Shorten gives some breathing room to payday lenders

by Adam Smith26 Apr 2012

Financial Services Minister Bill Shorten has eased up on payday lenders with revisions to a bill regulating the industry.

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%.

"Payday lending can be high risk for vulnerable or low-income consumers. People often borrow money from payday lenders in order to meet short-term commitments like rent and groceries. The interest charged on the loan is often so exorbitant it only worsens the financial position of the consumer in the long-term, who may need to take out further loans in order to pay off the original loan and the interest," he said.

Shorten said the draft amendments to the Credit Enhancements Bill came following "significant review" through Parliamentary inquiries and consultation with industry stakeholders.

"The draft amendments I am releasing today refine the operation of the Bill, and improve its effectiveness," he said.

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COMMENTS

  • by Michael Maher - Fair Go Finance 1/05/2012 3:29:03 PM

    These draft changes are more sustainable. The original proposed legislation would have been catastrophic for the payday lender industry and have unintended consequences for consumers.
    A balanced outcome has been achieved due to the consultation process with the government and seems to benefit consumers in two ways - price cap and ongoing service providers.
    It would be detrimental to the consumer if this industry could not continue. As highlighted in the recent CBA study and media release: Australians borrow $1.6B from their nearest and dearest - mainly their mum on a monthly basis. The biggest contributor to this informal borrowing network is unforeseen or emergency purposes. This industry provides a valuable service to consumers who do not wish to use the option of family and friends. One point of warning to the government. Australia's strong economy coupled with the proposed level pricing structure and national framework may be appealing to offshore/overseas based online lenders as an attractive new market. Hopefully ASIC is prepared with appropriate compliance practices.