A national survey of over 300 financial counsellors has slammed the payday lending industry.
“The survey results were extraordinary in their level of agreement about the harm caused by payday lending”, said Fiona Guthrie, Executive Director of Financial Counselling Australia (FCA). “Financial counsellor after financial counsellor said pretty much the same thing – that clients with payday loans end up trapped in a cycle of debt.”
Not one of 310 financial counsellors said that payday loans “often” or “always” improved their client’s situation.
Collectively, the survey estimated that this group of financial counsellors had assisted more than 2,500 clients in the past 12 months. This is a large number of clients, providing an unparalleled insight into the effect of payday lending.
The case studies, comments and statistics in the survey illustrate how the payday lending industry operates. People in financial difficulty and on low incomes are desperate for help to meet day-to-day expenses. But the help is short-lived. When the next payday rolls around, many people can’t afford to make the repayment. They end up borrowing again either immediately, or a few days later. The payday loan trap closes.
The survey also confirmed the findings of other research into the payday lending industry: that clients are generally on low incomes (particularly Centrelink); are often repeat borrowers and can be vulnerable to exploitation. The survey also revealed evidence of irresponsible lending practices and of the continuing avoidance of current laws.
“There is absolutely no doubt about the views of financial counsellors in relation to payday lending – the sector is highly critical of this industry. Payday loans do not solve financial difficulty; they exacerbate it”, said Ms Guthrie.
Financial counsellors have long argued for an across-the-board interest rate cap of 48% as a way of reining in payday lending. Current legislation before Parliament does not go as far in relation to small loans, but it will address the inherent harm and make the product safer. Financial counsellors would strongly oppose any changes to the legislation and we urge all political parties to support the Bill.
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