Payday lending reform will make people’s lives better

Consumer advocates say that the Government’s response to a recent review of payday lending and consumer leases laws is a good start and can go further to support Australians who are struggling to make ends meet.

The Small Amount Credit Contracts (SACC) Independent Review Panel made a number of recommendations to the Government, most of which will be adopted by the Government in full or in part.

“Many of these changes will help Australians from being grossly exploited by payday lenders and rent to buy companies, but there’s still work to be done” says Gerard Brody, CEO of Consumer Action Law Centre.

“One of the key issues is how payday lenders and rent to buy companies assess whether someone can afford a loan or contract. Under these reforms, they won’t be able to take more than 10% of a person’s income. We also welcome a commitment to anti-avoidance measures given this is an industry that has shown it can’t be trusted to put Australians’ best interests first.”

Consumer Action’s response to specific measures:

  • A 10% cap on a person’s income is a welcome reform that will protect those on the lowest incomes.
  • Given the huge rise in household debt over recent years we are still concerned that the payday lending industry will continue to grow. There is no reason the payday lending industry deserves special treatment to avoid the 48 per cent cap applied to most other forms of credit.
  • A cap on the costs charged for consumer leases (rent to buy) is good start – the challenge is to make sure this can’t be dodged by the companies setting their own recommended retail price from which the cap applies.
  • Allowing leases to drag on for four years will mean that providers can charge nearly 3 times as much as the cost of the leased item over the period. To be affordable, leases need to be for a shorter period than 4 years.
  • Banning unsolicited offers of payday loans will reduce dangerous marketing designed to get customers to impulsively sign up to credit they don’t need, don’t want or can’t afford.
  • A ban on door to door sales for consumer lease (rent to buy) products is a great result—but predatory sales behaviour isn’t just in the home so further reform will be needed.
  • Anti-avoidance measures will be significant to ensure lenders don’t avoid consumer protections through exploiting loopholes.
  • Government haven’t picked up the problem of lead generation which was recognised as a problem by the review panel.
  • Government has rejected the sensible recommendation around default fees, which means that lenders can still charge way more than actual costs arising from customer default.

The above points may be attributed to Gerard Brody, CEO of Consumer Action Law Centre. Mr Brody is available for comment.

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