Payday Loans Are Getting Regulators’ Attention: Will These Actions Benefit?


Hoyes Michalos & Associates, a Toronto-based insolvency trustee firm, released a report indicating that 31% of insolvent borrowers used payday loans in 2017, compared to 27% of insolvent borrowers who used the service in 2016.

The province of Ontario put a cap on payday loan interest rates effective January 1. The policy think tank Cardus Work & Economics criticized the move because it offers borrowers no viable alternatives. Cardus praised the province for allowing credit unions to act as an alternative to payday loan stores.

Rising interest rates have started to strain the budgets of many Canadians, especially as the country struggles with record household and consumer debt. A report from Canadian Imperial Bank of Commerce (TSX: CM)(NYSE: CM) showed that a portion of consumers paid off their debts during the period of rate tightening. However, the rise of alternatives in recent years could prove to be beneficial for those looking for entities that offer much better interest rates than predatory cash stores. This could be doubly helpful to young tech-savvy consumers as fintech companies begin to provide these essential financial services.

Goeasy Ltd. (TSX: GSY) is a Mississauga-based company providing alternative financial goods and services in the form of unsecured installment loans. Goeasy offers these services to consumers who often have below average credit and are unable to purchase expensive devices directly. The stock was down 4.3% in 2018 to the close on Feb.15, but stocks have climbed more than 230% over a five-year period.

Goeasy is expected to release its fourth quarter and full year 2017 results on February 21. In the third quarter, Goeasy recorded a 55.9% increase in loan origination to $ 157.6 million. The loan portfolio grew 172.7% from the third quarter of 2016. Revenue increased 32.4% to $ 69.7 million, and the company recorded net customer growth of 9 095 – a 337% increase from Q3 2016. Goeasy also saw cash generated from easyfinancial customer payments increase to $ 118.3. million dollars compared to $ 89 million in the third quarter of 2016.

The company also paid a dividend of $ 0.18 per share, which represents a dividend yield of 2%. Goeasy is an attractive long-term maintenance this should benefit consumers who may turn away from payday loan stores in the future, given that it offers a viable and cheaper alternative.

Mogo Finance Technology Inc. (TSX: MOGO) is a Vancouver-based financial technology company that provides personal loans, identification fraud protection, and other services to its customers online. Mogo Finance shares fell 23.3% in 2018. In early January, Mogo announced that it would lease bitcoin machines and launch Mogo Blockchain technology.

Peer-to-peer lenders like Mogo tend to be more expensive than bank loans, but remain a much better value than payday loans. Rates are often specific to the lender, and in Mogo’s case, your rate is determined by your credit score; the better, the lower the rate. Mogo also offers credit score visualization, which can help consumers better manage their credit in the future.

In the third quarter of 2017, Mogo saw its revenue increase 10% year-on-year to $ 12.6 million and its gross profit margin increase to 68% of total revenue. Gross loans receivable reached $ 74.7 million compared to $ 69.6 million at the end of the second quarter. Mogo is expected to release its fourth quarter and full year results in early March. The company plans to reach 800,000 to 1 million members by the end of 2018.

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