Payday loans continue to take a toll on heavily indebted Ontarians, according to a new report.
Research by insolvency trustee firm Hoyes, Michalos & Associates Inc. reveals that almost four in 10 Ontario insolvencies (40%) in 2018 involved frequent use of payday loans. The data shows that 37% of all insolvencies recorded in Ontario during 2018 involved payday loans, up from 32% in 2017. Insolvent borrowers are now three times more likely to use payday loans than they were in 2011.
Furthermore, the average insolvent payday loan borrower owes $5,174 in payday loans on as many as four different loans. In aggregate they owe two times their total monthly take-home pay on loans with interest rates as high as 59.99% for longer term loans and 390% for traditional payday loans.
The typical payday loan size increased in 2018 to $1,311, up 19% over 2017, the result of easy access to higher dollar loans, said Hoyes, Michalos & Associates. In 2018, 15% of all individual payday loans were for $2,500 or more, up from 9% in 2017 and barely 1% in 2011.
To provide additional protection for consumers and reduce excessive payday loan use, Hoyes Michalos & Associates Inc. recommends that payday lenders be required to report all short-term loans to credit reporting agencies, discontinue the use of introductory teaser rates that only serve to entice a borrower onto the payday loan cycle, provide overly indebted borrowers with information on all their debt management options including a consumer proposal and bankruptcy.
