Reforms to solve growing credit overdue

WAY back in 2016, the Turnbull government announced it would implement recommendations to reduce the harm being caused by payday loans and consumer leases.

Payday loans (or small amount credit contracts) are loans of up to $2000. Higher fees may be imposed on these than any other type of regulated loan – often equivalent to an annual interest rate of over 200 per cent.

Consumers sometimes pay over eight times the value of the item, or even go on paying indefinitely.

Payday loans and consumer leases are a bad deal, as they are predatory by design and often push people into terrible debt spirals. It’s been more than 2000 days since that commitment was made and nothing has been done.

With the cost of living and interest rates quickly rising, along with the easy availability of a swath of unregulated credit products (such as buy now pay later), the need for these reforms is all the more critical.

Calls to the National Debt

Helpline from people who are experiencing mortgage stress have already started to increase as interest rates rise. Payday loans charge fees that are the equivalent – at a minimum – of 12 times the feared 5 per cent interest rates that may start appearing on mortgages. In terms of regulated loans, these are the most likely to put household finances under strain.

The recommended reforms would not make these products a good deal or put lenders and lessors out of business, but they would put a limit on the worst forms of harm that these products cause.

The reforms would put a cap on the maximum fees that may be charged under consumer leases – they are currently the only form of regulated credit without such a cap.

Additionally a clear limit would reduce the portion of a person’s regular income that can be taken by these products. These protections would at least reduce the likelihood of people falling into debt spirals. Prohibitions on unsolicited selling and door-to-door selling would also likely reduce the debt trap of repeat lending or inappropriate leases.

The previous government failed to bring a Bill to implement these recommendations. Even with the pandemic affecting government processes, progress has been glacial.

New Assistant Treasurer Stephen Jones said the Albanese government would take action to strengthen consumer protections.

This is very welcome. Legislating the safeguards suggested in 2016 will address cost-of-living pressures today. We call on all federal parliamentarians to support this reform, and to get it done this year.