Updated December 22, 2011 08:58:00
The Consumer Action Law Centre says it has a case study showing why the governnment should cap interest rates for short term and payday loans. But the National Financial Services Federation says it’s a draconian proposal that would put lenders out of business.
PETER CAVE: The Federal Government is under pressure to abandon its plans for an interest rate cap for short term and payday loans. But a consumers’ group says it’s found an example which shows why the Government should push ahead with the plan.
Simon Lauder reports.
SIMON LAUDER: In the lead-up to Christmas a flyer adorned with pictures of brightly wrapped gifts has been delivered to some households in the Mildura region.
FLYER TEXT: Could you use an extra $400 this holiday season? Bring in this certificate to get your extra holiday money today.
CATRIONA LOWE: Christmas is always a time of financial pressure so consumers are particularly vulnerable.
SIMON LAUDER: Catriona Lowe from the Consumer Action Law Centre says the flyer from The Cash Store implies that the recipient has been pre-approved for a loan with no assessment.
CATRIONA LOWE: The example we’ve seen come from The Cash Store does seem very much to encourage consumers to think about right now rather than the consequences of later. And that’s precisely the opposite of what the responsible lending laws that the Federal Government has enacted are intended to do.
SIMON LAUDER: The Cash Store has 81 branches across Australia. AM contacted the company and was told no-one is available to comment on the flyer.
Ms Lowe says the flyer shows that responsible lending obligations aren’t enough to protect consumers.
CATRIONA LOWE: For consumers who are on a low income, who are borrowing for those recurrent expenses – and that is very much the typical consumer – it is highly likely to simply get them into a debt spiral where more and more borrowing is necessary. And that is very profitable for the lenders.
SIMON LAUDER: The Federal Government has proposed a 48 per cent cap on the annual cost of loans.
The National Financial Services Federation represents the payday loan industry. Its CEO Philip Johns says it’s a draconian proposal that would put lenders out of business.
PHILIP JOHNS: In other words credit providers can only make a couple of cents in the dollar under that regime.
SIMON LAUDER: So it would be the end of the industry?
PHILIP JOHNS: It would be if it was brought in as proposed.
SIMON LAUDER: Two parliamentary committees have raised serious doubts about the proposal and Mr Johns is hoping it will be dumped.
PHILIP JOHNS: It’s clear that holding out for such a draconian, unworkable, unviable late cap moving forward is just not a workable outcome.
SIMON LAUDER: And what are you hoping for instead?
PHILLIP JOHNS: We think there are far better alternatives to enhance consumer protection other than the very blunt instrument of price control in the marketplace. And we hope to sit down in the new year with the minister and talk about these options.
SIMON LAUDER: But Catriona Lowe is urging the Government to stick with its original plan when the bill comes back before Parliament in the New Year.
CATRIONA LOWE: We’re strongly urging the Government to hold the line in the interests of vulnerable consumers but they are under considerable pressure.
PETER CAVE: Catriona Lowe from the Consumer Action Law Centre ending Simon Lauder’s report.
Source : http://www.abc.net.au/news/2011-12-22/consumer-advocates-want-cap-on-payday-lenders/3743534?section=business