More Australians are likely to turn to high-risk payday loans when the government’s coronavirus stimulus measures end in September, the Australian business regulator has warned.
But consumer advocates believe an increase in the number of payday borrowers could spur thousands of Australians into catastrophic “debt spirals” and have urged the Coalition to avoid the so-called “cliff”.
ASIC Commissioner Sean Hughes said during the COVID-19 select committee hearing Thursday that payday loan rates would be “under scrutiny” in September.
“We adopt a proactive attitude towards [payday lending because at] With the end of the various support programs, we think there will likely be an increase in the use of payday loan programs, ”Hughes said in response to questions from Murray Watt of Labor.
What Are Payday Loans And Why Are They So Dangerous?
Payday loans are short term, high interest, offered by non-bank lenders, and capped at $ 2,000.
Typically, they require fewer credit checks and financial security assessments than loans from major lenders.
Non-bank lenders can charge a maximum of 20 percent of the payday loan amount for “set-up fees,” and a monthly fee of 4 percent.
Expressed as an annual percentage rate (APR), loans can charge financially troubled Australians interest rates of up to 407 percent.
For a client attempting to repay a $ 2,000 loan over 30 days, they would be required to repay $ 2,480 – the equivalent of two bi-monthly repayments of $ 1,240, according to MoneySmart’s calculator.
Consumer Action Law Center policy officer Patrick Sloyan said The new daily payday loans are a ‘recipe for disaster’ as so many Australians entered financial hardship for the first time.
“Exorbitant consumer leases and payday loans are not essential at a time like this,” Sloyan said.
“Treasurer Josh Frydenberg should take action to make sure these businesses are not taking advantage of the problems people are facing as a result of COVID-19. “
Legislation has stalled on the Small Account Credit Agreement (SACC) bill that would protect borrowers from unethical lenders.
The Coalition’s promises to crack down on unethical lenders also date back to 2017, after the public was consulted on the bill.
According to the Stop The Debt Trap Alliance – which is made up of more than 20 consumer advocacy groups – about 15% of Australians who engage in a payday loan find themselves trapped in debt.
Distressed Australians can easily be sent into ‘debt cycles’
Angliare Australia executive director Kasy Chambers said payday lenders typically target disadvantaged households through TV and SMS ads and schedule their messages around income and social assistance payment dates.
Claire Tacon, Senior Financial Advisor for the National Debt Helpline, said The new daily payday lenders can also encourage vulnerable Australians to purchase several expensive loans.
“I received a call from an elderly lady who was struggling to pay her living expenses, with only old age pension as income, and she had to leave her unit and had no money to pay a mover or bonds, so she took out a payday loan, ”Ms. Tacon said.
“Because she didn’t have any money available and was struggling to survive, she couldn’t pay it.
“So her lender offered to turn the loan into a new payday loan, and she ended up in this six month cycle where she just didn’t have enough money to live on.”
Ms. Chambers d’Angliare said she has “deep concerns” that a “perfect storm” could trigger a flood of payday loan applications.
And although the Morrison government provided an additional $ 200 million in emergency aid to charitable services, including Good Shepherd (which provides interest-free or low-interest loans to struggling Australians) in March, this scheme does not. is not able to meet the anticipated demand.
“When JobKeeper runs out and their employer can collapse due to financial hardship, people can go from $ 750 a week suddenly not getting anything, and most households would do whatever it takes to keep a roof over their heads, ”Ms. Chambers said. The New Daily.
“There are regulations the government could enforce [against payday lenders] but also, it is a question of suppressing the market of this industry.
She said those measures should focus on keeping JobSeeker at its current rate of $ 1,100 per fortnight and phasing in the phase-out of JobKeeper, mortgage payments and rent moratoriums.