Australia’s second-largest listed payday lender, Money3, has stopped offering its two payments ‘fixed fee’ loan arrangement and has agreed to refund more than $100,000 to consumers following concerns raised by ASIC in its crackdown on payday lending.
Money3’s ‘fixed fee’ loan required only two repayments, despite having a term of 16 months. Under the terms of the contract, the first repayment (generally due a week after the loan was taken out) was for a nominal amount, and the much larger second repayment was due 15 months later. This second payment usually accounted for more than 90% of the total amount repaid.
ASIC was concerned that the product was likely to be unsuitable for most of the financially vulnerable customers who obtained it, and in breach of the national responsible lending obligations.
Consumers may also have been misled into believing the terms of the loan enabled flexible repayments when the contract in fact disclosed that a large fee could be charged if the consumer asked for a variation of the repayment schedule.
ASIC saw examples where the second repayment was as high as 170% of the customer’s Centrelink benefit for that pay period.
According to the regulator, Money3 has agreed to finalise outstanding loans and will refund approximately 400 consumers a combined total more than $100,000. These refunds will ensure current consumers have not repaid any monies above the principal amount lent and a cost recovery fee.
“Small, high cost loans such as this with large one off payments are likely to be of limited benefit to customers who have no savings or savings history as they would be unable to finance the second repayment of the loan without considerable hardship,” ASIC deputy chairman Peter Kell said.
“The difficulties for these vulnerable customers are amplified where there is a large fee where the consumer wants to make any changes to the repayment schedule or amount.”
Money3 has now changed the product and its marketing. As a result, all contracts now have the repayments spread at even monthly intervals across the 16 months term of the contract.