The payday loan industry is using Labor’s former shadow financial services minister to lobby against stronger protections for vulnerable and low-income borrowers.
Consumer advocates have put pressure on the government to act on a promise to tighten regulation of the controversial sector, following repeated accusations that unscrupulous lenders are giving high-fee loans to borrowers who are unable to repay.
Cash Converters, one of the most well-known short-term lenders, was forced late last year to refund 118,000 small credit contracts worth $10.8m and pay $1.35m in fines for irresponsible lending practices.
This week, the organisation representing short-term lenders, the National Credit Providers Association, is in Canberra meeting with government and opposition MPs to voice its concerns on one aspect of the planned reforms.
It engaged Labor’s former shadow financial affairs minister Bernie Ripoll to lobby on its behalf last year and has taken him to Canberra for the meetings.
An email from the association, obtained by Guardian Australia, tells federal politicians that it holds “serious concern” about one particular measure under consideration, which would reduce the amount payday lenders can claw back in repayments.
A cap currently limits repayments from 20% of gross income but an independent review last year recommended that be tightened to 10% of net income.
The reform is designed to ensure borrowers are only given loans they can afford and prevent the so-called “debt spiral”, where individuals take out a second or third loan just to meet repayments from the first.
The NCPA chairman, Rob Bryant, described that recommendation as “of serious concern” in his email.
He said it could cause “an almost $500m credit problem for the community and the government”, cause financial exclusion for the average Australian and allow illegal and unregulated lenders to enter the market.
“NCPA chairman Rob Bryant and advisor the Hon Bernie Ripoll from Fresh Advisory are seeking a meeting with you in Canberra to discuss the small loan market and will be available during the parliamentary sitting week of Monday 27 March to Wednesday 29 March,” Bryant wrote in the email.
The email attaches a document seeking to dispel myths about the short-term credit industry, which says lenders do not prey on vulnerable Australians or allow borrowers to become trapped in debt spirals.
Bryant later told Guardian Australia that the measure would undoubtedly destroy the short-term lending industry and restrict choice for consumers.
He said payday loans were the most regulated product in the financial sector. Without such loans, he said, consumers would be forced to seek out illegal and unregulated lenders for small amounts of credit.
“It will challenge the viability of the [small amount credit contract] product, and the 10% across the board will knock the SACC product out,” Bryant said. “Lenders will have no choice but to close their doors or go somewhere else.”
Asked why Ripoll had been engaged, Bryant said his intimate knowledge of the industry and close relationships in parliament meant he was ideally placed to lobby on the issue.
“Whoever you have to lobby for you [their job] is introducing you to politicians and Bernie has a grasp of the industry,” Bryant said. “I want a good outcome for consumers here. If there’s a thing I’m really passionate about, it’s that no reality fits an ideology.”
He said the NCPA was meeting with “a lot of interested politicians” but would not disclose whether he had met with the small business minister, Michael McCormack.
Meanwhile, an alliance of consumer advocates are also in Canberra, including Choice, the Consumer Action Law Centre, Financial Rights Legal Centre and Financial Counselling Australia.
The alliance is urging the federal government to act urgently on a promise made in November to implement reforms to the sector.
A spokesman for the small business minister, Michael McCormack, said legislation would be introduced and debated this year.
The minister said he was committed to balancing access to small loans and consumer leases with the appropriate level of customer protection.
“The government continues to consult widely with stakeholders on issues related to the implementation of the reforms,” the spokesman said.
“This is appropriate considering the magnitude of changes and the impact the changes will have on the industry.”
