Goeasy’s stock experienced a significant plunge this week following the company’s announcement of a $178 million charge related to bad loans and a correction of previously reported delinquency rates at its subsidiary, LendCare. This news comes after an investigation by the Toronto Star revealed concerns about practices used to suppress the reported rate of borrowers falling behind on payments.
Pickering-based LendCare specializes in point-of-sale financing, offering loans for purchases like used vehicles and veterinary care, often catering to subprime borrowers. The company has consistently marketed itself as providing seamless financing options, contributing to Goeasy’s loan book growth amidst rising costs of living and unemployment rates in Canada.
Delinquency Rate Correction and Financial Impact
Goeasy now anticipates a charge-off rate – the percentage of loans deemed uncollectible – of 12.9% in 2025, a substantial increase from the previous year’s 9.2%. Management forecasts this rate could even reach the “mid-teens” this year. This correction stems from an internal review that identified issues with LendCare’s historical reporting practices. Specifically, some customer payments were recorded as received before actual settlement, impacting reported delinquency figures.
The company disclosed that the $178 million charge represents the culmination of efforts to recover the subsidiary’s bad loans. This financial hit, coupled with the revelation of inaccurate reporting, has understandably spooked investors, leading to a 57% drop in Goeasy’s share price as of Tuesday’s market close. Stock analyst John Aiken predicts a loss for the firm in the fourth quarter, which would be its first since Q4 2010, according to FactSet data.
Allegations of Suppressed Delinquency Rates
The Toronto Star’s investigation uncovered evidence suggesting that LendCare employed tactics to artificially maintain a positive appearance of loan performance. These included pulling unexpected payments from past-due accounts and repeatedly restructuring loans to avoid classifying them as delinquent. These practices were detailed in internal records and confirmed by current and former collections staff. A short-seller’s report published in September made similar allegations regarding Goeasy as a whole, which the company initially denied.
Despite initial denials, Goeasy acknowledged the reporting issue and is taking corrective action. The company has appointed Farhan Ali Khan as the new head of LendCare as part of a six-step plan to strengthen operations and financial performance. This plan also includes reducing the volume of new loans issued by LendCare for vehicles and other goods.
Shalabh Garg, an investment analyst at Veritas Investment Research, believes the changes represent a “cleanup exercise” aimed at addressing shareholder concerns and preventing future losses. However, the immediate impact on investors has been significant, highlighting the importance of accurate financial reporting and transparent lending practices.
Further Reading: For more information on this developing story, you can refer to the original investigation by the Toronto Star.
