Need to know
- CHOICE joins the Stop the Debt Trap Alliance with other consumer groups to call on the government to take action against dodgy payday lenders
- Payday lenders and consumer lease companies get special treatment under the law to charge exorbitant interest rates
- These credit providers cause devastating, long-term financial hardship for many vulnerable Australians
It's time the government took decisive action to protect hardworking Australians from being gouged by reckless lenders. That's the message from 17 of Australia's leading consumer advocates, nonprofits and community services in a joint call to the Morrison Government to address predatory lending.
The Stop The Debt Trap Alliance says that, following the banking royal commission, the government must act on predatory payday lenders and consumer lease companies that escaped the scope of the commission.
The government needs to stand up to payday loan bullies like they're standing up to brokers, banks and insurersErin Turner, director of campaigns at CHOICE
Payday lenders and consumer lease companies currently get special treatment under the law to charge exorbitant interest rates (in some cases over 400% for payday loans and 800% for consumer leases) hidden by complex fee structures. Other forms of credit are capped at 48% interest.
"It's been over 1000 days since the government promised to act on payday loans and consumer leases," says Erin Turner, director of campaigns at CHOICE.
"In the wake of the banking royal commission, we've asked the government to stand strong against industry bullies and lobbyists. And to their credit, they have. But for some reason they're dragging their feet on the issue of payday loans and consumer leases. The government needs to stand up to payday loan bullies like they're standing up to brokers, banks and insurers."
The Alliance, joined by CHOICE, asks that the government protect Australians by:
- enacting the recommendations from the review of Small Amount Credit Contracts (or SACC, the legislative name for payday loans), including the proposal to cap repayments on these products to 10% of a consumer's net income per pay cycle
- abolishing the exemption from the 48% cost cap that applies to small and medium amount loans and consumer leases
- committing to more funding for support services such as financial counselling and legal assistance.
CHOICE's Erin Turner (second from right) with representatives from other consumer groups.
"The credit these lenders offer may seem small, but the harm it causes can be devastating," says Gerard Brody, CEO of Victoria's Consumer Action Law Centre, a community legal centre that has been assisting people caught in payday lending debt spirals for over a decade.
"Every day, the organisations in this Alliance hear from people trapped in crippling debt fuelled by payday lenders and consumer lease providers. These business models rely on extending more and more high-cost credit to individuals and families that struggle to afford repayments."
The credit these lenders offer may seem small, but the harm it causes can be devastatingGerard Brody, CEO of Victoria's Consumer Action Law Centre
Turner says initiatives like the Stop The Debt Trap Alliance are only possible because of CHOICE's members and supporters who support the organisation's nonprofit mission.
"Our members and supporters mean we can act on predatory businesses without fear or favour. They maintain our independence so we can act when we see people being harmed in the community."
Visit the Consumer Action website to find out more about the Stop The Debt Trap Alliance, and to add your name to the government statement and sign up for more information.
Stock images: Getty, unless otherwise stated.