How a $1,400 payday loan ballooned to more than $10K

Robbie McCall'spayday loan nightmare begannine years ago with a simple wish:to buy his teenage daughter a special Christmas gift.

McCallhad started receiving social assistance after health problems forced him to leave his job.A payday loan for a few hundred dollars seemed like a good idea.

"It was so easy," he recalled.

But what McCall didn't fully understand was that theinterest on his loan was being calculated biweekly, so every two weeks the amount he owed grew exponentially by 20 per cent.

That translates into an annual interest rate of 546 per cent.

Two months later he took out another payday loan, and dug himself an even deeper hole.

"The second time around, to borrow $200, I had to pay back $260,"McCallsaid. Soon he wasborrowing from one payday lender to pay back another.

'Almost impossible' to emerge from loan debt

After four years he had loans with four different payday lenders.

"I maxed out every one of them and I still had no money," said McCall.

"I didn't have any food in the fridge. I didn't want to have people over because I couldn't afford coffee."

It took McCall three years to pay off the initial $1,400 he had borrowed. In the end, he estimates he paid more than $10,000 in interest.

"Their interest rates are criminal," McCallsaid."Once they get their hooks into you, it's almost impossible."

Alternative loan program

In January 2017 new rules came into effect in Ontario limiting payday lenders to charging$18 onevery $100 borrowed.

• Who uses payday loans and why? Report on payday loans by Financial Consumer Agency of Canada

And now an Ottawa social services agency has created an alternative payday loan to try and help people like McCall.

Causeway Work Centre launched its loan program in October 2016 with $100,000 from local credit unions.

It offers small loans at nineper cent interest to people who would usually have to rely on payday lenders with much higher rates.

"The need was far greater than we ever anticipated," said Doug Pawson, Causeway's director of social finance.

Over the past year Pawson said about 100 people have come looking for loans, typicallyfor about $1,500, but only 13 have beenapproved.

"When we are looking at an individual's budget, we want to make sure our loan will help them get out of the cycle," said Pawson.

"If you put people in the position where they have too much debt, you can do more harm than good."

McCall said he was one of the people who applied for the Causeway loan, but whowas not approved.

After years of budgetingMcCallplans to makehis last payment on his payday loans this week, and he vows to never use high-interest payday lenders again.

"I am college educated.I thought I knew what I was getting into," McCallsaid. "But it tumbled out of control so fast."

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