01.Reforms to payday lending
Last week the Federal Government announced significant changes to the regulation of High Cost Short Term Lending, better known as Payday Lending.
The changes propose a uniform national limit on the amount payday lenders can charge borrowers. This will mean that for loans up to $2000 that go for less than two years, payday lenders will be able to charge 10 per cent upfront and then an additional 2 per cent for each month of the loan. Significantly, this includes both interest and fees. And for loans over $2000 there is now a cap of 48 per cent inclusive of all fees and charges.
These new national regulations will replace the widely different state-based systems and will also limit the amount payday lenders can recover if a customer defaults to 200 per cent plus enforcement costs.
In addition to the cap on charges, payday lenders will also be required to let people know about the alternatives to a payday loan including Centrelink advances, no-interest and low-interest loans, and hardship programs offered by utility providers and other credit providers.
According to Assistant Treasurer Bill Shorten, the reforms are designed to better protect vulnerable consumers.
“For some people, taking out a payday loan might seem like the only answer – but more debt at ridiculously high cost can create more problems than it solves,” Mr Shorten said.
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