Payday lending reforms from 2013 have failed vulnerable Australians according to Consumer Action Law Centre, as they take Cash Converters to court on behalf of a disability support pensioner over a case of repeated, irresponsible lending.
In a new case before the Federal Circuit Court, Consumer Action’s client alleges that Cash Converters failed in its obligations to lend responsibly by repeatedly offering her payday loans over the course of six years despite knowing that she was a disability support pensioner with a gambling addiction. The 57-year-old Melbourne based pension recipient could not meet repayments without significant hardship. Over the course of six years, Cash Converters offered the client over 63 loans.
“Lenders have to assess the ability of borrowers to be able to pay the loan. In this case, our client alleges Cash Converters only assessed income and ignored significant warning signs,” says Jillian Williams, Director of Legal Practice at Consumer Action.
“Payday loans are an extremely expensive product and it’s well documented that repeated use can worsen a borrower’s financial situation. That’s why lenders have a legal obligation to ensure loans aren’t “unsuitable” and that they won’t cause financial hardship. We allege Cash Converters gave repeated loans to a person when it was quite clear they were unsuitable.”
Consumer Action CEO, Gerard Brody says the case shows how previous reforms have failed.
‘The payday lending business model that profits through repeat borrowing by vulnerable Australians is wrong” says Brody. “People who are financially stressed should be referred to financial counselling and community support services—more and more loans exacerbate hardship, and don’t help.”
Australians who are concerned about payday loan debts can call 1800 007 007 for free and independent financial counselling Monday to Friday. Complaints about payday loans can also be taken to the Credit and Investments Ombudsman.
Payday lenders offer short-term loans which often have rates of around 240 per cent, typically to borrowers on a low income. They often set up direct debit repayments so that they withdraw money from the borrower’s account on their payday or pension day. This means that the lender gets paid before the borrower has had a chance to allocate sufficient money for groceries, rent, medicine and utility bills. It puts borrowers in a perilous position and, sadly, they often go back to the lender for another loan just to meet their living expenses. See our infographic on payday lending here.