Financial fair play: Choice leads consumer advocacy call for payday lender reform
A number of consumer advocacy groups have called upon the Federal Government to make good on its promise to crack down on ‘toxic’ payday lenders, with the industry often accused of charging exorbitant fees and interest rates.
The alliance of consumer advocates, which includes Choice, the The Financial Rights Legal Centre and Good Shepherd Microfinance among others, has urged the government to implement the recommendations of last year’s Treasury department review on small amount credit contracts.
The review recommended a number of changes to short-term lending including reducing the cap on repayments from 20% to 10% of a borrower's income, mandating equal payments for the life of a loan and preventing payday lenders from making unsolicited offers to customers.
Minister for Revenue and Financial Services Kelly O’Dwyer originally committed to implementing 21 of the 24 recommendations made by the review in November 2016, and has once again pledged the government's support for reform.
But in an interview with the Guardian Australia Alexandra Kelly, The Financial Rights Legal Centre’s principal solicitor, stated that further inaction would end up having real consequences for borrowers.
“Every day the federal government delays this legislation is another day someone walks through our doors in financial distress because of the devastatingly poor practices within this industry,” she said.
The consumer advocates alliance also called on the government to offer more support in the way of financial education and counselling for consumers, as well as affordable loan schemes.
"Payday loans and consumer leases are often used by people who feel they have no alternative when times get tough,” said Adam Mooney, Chief Executive of Good Shepherd Microfinance, in an interview with Choice.
"We'd like to see the federal government increase its investment in safe, smart options such as financial counselling, the No Interest Loan Scheme (NILS) and legal assistance.”
Named in Choice’s 2016 Shonky Awards, payday lender Cash Converters was found to charge a number of exorbitant fees on its loans including a 20% establishment fee and a 4% monthly fee.
On a $2,000 Cash Converters loan, borrowers would end up paying $3,360 over 12 months which equates to an interest rate of almost 70%. When you compare that with rates in the Mozo personal loan database, that start from as low as 5.10%, the markup charged by payday lenders can be quite considerable.