Almost four in ten Ontario insolvencies in 2018 involved payday loans, according to research by insolvency trustee firm, Hoyes, Michalos & Associates.
The firm adds that despite legislative changes to reduce consumer risk, payday loan use among heavily indebted Ontarians continues to rise.
"Regulatory changes to lower the cost of payday loans and lengthen the period of repayment are not working for heavily indebted borrowers who feel they have no other option but to turn to a payday loan," says Ted Michalos. "And the industry itself has just adapted, trapping these consumers into taking out more and even bigger loans, adding to their overall financial problems."
In 2018, 37% of all insolvencies involved payday loans. This is an increase from 32% in 2017 and the seventh consecutive increase since Hoyes Michalos' initial study in 2011. Insolvent borrowers are now three times more likely to use payday loans than they were in 2011, says the firm.
Easier and quicker access
"The problem is payday loans have changed. Payday lenders have gone online, making access easier and quicker. Even more concerning, payday loan companies now offer a wider array of products, including high-interest, fast-cash installment loans and lines of credit. We see the use of larger fast-cash loans increasing, to the detriment of borrowers." adds Doug Hoyes. "At the same time, heavy users circumvent rules to limit repeat use by visiting more than one lender, and there are no safeguards in place preventing them from doing so."
The average insolvent payday loan borrower owes $5,174 in payday loans on an average 3.9 different loans, the study showed. “In aggregate they owe two times their total monthly take-home pay on loans with interest rates typically ranging from 29.99% to 59.99% for longer term loans and 390% for traditional payday loans,” says Hoyes Michalos' study.
The average individual payday loan size increased in 2018 to $1,311. This is up 19% over 2017, the result of easy access to higher dollar loans, says the firm.
Can’t borrow your way out of debt
"Heavily indebted borrowers need a more robust debt management solution," says Doug Hoyes. "They cannot borrow their way out of debt. The earlier they speak to a professional like a Licensed Insolvency Trustee, the more options they have available to get those debts under control and the sooner they can recover financially so they are not reliant on payday loans at all."
To learn more, consult the full study here.