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Payday lenders reel after review
The Australian 12:00am November 29, 2016
Michael Roddan
The payday lending and consumer leasing sectors are scrambling to assess the damage to their businesses after the federal government pledged an industry-wide crackdown to end harmful multiple-loan “debt spirals” and price gouging by appliance rental companies.
Industry bodies yesterday condemned the government’s long-awaited response to a 2015 review of the sectors, despite Financial Services Minister Kelly O’Dwyer giving businesses a further 12 months to comply with any new laws, which will be drafted and tabled in the first half of next year.
The National Credit Providers Association, which represents small amount credit contract (SACCs) providers, warned the proposals and lower weekly repayments would increase the cost of credit by extending the length of loans.
The Consumer Household Equipment Rental Providers Association, which represents 90 per cent of the rentals industry, said reforming the sector would spark the closure of 380 businesses and cost 1500 jobs over the next six months.
“The government is committed to protecting vulnerable consumers and will be introducing legislation in 2017,” Ms O’Dwyer told The Australian. “It is inconceivable that someone would end up paying $3042 for a 5kg dryer that retails for $345, and yet this is what occurred under the previous system.”
CHERPA chief executive Andrew Gresswell said Ms O’Dwyer’s announcement was “shameful”, and that Small Business Minister Michael McCormack was “silent in his support of the industry”.
NCPA chief Phil Johns said he met with Ms O’Dwyer’s adviser yesterday and expressed his “disappointment” with the news.
“The real losers out of this will be consumers. If those recommendations end up as legislation there’ll be a vast reduction of SACCs providers in the market place,” he said.
The government backed, or partially backed, 21 of 24 recommendations from an independent review of SACCs last year, and Canberra will review the lending and leasing sector within three years of any reforms.
The government intends to protect borrowers and appliance renters from repayments worth more than 10 per cent of their after-tax income and has committed to stop predatory lending with stricter affordability rules, which prevent borrowers taking out a loan if they have defaulted or taken out two or more loans over a 90-day window.
Unsolicited loan offers to current and previous customers will be banned, along with the charging of interest fees after a loan has been repaid early, and contracting loans with terms of shorter than 15 days.
Companies that lease household goods to consumers and welfare recipients will be subject to a cap on total repayments and door-to-door selling of leases will also be banned.
There were caveats to the government’s response. A proposal to end referral payments between payday lenders was not supported, nor was a proposal to dramatically limit default fees or the introduction of a 48 per cent annual interest rate cap.
Consumer Action Law Centre chief Gerard Brody said there was “no reason” the industry deserved special treatment to avoid the 48 per cent cap applied to most other forms of credit. A government spokesman said the exemption would allow instances where the final repayment was unequal or where a loan is paid out early to the benefit of a customer.
Cash Converters and Thorn Group shares fell about 2.8 per cent yesterday. Money3 said the government response “may even present opportunity”. Its stock closed up 5 per cent.