TORONTO, Ontario — A growing pilot backed by credit unions is offering an alternative to high-cost payday loans, helping borrowers escape interest rates that often exceed 60%, according to the organizations involved.
DUCA Impact Lab, which is led by DUCA Credit Union in Toronto, said it is expanding its Escalator Loan Program through new philanthropic partnerships with Vancity Credit Union and Coast Capital Credit Union on the country’s west coast, which will join Kindred Credit Union and Your Neighbourhood Credit Union in Ontario, according to Future of Good. The program was developed through the nonprofit arm of DUCA Credit Union and is delivered nationally by the Impact Lab, the report said.
Future of Good explained the Escalator Loan is designed for people trapped in the payday lending cycle, approving borrowers based on cash flow rather than credit scores and offering lower costs, manageable repayments and rebates for on-time payments. Regular repayment also helps improve borrowers’ credit scores, unlike payday loans that are often not reported to credit bureaus, according to the organization.
Average Interest Rate of Nearly 60%
Of the roughly 150 borrowers served so far, the average interest rate they were paying before entering the program was 59.9%, said Keith Taylor, executive director of DUCA Impact Lab. That was just below Canada’s former criminal interest rate, which was lowered to 35% as of Jan. 1, 2025, to curb predatory lending.
Nearly two-million Canadians use payday loans annually, according to the Financial Consumer Agency of Canada. Many lack access to credit cards or lines of credit, and fewer than half fully understand the costs associated with payday borrowing, Future of Good said.
Taylor told Future of Good that early results show improved financial stability for borrowers, including greater ability to cover rent and groceries, along with reported improvements in mental and physical well-being. Compared with a typical payday loan, Escalator Loans cut repayment periods roughly in half and reduce the total cost of borrowing by about 92%.
$1 Million in Interest Savings
Since launch, the program has issued about $750,000 in loans, generating an estimated $1 million in interest savings redirected to low-income borrowers, Taylor said, according to Future of Good.
The partner credit unions provide philanthropic capital and referrals but do not carry the lending risk. DUCA Impact Lab remains the sole lender, allowing credit unions to support the initiative without exposing member deposits to potential defaults.
Taylor said the organization is working to develop an impact investment framework to attract additional capital from foundations. The pilot aims to reach about 3,000 borrowers and $25 million in lending by 2030, the report added.
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