Finally some moves to fetter payday loan sharks

Sense_and_Logic said :

Small amount credit contracts (SACCs) do not charge interest rates of “800%”. Since 2013 they’ve been banned from charging any interest at all, and total fees and charges are capped.

SACCs are not “most often for loans of $2000 that must be repaid within 12 months”. To be a SACC they must be for $2,000 or less and have a term of between 16 days and 1 year. Otherwise they can’t be a SACC. Further, SACCs can’t be secured.

You’ve also conflated consumer loans with consumer leases – same act, different regulations. And then you further confuse Centrelink with Centrepay. SACCs could never access Centrepay, whereas consumer leases could.

Hi there. Thanks for the comment. I take on board the comment that I could have been clearer in my delineation of the two parts of the industry that were covered by the industry but took my lead from the language used by the responsible Minister and economic reporters. The inquiry covered both parts of the industry including SACCs and consumer leases. The issues with both parts of this industry and their impact on vulnerable consumers continue to be a significant issue.

Small amount credit contracts (SACCs) do not charge interest rates of “800%”. Since 2013 they’ve been banned from charging any interest at all, and total fees and charges are capped.

SACCs are not “most often for loans of $2000 that must be repaid within 12 months”. To be a SACC they must be for $2,000 or less and have a term of between 16 days and 1 year. Otherwise they can’t be a SACC. Further, SACCs can’t be secured.

You’ve also conflated consumer loans with consumer leases – same act, different regulations. And then you further confuse Centrelink with Centrepay. SACCs could never access Centrepay, whereas consumer leases could.

devils_advocate said :

imhotep said :

Rebecca Vassarotti says
“…What do you think we should do about these loans that trick and often trap people into long term debt?”

Cap the interest rate that can be charged.

Ban the outrageous interest rates, and you wipe these parasites out overnight.

Protect the vulnerable. That’s what governments are supposed to do.

You are trying to treat the symptom, not the cause.

How have we built a society in which people are forced to live paycheck to paycheck, and not have enough for the basic necessaries of life, such that they have to resort to payday lending (or, if that’s removed, the much worse alternatives)?

The last time there was a concerted effort to understand the demographics and nature of this issue, it was defeated by the fact that the vast majority of the payday loans were for ‘business purposes’ (there was some work in the early 2000’s to shut down that loophole but I don’t know where it ended up).

Saying that they don’t have an alternative to mainstream credit providers is a bit trite, because it’s not as if they are using payday lending to buy assets (car, house). Most people don’t need to approach a bank to borrow money just for living expenses (as is alluded to in the article) and people who rely on revolving credit to fund their life (credit card) are more likely to be bad money managers as opposed to being on the path to a destructive debt spiral.

I think we are in agreement here that there are issues that are broader that need to be dealt with. A large majority of people who feel they have no choice but to enter these arrangements just don’t have enough more money to make ends meet. If you are on Newstart, you have $37 a day – it is not enough to live a life with dignity. A topic for another day

devils_advocate said :

Rebecca Vassarotti said :

Take the point re physical injury but I also think financial crippling is a pretty big issue as well.

You can opt out of the commercial debt recovery cycle by declaring bankcruptcy. Or entering into a debt management agreement. I was also involved in a case where a debt was written off completely. Commercial lenders are also limited by law in terms of what information they can disclose and where, when and how frequently they can approach the debtor to recover the debt.

People who get involved with loan sharks don’t have any of these protections. Nor do their family. And yet, this is precisely where people will be forced to go if payday lenders are regulated out of existence.

The moralising is all well and good until one considers the alternatives.

I am not suggesting loan sharks as an alternative. What I am reflecting is that some of the practices of pay day lenders and rent-to-buy providers start cycles of debt for vulnerable consumers. You are correct, people can declare bankruptcy – but this is not a great option and has long term consequences. People can negotiate arrangements, but they need to have the capacity, knowledge and confidence to do this. Organisations like Care Financial Counselling Service do a great job of working with people to enter alternative arrangements.

Rebecca Vassarotti said :

Take the point re physical injury but I also think financial crippling is a pretty big issue as well.

You can opt out of the commercial debt recovery cycle by declaring bankcruptcy. Or entering into a debt management agreement. I was also involved in a case where a debt was written off completely. Commercial lenders are also limited by law in terms of what information they can disclose and where, when and how frequently they can approach the debtor to recover the debt.

People who get involved with loan sharks don’t have any of these protections. Nor do their family. And yet, this is precisely where people will be forced to go if payday lenders are regulated out of existence.

The moralising is all well and good until one considers the alternatives.

devils_advocate said :

Regulating payday loans out of existence is unconscionable.
It forces desperate people into the hands of loansharks.

The interest rates charged by payday lenders are exorbitant because they deal with such a massive default rate.

Also, they can only charge financial interest, as opposed to, for example, breaking kneecaps.

Thanks for the perspective. I haven’t seen the default rates on payday loans but know the default rates on micro-loan programs are tiny – one of the reasons I am suggesting them as an alternative. Take the point re physical injury but I also think financial crippling is a pretty big issue as well. It is distressing seeing individuals who are in real trouble from debts that were originally small – leads to emotional issues, family breakdown, poverty and homelessness.

imhotep said :

Rebecca Vassarotti says
“…What do you think we should do about these loans that trick and often trap people into long term debt?”

Cap the interest rate that can be charged.

Ban the outrageous interest rates, and you wipe these parasites out overnight.

Protect the vulnerable. That’s what governments are supposed to do.

You are trying to treat the symptom, not the cause.

How have we built a society in which people are forced to live paycheck to paycheck, and not have enough for the basic necessaries of life, such that they have to resort to payday lending (or, if that’s removed, the much worse alternatives)?

The last time there was a concerted effort to understand the demographics and nature of this issue, it was defeated by the fact that the vast majority of the payday loans were for ‘business purposes’ (there was some work in the early 2000’s to shut down that loophole but I don’t know where it ended up).

Saying that they don’t have an alternative to mainstream credit providers is a bit trite, because it’s not as if they are using payday lending to buy assets (car, house). Most people don’t need to approach a bank to borrow money just for living expenses (as is alluded to in the article) and people who rely on revolving credit to fund their life (credit card) are more likely to be bad money managers as opposed to being on the path to a destructive debt spiral.

Regulating payday loans out of existence is unconscionable.
It forces desperate people into the hands of loansharks.

The interest rates charged by payday lenders are exorbitant because they deal with such a massive default rate.

Also, they can only charge financial interest, as opposed to, for example, breaking kneecaps.

Rebecca Vassarotti said :

dungfungus said :

BadDad123 said :

Good article. How can anyone run a business that is specifically designed to take advantage of people?

You could perhaps direct that question to groups that own or operate poker machines.

This is a really insightful comment and worthly of a much more detailed conversation. Gambling harm and the regulation that we need to reduce it is a very important issue that I will be talking about in the future. As a start, go and had a look at the latest prevalence survey undertaken by the ACT Racing and Gambling Commission, that found that more than 40% of gambling losses came from people who were experiencing gambling harm http://www.gamblingandracing.act.gov.au/community/research

Gambling addicts are usually attracted to the “lenders of last resort” like these operators.

I wonder if the removal of ATMs close to gambling venues had anything to do with it?

dungfungus said :

BadDad123 said :

Good article. How can anyone run a business that is specifically designed to take advantage of people?

You could perhaps direct that question to groups that own or operate poker machines.

This is a really insightful comment and worthly of a much more detailed conversation. Gambling harm and the regulation that we need to reduce it is a very important issue that I will be talking about in the future. As a start, go and had a look at the latest prevalence survey undertaken by the ACT Racing and Gambling Commission, that found that more than 40% of gambling losses came from people who were experiencing gambling harm http://www.gamblingandracing.act.gov.au/community/research