No more than six credit cards have proven to be no obstacle for a man who has accessed thousands of payday loans, a Senate investigation said in recently released documents.
- ASIC defines payday loan as high cost short term loan
- The Senate inquiry received submissions from social and government services that signal, at the very least, a need for change
- The Federal Ministry reported that the withdrawal of financial institutions from short-term loans has fueled the market for small loans
The survey, launched last October, has heard dozens of payday lending horror stories, with the federal regulator’s submission saying the practice presents “a risk of a debt spiral” in more than half of its client records reviewed.
The New South Wales organization, Financial Counseling, Hunter Valley made a submission that referred to several case studies of people bitten by payday lenders.
Service manager Maria Hatch said in one case that a man – called AB – had an average working income, was married and with one child, had six regulated credit cards with no credit available.
At that time, he had access to payday loans.
“He applied for a payday loan and got a loan of $ 3,000, then he applied for and got three more payday loans of $ 3,000 each, then he applied for another payday loan and got a loan from. $ 800, ”Ms. Hatch said.
Ms Hatch said without the help of her department the man would have lost his wife, child and job.
She said another client who was fleeing domestic violence had obtained nearly $ 15,000 in payday loans.
“She got a $ 6,000 payday loan for a car assigned to her,” Ms. Hatch said.
“She already had another $ 8,500 payday loan for a car that was written off in an accident by her ex-spouse.”
Expensive short-term loans
The federal regulator, the Australian Securities and Investments Commission, defines a payday loan as a high-cost, short-term loan.
The commission said they included small loans of up to $ 2,000 that have to be repaid between 16 days and 1 year, as well as loans borrowed over longer periods.
The Senate survey examines the impact on individuals, communities and the broader financial system of the operations of payday lenders and leasing providers.
There is also an emphasis on unlicensed financial service providers, including “buy now, pay later” providers and short-term credit providers.
The Federal Department of Social Services used its submission to the inquiry to acknowledge concerns about payday loans.
“Over the past two decades, financial institutions have increasingly withdrawn financial products and services from low-income people or others at risk of financial hardship due to the high cost of providing these services.” , the department said.
“This has resulted in a shortage of appropriate and affordable small loans for vulnerable people, resulting in increased financial exclusion for people who cannot access traditional financial services.
Salvos alarmed by surge in payday loans
The Salvation Army told the inquiry that the effects of payday loans on families could be disastrous.
“The Salvation Army regularly sees people who are marginalized and vulnerable with this type of debt,” he said.
“The proportion of community members who come to our services with payday loans or consumer leases has grown steadily over the years, more than doubling in size from 6% in 2008/09 to 13% in 2017/18.
“The median values, after adjusting for inflation, have tripled from $ 423 in 2008/09 to $ 1,383 in 2017/18.”
Legal aid wants to act
NSW Legal Aid also filed a complaint, concerned about the exploitation of vulnerable people.
He brought to light the case of a woman he called Rachel.
“Rachel is a young single Aboriginal mother and Centrelink beneficiary from a remote community,” Legal Aid’s brief states.
“She recently left a relationship in which she suffered domestic violence.
Rachel has entered into seven payday loan agreements with the same provider over a 13-month period.
“The loan amounts ranged from $ 300 to $ 1,500,” he said.
“The majority of contracts were concluded the day Rachel finished paying for a previous contract.
“If Rachel had made all the repayments required under each of the contracts, she would have paid over $ 2,500 more than the total loan amount.”
The Australian Securities and Investments Commission used its submission to recognize the need for change:
“We reviewed 288 payday loan files and found that:
- 1.In 54.2% of the cases, the consumer had entered into two or more low-value credit contracts (this level of repeated use translating a risk of a spiral of debt); and
- 2.In 7.6% of cases, the consumer was in default on another small amount credit agreement. “
Case studies are not always accurate, depending on the credit provider
Robert Bryant, president of the National Credit Providers Association (NCPA), says the case studies provided by financial advisers have distorted the payday lending industry and portrayed the industry in a bad light.
“Of all the non-bank lenders examined as part of the Senate inquiry, only the convenience industry is currently regulated,” said Bryant.
He said some of the information provided to the investigation was incorrect.
“A payday loan is a loan of less than $ 2,000 for a term of between 16 days and 12 months,” said Bryant.
“A payday loan of $ 3,000 and $ 8,500 is not possible.”
The Senate Committee of Inquiry will hold a second public hearing in Brisbane on January 22.
Editor’s Note 1/14/19: The comment from the National Credit Providers Association has been included since this article was first published to provide a balance.