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In the second half of 2015, there will be a review into Labor’s reforms relating to small amount loans under $2000, otherwise known as payday loans[i], which came into effect in 2013.

Mr Brody will say:

“Leading up to the review of payday lending laws this year, one thing is clear—you cannot and must not trust payday lenders. Their advocacy leading up to the 2013 reforms worked, and saw weaker laws than were initially proposed”.

“Central to the 2013 reforms was the much welcomed caps on the amount of fees and interest. However, the limit in the legislation was set at a level proposed by Cash Converters. This is a company that only last month settled a class action refunding twenty-three million dollars to borrowers, following allegations that it breached state caps on fees and interest for payday loans.”

“It is no surprise that these laws have failed to rein in the excesses of the payday lending industry. We should revert to the cost cap initially proposed by Labor in 2011.”

“When the previous Labor Government initially introduced the legislation to Federal Parliament, the cap on interest rates was effectively half that of the level that was finally enacted. It was watered down following intensive lobbying by the payday lending industry. The cap hasn’t worked—business is booming for the payday lenders, and more and more of the poorest Australians are being caught in the debt trap. Labor should go back and stick to its guns with the reform it initially proposed.”

END

Notes:

• Consumer Action Law Centre is hosting a fringe event at ALP National Conference on Sunday, 26 July at 12.45pm titled: “Where the poorest pay the most: how can Labor bring fairness to finance” in Room 205, Melbourne Convention Centre. Van Badham (Guardian Australia) will chair a panel of Gerard Brody (Consumer Action), Senator Claire Moore (ALP) and Corinne Proske (National Australia Bank).
• The cap on loans above $5000 is 48% per annum. For loans under $2000, the maximum annualised interest rate is commonly the equivalent of 240% per annum.

[i] From 1 July 2013, fees charged on small amount loans less than $2,000 were capped (that is, limited to a maximum amount). Credit providers can only charge the following fees:

• A one-off establishment fee (of not more than 20% of the loan amount)
• A monthly account keeping fee (of not more than 4% of the loan amount)
• A government fee or charge
• Default fees or charges (the credit provider cannot collect more than 200% of the amount loaned if you default – that is, fail to pay back the loan)