Doug Shave

Doug Shave

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    WA moves on payday lending

    11/11/2000 8:15 AM
     
    11/11/00


      Fair Trading Minister Doug Shave will strongly support Australia wide moves to close any loopholes being used by promoters of a new credit product - payday lending.

      “Payday loans are used by people needing cash to tide them over until their next pay,” Mr Shave said.

      “They are usually for relatively small amounts and charge high fees, eg: a $39 fee on a $100 loan.”

      High fees are a worry but a greater risk is when loans are ‘rolled over’ if people could not pay. Rolling over adds more fees and a loan could quickly become a debt trap.

      “There are cases of loans being rolled over and within three months blowing out to almost eight times the original loan,” Mr Shave said. (Example at end of statement).

      Because payday loans were for less than 62 days, they are not covered by the Credit Code that requires lenders to provide full and easy-to-understand information to borrowers.

      “I have instructed the Ministry of Fair Trading to make a priority examination of existing State legislation to see if it can be used to cover payday lending,” Mr Shave said.

      “I will also support national moves to ensure that people taking out a payday loan will have the protection of the Consumer Credit Code.”

      Payday lending is new to Australia but has grown rapidly in the United States and is expected to do so here. It was discussed by State and Commonwealth Fair Trading/Consumer Affairs Ministers at a national conference in Perth in July and a national working group was set up to prepare recommendations.

      Mr Shave said some payday borrowers gave lenders direct debit authority to bank accounts and this could leave them without money for essentials such as food and rent.

      “Some borrowers have also had to put up high value items such as the family car as security, risking losing something worth much more than the loan,” he said.

      Other problems that need to be addressed include a lack of contracts, of assessment of borrowers’ ability to repay, and of information for borrowers.

      Anyone with serious financial problems can get advice from a financial counsellor. Contact details of counsellors are available from the Financial Counsellors Resource Project on 9221 9411 or the Financial Counsellors Association on 9325 1617.

      EXAMPLE OF RISK: In Queensland a payday loan of $120 in August 1999 was rolled over to the next payment period when the borrower could not pay. Within three months the borrower owed a total of $680 plus fees of $272, a total of $952. Unable to pay, the family car was repossessed and the borrower had to pay repossession fees of $500.

      Media contact: John Clune Minister’s Office 9213 6500