I’ve invested in my business, the more revenue I’ve earned. But when you don’t have the cash, you can’t invest in your business. This forces you to do the best you can with the revenue you earn, grants, and start-up loans, without much of a long-term financial management plan.

Solution: Make Funding More Readily Available & Help Guide New Businesses Towards Success

In terms of improving cash flow, the DUCA Impact Lab believes that using specialized invoice factoring could help improve cash flow. In terms of making credit more accessible for small businesses, tapping into efficiencies in the Impact Lab partner group to fund loans could also provide credit to businesses who need it as well as helpful advice on how to manage those funds more effectively too.

To learn more about what the DUCA Impact Lab is doing to help Canadians and improve the financial space, visit DUCAImpactLab.com.