More insolvent borrowers use payday loans 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.

According to insolvency trustee firm Hoyes Michalos & Associates, 31% of insolvent borrowers used the loans in 2017, up from 27% the previous year.

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 changes to lower borrowing rates.

Effective January 1, 2017, the provincial government reduced the maximum amount 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 says it reviewed 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 $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, the study found, 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 outstanding payday loan when they file 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 borrowers with a monthly income above $4,000. than by those whose income is between $1,001 and $2,000.

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