Payday lenders say a proposed increase to a cap on interest rates will make little difference, and have urged the government not to rush through mooted regulations of the industry.
Financial Services Minister Bill Shorten has released draft amendments to his Credit Enhancements Bill, lifting the cap on small amount credit contracts from 10% to 20% of the amount of credit advanced. Shorten has also sought to change the previously proposed cap on monthly fees from 2% to 4%.
But National Financial Services Federation chief executive Phil Johns said the change will mean little to payday lenders.
“Doubling a fictitious, idealistic number from one value to another without any research into its viability or sustainability means nothing,” Johns said.
Johns argued that the cap was due to misconceptions about the amount of interest charged by payday lenders.
“The whole problem with this capping issue is if I give you $100, and you turn around tomorrow and pay back $101, that’s 365% annualised interest. Annualising the fees on any loan that doesn’t run over a year doesn’t make any sense,” he said.
Johns expressed frustration at the industry consultation done in the wake of Shorten’s regulatory proposals, and said the extent of the amendments had yet to be made clear by Treasury.
“We’ve been given two versions of the bill, and at the same time we’re being asked to make comment on the regulations when we don’t even know what’s in the regulations. It’s the regulations that will hang us every time,” he said.
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