Consumer advocates welcome review into payday lending industry

Payday lending and rent-to-buy products are often a source of financial distress and hardship, according to Consumer Action Law Centre who today welcomed the Federal Government’s announcement that it will be reviewing the laws regulating payday lenders and rent-to-buy companies.

These businesses are booming as everyday Australians struggle to meet day-to-day expenses. Researchers estimate the payday lending and rent-to-buy markets are valued at more than $1 billion and $525 million respectively. Both markets are growing quickly, with the payday lending market alone predicted to grow to $2 billion per annum by 2018.

Payday loans and rent-to-buy products are excessively expensive, meaning the poor are paying more for essential household goods and credit. The legislated cap on fees and interest for payday loans hides annualised interest rates exceeding 240%, while rent-to-buy products can end up costing customers two to five times more than standard retail price.

‘The industry often claims that they’re helping people access essential items and credit, but more often than not these high-cost credit products make bad financial situations even worse’, says Gerard Brody, CEO of Consumer Action.

‘A key issue for the inquiry is how to protect the vulnerable from ongoing reliance on very high-cost credit. One way to do that is to reduce the amounts of fees and charges that can be imposed’.

Brody has also urged the review to look at how these businesses attempt to avoid regulation, arguing that there has been a long history of avoidance strategies employed by fringe lenders across the credit industry.

‘Rent-to-buy businesses are effectively exploiting a loophole that has allowed them to dodge controls in place for other lenders. The very fact lenders are using avoidance strategies suggests that we need stronger anti-avoidance provisions so the regulator is not stymied when they seek to enforce the law.’

Brody also says the review must consider the lived experiences of people targeted by these businesses.

‘The reviewers must speak to Australians who have used these products in order to understand their circumstances and the harm these products can cause. It’s pleasing that the reviewers will consult widely, and this should include financial counsellors and community lawyers who are dealing with the impact of these products on a daily basis’.