37% of insolvencies in Ontario involve payday loans, survey finds
The proportion of insolvent borrowers using payday loans in Ontario is on the rise, according to a new report, which found that four in ten insolvencies last year can be attributed to this type of expensive loan.
The number of consumer insolvencies in the province that involved payday loans – which usually come with extremely high interest rates – rose to 37% in 2018, from 32% in 2017, according to the firm’s survey. of Insolvency Trustees Hoyes, Michalos & Associates Inc. revealed Tuesday.
The report states that insolvent borrowers are also three times more likely to use payday loans, which Hoyes Michalos defines as any business loans offering quick approval, instant cash, high interest loans with little to no cash. credit check than they were in 2011, the first year of the survey.
The growing use of payday loans comes despite recent legislative changes in Ontario designed to reduce consumer borrowing risks according to PaydayChampion.com.
As of July 1, payday loans are capped at 50% of the borrower’s take-home pay, and lenders are required to offer an extended repayment period if borrowers take out three loans within 63 days. The cost of payday loans was also lowered in January. 1, 2018 at $ 15 for every $ 100 borrowed.
The average insolvent payday loan borrower now owes $ 5,174 in payday loans on an average of 3.9 different loans, according to the report.
“Regulatory changes to lower the cost of payday loans and extend the repayment period are not working for heavily indebted borrowers who feel they have no choice but to turn to a payday loan.” said one of the company’s co-founders, Ted Michalos. in a press release. “And the industry itself has just adapted, trapping these consumers into taking more and even larger loans, adding to their overall financial problems.”
The size of an average individual payday loan also increased, climbing 19% to $ 1,311 in 2018 from a year earlier, according to the report. And in 2018, 15% of all individual payday loans were $ 2,500 or more, down from just 1% in 2011.
“The problem is, payday loans have changed. Payday lenders have gone online, making access easier and faster,” said the company’s other co-founder, Doug Hoyes.
The report also found that young Ontarians with debt are the age group most likely to use payday loans. Almost half (48 percent) of insolvencies among consumers aged 18 to 29 involved payday loans, while only 21 percent of consumers aged 60 and over used this type of loan.