Opinion piece - Herald Sun, 27 March 2015

Do you need some cash? Payday loans are small amount loans of up to $2000 and for 12 months or less. Such loans are often used by people who need money in a hurry. They may have lost their job, have trouble paying a bill, or face unexpected car repairs.

In other words, these loans are often used by people experiencing significant financial stress. They can be vulnerable to financial hardship. This is why there are special consumer protection rules for the payday lending sector.

ASIC recently reviewed how payday lenders are complying with these rules. Our review found that too often lenders are falling short of the new consumer protection requirements. There is a clear need for higher standards. ASIC has put the payday lending industry on notice to improve its practices or face more enforcement action.

We do not want to see consumers paying exorbitant fees on payday loans. That’s why there is now a cap on how much consumers can pay. We were therefore concerned to find lenders who set loan at 12 months or more – and charging more fees – when the consumers had asked for a shorter term and wanted to pay the money more quickly. We’ll be focusing on this practice to ensure consumers are not disadvantaged.

The laws are also designed to reduce the risk of consumers getting stuck in a ‘debt spiral’ – where new loans are taken out to pay back old loans. Lenders must now act responsibly and take the consumer’s financial situation into account. However, we found many lenders did not seem to be properly considering circumstances where a consumer may already have multiple payday loans or even is in default under another loan.

Payday lenders were doing a better job in complying with other parts of the law, such as the protections for people on Centrelink. But overall we need to see better compliance so consumers face less risk of financial hardship. This applies to lenders, irrespective of whether they are big or small, operating through a shopfront, over the telephone or online.

ASIC has already taken a wide range of enforcement actions against payday lenders, and we’ll take more to protect consumers. For example, we are cracking down on lenders who set up their businesses in ways that seek to get around or avoid the consumer protection rules. They do this so that they can charge what they like. We’ve taken several of these ‘avoidance models’ to court.

ASIC is also targeting irresponsible lending. We took payday lender The Cash Store to court for irresponsible lending and for unconscionably selling credit insurance products to Centrelink recipients. Low income and vulnerable consumers were provided with highly unsuitable products. The Cash Store was fined almost $19 million for its actions.

ASIC’s actions have resulted in close to $2 million in refunds to more than 10,000 consumers who have been overcharged when taking out a payday loan. Lenders have also been issued with 13 infringement notices totalling approximately $120,000. And we’ve got more actions on foot, including 16 current investigations.

ASIC will work with the payday lenders and industry bodies so they understand their obligations and to raise levels of compliance. This is important to ensure better outcomes for consumers.

And, as a consumer, if you need some cash in a hurry at least take the time to consider your options. ASIC’s Moneysmart website can give you information about the alternatives that might help you meet that cash shortfall.

Peter Kell is Deputy Chairman of the Australian Securities and Investments Commission

This piece was published by the Herald Sun on 27 March 2015.