Media release: ASIC case against The Cash Store to shape the future of payday lending
One of Australia’s biggest payday lenders, The Cash Store, will face allegations of irresponsible lending and unconscionable conduct before the Federal Court. The case being brought by the Australian Securities and Investment Commission (ASIC) claims The Cash Store organised unaffordable loans for low income Australians and Centrelink recipients, and acted unfairly when selling insurance with the loans.
Consumer Action Law Centre has welcomed ASIC’s case and hopes it will provide greater clarity about the application of Australia’s responsible lending laws to payday loans.
Consumer Action CEO Gerard Brody said his centre has long argued that payday lenders survive by repeatedly providing very expensive loans to low income Australians who simply can’t afford to repay.
‘Recent research found that half of borrowers surveyed had taken out more than 10 loans in the last two years, and that three quarters of this group had taken out more than 20 loans. This is a clear sign that the high-cost loans add to borrowers’ financial problems rather than help them. Obviously the Court needs to hear the matter but we hope that when it reaches its decision this case will make a statement and let lenders know they won’t get away with giving unaffordable loans that send the borrower further into the red,’ said Mr Brody.
‘We’re pleased ASIC has gone after one of the industry’s bigger players. The Cash Store has over 60 branches around Australia, as well as an online lending business. One of the common myths about this industry is that many small, fringe lenders give other bigger lenders a bad name, but this simply isn’t the case—some of the worst cases we see are big name lenders whose practices can show complete disregard for a borrower’s financial wellbeing.
‘We hope this case is a sign of what’s to come from ASIC. It clearly takes responsible lending laws seriously and we hope ASIC won’t hesitate to take action where necessary, regardless of the size or profile of the business.
Consumer Action is also pleased that the case against The Cash Store will address the issue of selling consumer credit insurance contracts alongside payday loans. The Centre has seen a number of insurance products sold with loans which are next to useless and seem to be a way of making a few extra dollars.
‘Most payday lending customers are struggling to make ends meet when they walk in to see a payday lender, the last thing they can afford is to have extra costs thrown on top of an expensive loan. From the insurance contracts we’ve seen you’d have to wonder whether the insurance has any real value for the customer, or whether it is a underhanded way to increase the lenders’ profit margin,’ said Mr Brody.
Notes: Payday lenders offer short-term loans with rates of around 240 per cent, typically to borrowers on a low income. They often set up direct debits 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. We’ve seen cases where a borrower has had up to 70 short-term loans in the space of three years. See our infographic on payday lending here.
Media contact: Dan Simpson, 0413 299 567