Consumer advocates hail government plan to overhaul payday loan industry
The federal government plans to pass new legislation to overhaul the payday loan industry, implementing recommendations from a 2016 review that the previous government failed to act on.
- Federal government to implement recommendations from 2016 report on payday loans
- These reforms include capping repayments and banning lenders from making unsolicited offers.
- An end-of-year deadline has been set by the government to adopt the legislation
The reforms will cap a borrower’s repayments at 10% of their income, prohibit lenders from making unsolicited offers and directing customers to unregulated credit providers, and introduce anti-avoidance measures to prevent operators questionable to restructure and reopen businesses.
Financial Services Minister Stephen Jones said reforms were a priority for the government.
“It’s about making sure that when small credit is offered, often called a payday loan, it’s done in a safe environment and that vulnerable consumers aren’t taken advantage of.
“This is a long-awaited reform. The previous government carried out a review in 2016, which recommended the reforms we introduced in parliament,” he said.
On Friday, the Senate Economics Committee will hear from financial advisers, consumer advocates and the complaints authority about the proposed changes and industry issues.
The “predatory” system must change
The plan to implement the recommendations has been welcomed by consumer advocates and financial advisers, who say the current system is “predatory”.
Lyndall Millburn has worked as a financial adviser in Canberra for eight years and says people who use payday lenders are often desperate.
“People don’t borrow these loans for frivolous reasons,” she said. “They don’t have high incomes and they kind of need something right away.
“Most of them [are] depend on Centrelink for their income, and it just comes down to Centrelink not having enough money.
“They’re the best budgeters if they can switch to Centrelink, they’re better than me. But, when unforeseen costs come up, there’s just no way they have the ability to save for one. of them.” said Ms Millburn.
Many of Ms Millburn’s clients are promised quick money and easy refunds, but the costs are not always clear up front.
“They make it look really, really easy in their ads,” she said.
“But what the ad doesn’t disclose are the costs, 20% set-up fee, 4% interest per month, which works out to 48% interest per annum.
“I think they’re very predatory, and I think they’re predatory of vulnerable people,” Ms Millburn said.
With these fees and strict repayment schedules, escaping payday loan debt is nearly impossible and, Ms. Millburn says, it’s common for customers to take out more payday loans to cover repayment costs.
“A client of mine has seven payday loans,” she said.
“After paying the payday loans and 25% of the rent income, he is left with 11% of his income, and that amounts to $150 a fortnight for food utilities, cars, children, clothes, phones, everything. “
Consumer Action Law Center policy director Tania Clarke said the reforms should have been implemented years ago.
“Really, they are seven years behind because the Treasury’s independent review of low-value credit agreements was in 2016,” Ms Clarke said. “We’ve been really waiting for this for a long time.”