The Chairs of every State and Territory financial counselling association in Australia have today written an open letter to Minister for Financial Services, Bill Shorten, calling on him to stick with reforms to the payday lending industry.
Financial counsellors – who help consumers in financial difficulty and work in non?profit community organisations – are alarmed at reports that the Minister is backtracking on the legislation he introduced to Parliament before Christmas.
The proposed changes will double the amount that payday lenders can charge vulnerable
consumers for short?term loans.
“Financial counsellors are stunned to learn that the Government is caving in to the vested interests of the payday lending industry” , said Fiona Guthrie, Executive Director of FCA. “The proposed change is exactly what Cash Convertors, a multinational ASX?listed payday lender, asked for.”
“The result will be that the poorest and most vulnerable consumers will be paying exorbitant interest rates – up to 288% per annum on one?month loans and up to 108% on 12 month loans.”
The letter also notes that the Government is not addressing a fundamental reason that people on low incomes are driven to payday lenders – the social security safety net is too low. It is not surprising that people living on $243 per week, the level of the Newstart Allowance, would turn to a payday lender to make ends meet.
There also needs to be a greater focus on increasing access to preventative services, such as financial counselling. For example, many people simply do not know that they can apply for hardship relief from their utility provider, or re?negotiate debt payments with creditors.
Financial counsellors provide exactly this sort of assistance. We know that if consumers
accessed our services earlier, then many problems could be avoided.