Treasurer Josh Frydenberg makes a big play of the Government implementation of the Hayne Royal Commission recommendations, regularly issuing media releases with updates on the progress of reforms.
However, the Government has a few blind spots when it comes to protecting consumers’ interests in the financial services market. One of them is payday lending.
It has been holding off on reform in that market for four years, and there is no justification for the delay.
The payday loan market is booming, with loan values growing at 10 to 15 per cent a year over the past few years, according to a new report. According to new research, about 15 per cent of payday loan borrowers are falling into a debt spiral.
A coalition of consumer groups and financial counselling services has produced a report, The Debt Trap, detailing the impact of payday lending and calling on the government to amend the National Consumer Credit Protection Act to tighten the regulation of small amount credit contracts and consumer leases.
Based on data prepared by DFA Analytics, the report says the number of loans written each month has increased 100,214 in 2016 to 135,402 in the first half of this year.
The value of loans written each month has increased from $61.3 million to $84.7 million over the same period.
Between April 2016 and July this year, just over 4.7 million payday loans were taken out by 1.7 million households, worth around $3.1 billion.
The paper estimates that these loans would have generated $550 million of profit for the lenders.
The groups involved in the preparation of the report are concerned that payday lenders target vulnerable consumers. The paper says that over a five-year period around 15 per cent of payday loan borrowers take out multiple loans, falling into a debt spiral.
Digital platforms have been a factor in the sector’s growth. Ten years ago, 5.6 per cent of payday loans were originated online. This year the proportion is around 85 per cent.
A small amount credit contract is a loan of up to $2000 that is paid back over a period of 16 days to 12 months.
The government accepted the recommendations of a review of the small amount credit and consumer leasing market in 2015 and released a draft bill for consultation in 2017.
The bill introduced a cap on the total payments that could be made under a consumer lease. It required small amount credit contracts to have equal repayments and equal payment intervals.
It removed the ability of SACC providers to charge monthly fees in respect of the residual term of a loan where a consumer repays the loan early.
And it banned door-to-door selling by lessors and credit assistance providers. And it strengthened penalties. Since then nothing has happened.