Consumer advocates have urged the government to stamp out irresponsible payday lending by strengthening financial counselling services, funding no-interest loan schemes and urgently acting on a promise to better regulate the sector.
An alliance of consumer advocates – including Choice, the Consumer Action Law Centre, Financial Rights Legal Centre and Financial Counselling Australia – will begin a lobbying effort in Canberra on Monday morning, attempting to pressure the government to act on the controversial payday loan sector.
The industry is regularly accused of unscrupulous lending practices over its issuing of high-fee, high-interest, short-term loans to those least able to repay them.
One former student, who asked not to be named, told Guardian Australia of her experience taking out a $300 loan with a company formerly known as Tele Loans.
The fees on the loan ended up totalling $1209. The woman said she later found herself in a debt spiral, taking out multiple loans just to afford repayments on others.
“The way [payday loans] come across is a quick fix solution for peace of mind,” the woman said. “They really do prey on people who are at that point.
“The vicious thing is that you get one, then you need to get another to pay it off and then another one.”
A government commissioned review of the industry last year recommended tightening regulations on short-term lending. The reforms received bipartisan support but the government is yet to act.
The alliance of consumer advocates, named the Consumers Federation of Australia, want legislation introduced immediately but are also calling for additional funding for financial counselling.
It also wants to see the government fund no-interest loan schemes, like that run by Good Shepherd, which offers affordable loans of between $300 and $1,200 for essential goods and services and medical procedures.
The financial services minister, Kelly O’Dwyer, has committed to introducing the reforms this year.
The Financial Rights Legal Centre’s principal solicitor, Alexandra Kelly, said further delays would have real consequences for vulnerable 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,” Kelly said.
The review’s recommendations included requiring equal repayments over the life of a short-term loan and preventing lenders from charging monthly fees if a loan is repaid early.
The key recommendation was to tighten the cap on repayments from 20% of a consumer’s gross income to 10% of their net income, a measure that ensures loans are affordable to low-income borrowers.
The Consumers’ Federation of Australia chairman, Gerard Brody, said the changes to the repayment cap were essential.
“These industries prey on people on low incomes or in tough spots, trapping them in high-cost products even though they may be struggling to pay for the basics like rent or food,” Brody said.
“It’s essential that payday lenders and consumer lease companies like radio rentals have to limit how much someone has to devote to these toxic products to 10% of their income.
“This will see fewer people stuck with dodgy deals like paying over $3,000 for a clothes dryer worth $345.”
