Extract from The Guardian
Payday loans and rent-try-buy schemes are profiteering from poverty
in Australia. Labor should be protecting the poor from the worst
excesses of this industry
Among
the impassioned debates around asylum seeker policy, marriage equality
and unfair international trade agreements that will occur at the Labor party
conference this weekend, a less fashionable but equally important
discussion will take place about about financial regulation and how it
affects the lives of the poor.
The traditional party of egalitarianism will be asked to address prevailing economic inequities faced by Australia’s most vulnerable citizens ahead of a government review into payday lending planned for later this year.
Sloppy legislation around both payday loans and consumer leases have allowed a culture of poverty-profiteering to proliferate in Australia. As economic activities that intersect with low welfare allowances, insecure work and Australia’s unfair taxation system, they are already compounding the experience of poverty.
“Payday lenders” issue short-term loans of up to $2,000 to be repaid over weeks or months. The name is clever marketing to suggest a mere tiding-over until payday, but with lax regulation around pre-assessing credit history or income, the loans are easily accessible to those whose circumstances are vulnerable to change.
With 40% of Australians now employed in insecure work conditions, and high rates of casualisation in the lowest-paid industries, it’s unsurprising that the incidence of payday lending has exploded, with an increase of 125% between 2008 and 2014.
The Australian Securities and Investments Commission (Asic) has counted 1,136 of these businesses, which are increasingly moving into online retailing with heavily advertised “one-stop” smartphone apps issuing credit direct from handheld devices. It is the fastest growing industry in the finance sector.
Payday loans are dangerous because of their propensity to trap customers into cycles of repeat-borrowing, as onerous repayment obligations compound with existing economic deprivation, motivating borrowers to seek more loans to cover expenses like rent and food, or even to pay back old loans.
Asic identified that 25% of payday loan customers were Centrelink recipients and that 54.2% of the loans were issued to people who had already taken out two or more similar loans in the previous 90 days. A report co-authored with Choice revealed that despite a legislated fee cap, these loans charge effective interest rates of up to 240% a year. If this sounds exorbitant, bear in mind that this is an industry worth $1bn a year and can afford to fund a significant lobby. When the government reviewed the industry two years ago, the payday lenders successfully lobbied to double the proposed amount they could charge in fees.
This doesn’t sound like policy for the public good, or protection of the most vulnerable, does it? Consider also that the present government has failed to rein in the excesses of the “consumer lease” market of “rent-try-buy” providers. Asic has been pressuring the government to ramp up regulation in the face of what’s effectively another form of high-interest lending, disproportionately affecting those without the capital means for an outright purchase of a needed item.
According to the Consumer Action Law Centre, a customer could be paying $6,715.80 for a fridge retailing at $1,159 from the Good Guys if they opted into a rent-try-buy agreement with Rent4Keeps*. Distressingly, the renter-retailers have negotiated that payment can be obliged through Centrepay, Centrelink’s payment service that pays bills on behalf of recipients.
Again, lax regulations around the offering of leases often oblige customers into payment contracts of inflated terms and onerous commitments, preying on those who haven’t got the readies for a fridge but still, you know, need a fridge.
Amid the noise of debate with more current media traction, one hopes that true voices for the poor will not go unheeded for being less loudly heard.
*Prices accurate as of 24 July 2015.
The traditional party of egalitarianism will be asked to address prevailing economic inequities faced by Australia’s most vulnerable citizens ahead of a government review into payday lending planned for later this year.
Sloppy legislation around both payday loans and consumer leases have allowed a culture of poverty-profiteering to proliferate in Australia. As economic activities that intersect with low welfare allowances, insecure work and Australia’s unfair taxation system, they are already compounding the experience of poverty.
“Payday lenders” issue short-term loans of up to $2,000 to be repaid over weeks or months. The name is clever marketing to suggest a mere tiding-over until payday, but with lax regulation around pre-assessing credit history or income, the loans are easily accessible to those whose circumstances are vulnerable to change.
With 40% of Australians now employed in insecure work conditions, and high rates of casualisation in the lowest-paid industries, it’s unsurprising that the incidence of payday lending has exploded, with an increase of 125% between 2008 and 2014.
The Australian Securities and Investments Commission (Asic) has counted 1,136 of these businesses, which are increasingly moving into online retailing with heavily advertised “one-stop” smartphone apps issuing credit direct from handheld devices. It is the fastest growing industry in the finance sector.
Payday loans are dangerous because of their propensity to trap customers into cycles of repeat-borrowing, as onerous repayment obligations compound with existing economic deprivation, motivating borrowers to seek more loans to cover expenses like rent and food, or even to pay back old loans.
Asic identified that 25% of payday loan customers were Centrelink recipients and that 54.2% of the loans were issued to people who had already taken out two or more similar loans in the previous 90 days. A report co-authored with Choice revealed that despite a legislated fee cap, these loans charge effective interest rates of up to 240% a year. If this sounds exorbitant, bear in mind that this is an industry worth $1bn a year and can afford to fund a significant lobby. When the government reviewed the industry two years ago, the payday lenders successfully lobbied to double the proposed amount they could charge in fees.
This doesn’t sound like policy for the public good, or protection of the most vulnerable, does it? Consider also that the present government has failed to rein in the excesses of the “consumer lease” market of “rent-try-buy” providers. Asic has been pressuring the government to ramp up regulation in the face of what’s effectively another form of high-interest lending, disproportionately affecting those without the capital means for an outright purchase of a needed item.
According to the Consumer Action Law Centre, a customer could be paying $6,715.80 for a fridge retailing at $1,159 from the Good Guys if they opted into a rent-try-buy agreement with Rent4Keeps*. Distressingly, the renter-retailers have negotiated that payment can be obliged through Centrepay, Centrelink’s payment service that pays bills on behalf of recipients.
Again, lax regulations around the offering of leases often oblige customers into payment contracts of inflated terms and onerous commitments, preying on those who haven’t got the readies for a fridge but still, you know, need a fridge.
Amid the noise of debate with more current media traction, one hopes that true voices for the poor will not go unheeded for being less loudly heard.
*Prices accurate as of 24 July 2015.
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