Payday loans account for growing share of personal insolvencies in Ontario: study

TORONTO – A study by a Toronto-based company indicates that the rate of insolvent borrowers using payday loans in Ontario has increased for the sixth consecutive year.

Insolvency Trustee Firm Hoyes Michalos & Associates says 31% of insolvent borrowers used the loans in 2017, up from 27% the year before.

The study suggests that payday loans are a growing driver of personal insolvency in Ontario, with distressed debtors taking out fewer but larger loans despite recent downward changes in lending rates.

Effective January 1, 2017, the provincial government reduced the maximum amount that lenders can charge for a payday loan to $ 18 for every $ 100 borrowed, from $ 21 for every $ 100. Earlier this year, the rate was further reduced to $ 15.

Hoyes Michalos & Associates said they looked at 3,500 insolvency cases and found that the average number of payday loans outstanding at the time of insolvency fell to 3.2 in 2017, but the average payday loan amount was of $ 1,095, an increase of 12.4% over the previous year. .

In total, insolvent borrowers owed an average of $ 3,464 on all their payday loans, according to the study, or $ 1.34 for every dollar of their monthly take-home pay.

“Insolvent borrowers are now 2.6 times more likely to have at least one payday loan outstanding when they file for bankruptcy or a consumer proposal than in 2011,” said Ted Michalos, co-founder of Hoyes Michalos & Associates. “It’s a cycle that just isn’t sustainable.”

Although the average monthly income of a payday loan borrower is $ 2,589, the study also found that payday loans are more likely to be used by debtors with monthly income over 4,000. $ than by those with incomes between $ 1,001 and $ 2,000.

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