Seven years after Donna Borden borrowed $10,000 from CitiFinancial, she says she had made $25,000 in payments — and was still no further ahead.
She complained to regulatory authorities, went to credit counseling for help. But nothing seemed to make much of a dent in the loan.
The interest rate on the loan was nearly 30 per cent, insurance premiums in excess of $2,600 were added to her debt, and Borden alleges the loan was then “flipped” numerous times for reasons she says are unclear to her.
“I was working seven days a week trying to pay these debts off. I realized it was physically impossible,” the 52-year old administrative assistant from Toronto said in an interview.
CitiFinancial does not charge additional fees at the time of signing, the email also says. Disclosure documents provide the borrower with information related to all payment terms. This includes the specific time required to repay a loan, provided no payments are missed. Customers are also able to prepay personal loans without extra fees, the email also said.
In 2008, Borden says she entered a debt repayment program at Credit Canada, a non-profit agency that helps customers manage their finances. By then, she owed $30,000 to various creditors.
Credit Canada negotiated repayment terms on her behalf. Most lenders will agree to waive their remaining interest charged on a debt, said Laurie Campbell, executive director of Credit Canada. However, the decision is voluntary.
Documents Borden provided show CitiFinancial agreed only to reduce its interest rate to 15.5 per cent. It also extended her loan to 2015.
Campbell called the practice of allowing lenders to sell insurance and fold the premiums into the loan “outrageous” – adding such policies are usually so tightly written borrowers rarely get to collect on them.
People struggling to carry their debts are never better off borrowing more, particularly at high interest rates, Campbell added. She says they should seek advice first from a reputable credit counseling organization.
While in credit counseling, Borden says she agreed to pay $675 a month toward meeting all her obligations. It meant working two jobs, seven days a week, plus overtime, for nearly four years. By 2012, she had wiped most of her record clean. All except for her debt with CitiFinancial.
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Borden says she calculated that by then she had paid CitiFinancial $25,000, including $9,000 while in the program with Credit Canada.
She decided enough was enough. She stopped paying.
After several months of harassing phone calls from collection agencies, Borden said, the company that by then owned her loan took her to court. CitiFinancial had sold her debt to Razor Capital LLC, a U.S.-based buyer of delinquent consumer receivables.
The statement of claim filed on Nov. 21, 2013 in the Ontario Superior Court of Justice said Borden owed $9,417.78 for an outstanding loan with CitiFinancial, plus interest at 18 per cent and $950 in costs.
That’s when Borden discovered there were hundreds of others people in the Greater Toronto Area being sued by the same company – and almost no rules to protect them.
“I would have been better off going to a loan shark in a back alley,” she said. “At least, then, I could have called the police.”
Very few countries have usury laws, which set the maximum amount of interest a lender can charge. Or, if they do, specialty lenders are frequently exempt from those limits.
Canada’s Criminal Code makes it an offense to charge more than 60 per cent interest on a loan, a level many anti-poverty groups consider excessively high. In Ontario, so-called payday loans, of $1,500 or less are exempt and thus can charge more.
Any additional regulations governing companies like CitiFinancial would be the responsibility of the provinces, a spokesperson for the Federal Consumer Agency of Canada said.
In Ontario, a complaint about false, misleading or deceptive practices would fall under the provincial Consumer Protection Act of 2002, a spokesperson for the consumer ministry wrote in an email.
In cases of misrepresentation, the consumer can withdraw from a contract by writing to the business within one year.
As well, if a lender fails to disclose or improperly discloses the cost of credit, the borrower is not liable for any costs above the appropriate amount, the ministry said.
None of that would have helped Borden, whose signature was already on the papers. Indeed, she says she was told there was nothing the ministry could do for her.
The ministry said it’s not aware of a consumer issue in the mid-sized loan industry and has not received any complaints about companies including CitiFinancial in 2014.
Toronto lawyer Kevin Klayman represents Razor Capital in the case against Borden. The Bloomington, Minnesota-based firm describes itself as a buyer, seller and broker of delinquent consumer debt.
“That’s kind of a new thing, especially in Canada. In America, it’s huge. But Canadian credit grantors – the banks – really don’t sell their debt the way American financial institutions do,” Klayman said. He is referring mainly to credit card debt.
A recent search of the public records at the courthouse at 393 University Ave., reveals Razor Capital is suing 481 people, most of them individuals owing around $7,000,
Klayman said he couldn’t talk specifically about Razor’s business, but he described how the process works.
A credit grantor, like CitiFinancial, will sell delinquent debt to a buyer, like Razor Capital, usually as a last resort after other collection efforts have failed.
The debt buyer will pay cents on the dollar and then renew attempts to collect on it.
There’s a two-year limit on the time frame to launch a lawsuit. The debt buyer usually wins a default judgment as very few debtors file a statement of defense.
The judgment allows the debt buyer to obtain a writ of seizure and sale against the debtor’s property. If the debtor’s financial situation improves, the debt owner may get a chance to collect.
In the few cases where debtors file a statement of defense, it becomes trickier as the debt buyer usually doesn’t have the resources to dispute the defendant’s claim, he said.
With the help of a legal aid lawyer, Borden filed a statement of defense.
She hopes that’s the end of her case.
But she’s not giving up the fight.
Borden is hoping that by going public with her story others will be encouraged to come forward and that their collective voices will drive change.
“Canada has virtually no laws on predatory lending,” she said.