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Payday loans: Why is usury permitted?


#21

This is just standard laws that are meant to be enforced with certain financial advisors. I’m just yet to find an example of a rental company NOT making insane profit vs the cost of the goods rented at the expense of the financial illiterate


#22

Another article regarding payday lenders and their ilk.

Absolutely disgraceful.

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#23

Another article regarding the bottom-feeding payday lending “industry”.

What a disgusting bunch of grubs.

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#24

It is our politicians and financial regulators that have failed us.

There is no shortage of resources… but obviously no will to act.

This is not a new issue.

:frowning:


#25

Well politicians try to follow what they think people will want. And the average consumer LIKES Afterpay, Zip Pay etc because they can’t see a downside for them. It’s a flaw in how our political system works; there are sometimes decisions needed to protect a minority that are unpopular with the majority.


#26

Another article regarding the low-life bottom-feeding money lending grubs.

Perhaps Choice could set up a webpage listing the names and details of these grubs so as to hopefully forewarn potential victims.

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#27

Australia has an unhappy, perhaps tragic history of forcing outcomes on minorities justifying the actions as protective.

Are there genuine and readily available alternatives?

That bad and unacceptable practices can be so easily identified with the use of some of these personal credit products suggests that there are few options for a large portion of their users. Some of us are also less aware or astute about the ways of finance, however simply shutting a gate based on ability would also seem a poor response!

For those amongst the community who manage finances well, some of the products under discussion and widely available may be very usable, and effective financial tools for some.

Even the average Australian bank issued credit cards apportion unrealistically gross and excessive interest charges when users extend into credit! Many of us have such cards. Most pay them off in full by the due dates. Others don’t. The interest rates and terms are an ongoing topic for consumer action. However there is no mass call for the end of credit cards, although there are alternatives?


#28

No one’s discussing shutting down these services. It’s simply being suggested that they need to be classed as a financial service. That would mean a) It becomes their responsibility to make sure the recipient has a decent chance of paying it off and b) The late fees have to reasonably reflect costs.

However this would undoubtedly make the service more difficult to access and probably introduce fees for the consumer. Which would be unpopular with the majority of the population who use it with no issues.


#29

So the recent Choice article regarding new legislation left me with one key question. There seems to be one thing not mentioned in this article. Penalties. It’s good ASIC can take products off the market, but if there aren’t strong penalties don’t the dodgy lenders still benefit from trying to push bad products? Could someone tell me if there are penalties?


#30

I guess the penalty to the “Payday” lenders is that their products are banned for 18 months…no income, no profit so probably a bust business in many of those cases. But I understand what you mean in that even though the products have been banned for a period there is no fine imposed as well. You would have to ask those who passed the Law why this is not part of the package, perhaps as I outlined they feel the ban is a significant financial impost on those businesses and a fine would add little or nothing to that ban.


#31

I’m going out on a limb here, and will no doubt draw criticism for my stance, but I think these payday lenders should be shut down. Totally, completely, and forever. They are loan sharks. They are grubs. They should not be permitted to prey on the unwary, or financially challenged.

If Ben needed a loan because a bank wouldnt give him one for his business, maybe he should have paused for a while and considered why the bank would not lend to him… there must have been a risk there that he would not be able to service the loan… so why did he think he would be able to service a loan which was going to generate a higher interest rate and need repayment in a shorter period of time. Ben needs some financial education… or just some bl**dy common sense.

I’m sorry but its just insane, the way these lenders have proliferated. Madness.


#32

My thought though was what stops them just making a new product and trying again?

And even if it caused them to shut down the owners would still be walking away with the profits


#33

I see at least two things in your post that you want to happen. The first one is to shut down payday lenders, this I can agree with if they charge exorbitant rates but if they charged normal rates of interest and had reasonable establishment fees I am not so sure this is necessary as I will explain further down why. The one about education for the financially illiterate again is a fine idea but with the cuts we see to everyday education who will fund this extra cost?. Some Charity organisations do offer financial education but they have limited resources to do this for any larger audience than they currently help. The one that suggests people may not have “common sense” or are somehow financial unaware just because they may need finance may be labelling some very good, even perhaps very hardworking, victims of these uncertain and financially stressful times, some/many of whom are just suffering short term financial stress due to issues beyond what they could normally financially address.

To explain why I could see a place for payday lenders if their rates were very much less follows.Just because someone couldn’t get a loan from a Bank is not an indication they couldn’t repay it, Banks refuse loans of less than $1,000 or so routinely as it is below their lending level policy and they encourage in those cases revolving credit ie Credit Cards and these often come with more stringent requirements such as having a full time or permanent part time job even for very small credit limits. Pensioners, those on any other welfare or casual work often fail this test and so cannot access a loan/credit in any form from Banks. The need for a person to seek a loan may not be out of any foolishness but may be an unexpected cost they face due to an emergency/situation that has arisen unexpectedly, for which they need to meet the cost now but don’t have the ability to draw on those funds either due to a lack in their accounts or that they have no family or friends that can support them this way. This is why payday lending has proliferated, but the high rates of interest and thus payment are the impost that breaks many of those who get this finance.

There are some lenders who do lend at very reasonable rates and they are mostly run by Charity or other community organisations. They charge very low interest compared to most of the more commercially run ones and they provide the needed micro credit, but often they can be hard to locate, some still require reasonable income not based on welfare or only a portion based on welfare or can be lacking enough funds to service the large number who would other wise use their services.

This is to not be taken as a recommendation for anyone seeking a payday loan but Good Shepard Microfinance provide loans with interest through their business Speckle and low interest Stepup Loan or no interest loans through their micro finance arm NILS (this is funded with support from NAB). Each loan type they provide has criteria so not everyone may get help and again I do not make this as a recommendation but rather it is just to show one of the options that can be available than the more commercially operated payday lenders.

From GoodShepards page on their Financial Inclusion Action Plan (FIAP) Program page:

“Three million people in Australia are severely or fully excluded from financial institutions and their banking and insurance products. Financial exclusion places people and their families at risk of financial hardships. This can lead to poverty, vulnerability to predatory lending practices and poor social, emotional and health outcomes”

Perhaps @BrendanMays or @ajohnson might like to add some idea of their (CHOICE’s) views on these micro finance lenders and/or could ask CHOICE look into and compare these more “friendly” lenders??


#34

Hmm… OK. Then I guess what I want to see happen is more controls in place. When I was talking about payday loans, I was thinking of places like Wallet Wizard and the like that you see advertised on the Teev. I didnt know there were others.


#35

It doesn’t matter what you call it, there is a demand for smaller loans over shorter periods that the major institutions don’t want to provide. If you try to ban ‘payday lenders’ all you will do is drive them underground which will possibly make life worse for the clients than it already is and will do nothing about usury. Banning a product that people greatly desire only provides opportunities for criminals to build illegal supply chains.

The solution is to regulate them along with the other financial institutions and to then ensure that the regulators are willing and able to do the job. The mystery to my is why this hasn’t happened yet. That is a real conundrum, it has been talked of for years, talk is still going on. I don’t buy the usual ‘politicians looking after their mates’ conspiracy theory. Why invoke a conspiracy when simple incompetence will explain the facts?

Penalties don’t need to be very clever or sophisticated, putting offenders out of business is not required. Make them repay extortionate amounts to their clients and fine them heavily as well. Money is a language that speaks to principals who have no principles.


#36

It was no problem @SueW, I agree totally on what I might term predatory lending. It is to my view evil. I also understand that you didn’t know about the others because it is so rarely seen or mentioned anywhere and is why I explained my views.

We definitely need change beyond just halting a product, it is a measure but it could be done a lot better. But the payday industry has a lot of funds that they can use to lobby politicians so that perhaps the changes we see are far less than we hope.

As @syncretic points out in their post extortionate rates of interest could be ceased by legislation by controlling the payday lenders more stringently. ASIC with these new powers has to discuss with a lender their practices for 4 weeks prior to seeking to cease that/those product offer/s for up to 18 months. In this 4 week period the lenders could seek legal injunction of the pending halt. Not a perfect answer and even if halted the lenders could appeal to the courts and perhaps have the product reinstated. All very unclear and untested at the moment.

Why hasn’t it happened? Well yes, it could be sheer incompetence, it could be influence, or it could be a mix of reasons. The reality is that it needs to be fixed properly but some action is better than none at all but it shouldn’t just be the current effort at an answer.

@syncretic you are also right banning them won’t fix the issue, it just will drive it to a more illegal level. Prohibition didn’t stop alcohol consumption, Back Street unlicenced Loan Sharks exist and have existed long before Shakespeare’s Shylock, illegal betting…who ever thought that would exist. Reality is that unless a system provides fair means of addressing reasonable needs and desires there will be a greater potential of illegal ways of meeting those.


#37

The US Prohibition would have to rate as one of the most idiotic acts in history.

All it achieved was to give the Mafia a massive leg-up so by the time the legislation was repealed, they were so firmly entrenched that they cannot be stopped, and one of their many specialities is loan sharking.

A similar thing is occuring globally with illicit drugs, whereby the regular announcements of massive drug seizures and arrests are not even scratching the surface.

The testing for illicit drugs in the sewer water of various cities paints a very grim picture.

The only solution I can see is the decrimminalisation of illict drugs and to have them provided very cheaply by Government controlled dispenseries.

Take away the massive illegal profits and organised crime would drop illicit drugs like a hot potato.


#38

CHOICE had a look at Good Shepherd Microfinance some time ago, perhaps it’s time to revisit the issue. Thanks for the suggestion @grahroll.

@tpeter267 there is a history of lenders receiving fines for poor practices, but whether the severity has been an effective deterrent and to what greater or lesser degree is a point for discussion.

@SueW, I appreciate your sentiment around finding the right controls for the right lenders.


#39

Another article regarding the bottom-feeding payday lenders and a claim that ASIC may actually do something about them.


#40

One thing I noted recently is people don’t actually understand they’re paying for these loans. People think all the money comes from late fees.

I served a customer recently in my workplace who asked about Afterpay. I explained it was being trialed but we had to make sure the cost was worth it. She asked what cost and was very surprised when I explained that, according to publicly available information, Afterpay costs us up to 10x the fee for the same transaction vs a credit/debit card.

If people realised they were paying in increased prices maybe they would think twice about whether they needed Afterpay