Submission: Response to Commonwealth Government discussion paper on reducing reliance on payday lending
- Expresses significant concerns with the way the payday lending problem is framed in the discussion paper. In particular, we do not agree that high-cost short-term lending is a necessary or useful part of the consumer credit landscape. Nor do we agree that the provision of this kind of credit is a useful response for a consumer who already has insufficient income to meet basic needs.
- We are also concerned that the paper appears to assume the payday lending problem is solely one of financial exclusion. This assumption will lead to inaccurate problem identification and inappropriate policy responses. It is not only financial exclusion that drives problematic payday lending but insufficient income and the easy accessibility of unsafe (“payday”) loans.
- With regard to the discussion paper’s suggestions about encouraging broader availability of community and commercial sector credit:
- We reiterate that demand for payday loans should not be assumed to be driven by lack of access to safer alternatives, and we caution against encouraging either community or commercial lenders changing lending criteria to offer products more like payday loans, particularly by shortening loan terms.
- We stress that loans from mainstream lenders or community and not for profit finance providers are not an ‘alternative’ to payday loans – in the vast majority of cases, they are used for different purposes.
- We see value in banks providing smaller personal loans (in the vicinity of $1000 to $5000) rather than encouraging use of credit cards for these amounts.
- Regarding Centrelink services:
- We agree that there may be a case for access to Centrepay for repayment of a wider range of community finance loans, but this should be considered as part of a wholesale review of Centrepay.
- Centrelink Advances may be improved by enhancing the assessments undertaken before giving advances. There may also be scope to make advances more flexible.
- Regarding other initiatives mentioned in the discussion paper:
- Improving awareness of and access to hardship schemes has potential to significantly divert demand for payday loans to a far safer alternative.
- Improving access to financial counselling will also reduce demand for payday loans, though there are significant barriers to access which need to be addressed.
- For-profit debt repayment services (such as debt consolidation loans or Debt Agreements under Part 9 of the Bankruptcy Act) are unlikely to be the best option for many consumers. However, a community-based debt repayment service could play a useful role. In all cases, it should be considered whether a debt repayment service is in the best interests of a consumer before referral.
To read our full submission, please click: Strategies for reducing reliance on high-cost, short-term, small amount lending.