Disappointment over pay-day loan reforms

Government reforms receive a mixed response from consumer advocates .
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01.Pay-Day reforms pass the Lower House


Consumer advocates have been left disappointed, after the Governments pay-day loan reforms were watered-down.

The Government reforms are designed to curb the predatory short-term lending practises of pay-day loans passed the Federal House of Representatives on Tuesday.

The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 will: 

  • Define small amount contracts as 1 year or less, keeping the amount as $2000 or less;
  • Cap costs for loans under $2000 to a maximum of 20 % of the amount of credit upfront and 4 % for each month of the loan;
  • Prohibit credit providers entering into a small amount credit contract with a term of 15 days or less; and
  • Limit the repayments on a short term small amount loan for those dependent on Centrelink benefits to a maximum of 20% of their income.

“The cap on costs appropriately balances consumer protection and a viable return for a responsible industry” said the Minister for Financial Services, Bill Shorten.

Mixed response from consumer advocates

However, the reforms have solicited a tempered response from consumer activists at the Consumer Action Law Centre (CALC). While overall supportive of the reform efforts, CALC has nevertheless expressed disappointment with the watered-down bill.

“The Government had previously announced a weakening of a comprehensive cap on fees and interest,” said CALC co-CEO Catriona Lowe.

“Instead … short term loans will still have interest rates that most Australians would consider outrageous – up to 240% per annum.”

According to CALC, intensive lobbying from industry saw several last minute changes to the legislation. These included the removal of bans on refinancing and the introduction of ‘mid-tier caps’ which enable lenders greater returns on loans between $2000 and $5000.

“The introduction of a mid-tier cap appears to be solely the result of lobbying by small amount lenders… It is a matter of time before we see people’s homes at risk because of a loan to buy a second hand vehicle,”said Ms Lowe.

For more information on pay-day lending, visit the Debt Trap website.

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