Yahoo Finance ‘Crisis point’: Payday ‘loan sharks’ face calls to be shut down
More than 30 consumer and community groups are calling for payday lenders to be shut down over concerns that people out of a job and needing quick access to cash are being charged unreasonably high rates.
The Stop The Debt Trap Alliance is calling on the government to shut down payday lenders for six months, arguing that these operators “charge some of the highest rates of any lender”.
Organisations such as CHOICE, the Consumer Action Law Centre, the Australian Council of Social Service (ACOSS), Financial Counselling Australia and The Salvation Army are among the signatories to the Stop The Debt Alliance.
“With thousands more set to lose work over the coming months, these loan sharks will be rubbing their hands together,” a joint statement read.
“Our financial counsellors are worried and anticipate a deluge of people with payday loan and rent-to-buy related debt as a result of the Covid-19 emergency.”
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The alliance is concerned that the payday lenders market themselves to vulnerable people who need cash in a tight spot, but then find themselves caught up in a business model that sees them continue to take out loan after loan.
“For someone who is unable to pay for daily essentials like food and rent, these loans are a recipe for financial disaster.
“Right now, millions of people are in a very precarious position. Predatory companies are in a prime position to profit off this situation if we let them.”
The government’s MoneySmart website advises against taking out a payday loan if you’re struggling to pay bills, and recommends Australians take out other types of loans instead, such as no-interest loans or Speckle small loans, which is by a not-for-profit lender.
Government needs to hit pause on payday lending
The consumer and community groups are calling for the government to step in and place a moratorium on payday lending for half a year.
“There’s only one course of action if the government wants to help people keep their heads above water: pause all payday lending and rent-to-buy activity for at least six months,” the statement said.
According to the statement, the Alliance has been lobbying the government and regulators for years to end payday lending, which is like a “ticking time bomb waiting to explode”.
“Our pleas went ignored.
“Despite meeting after meeting, inquiry after inquiry, we saw no action. Now we’re at a crisis point. It’s time to shut these predatory companies down to shield the community from a financial disaster.
“Now they have the opportunity to make up for it, protect vulnerable people, and put an immediate pause on predatory lending.”
What to do if you need quick cash
Finder corporate social responsibility manager Ben King advised against using payday loans to borrow money, and said it shouldn’t be used to fix long-term money issues or buy unnecessary things.
“If you find yourself in this type of situation, remember to compare your options and check that you will be able to make the repayments,” he told Yahoo Finance.
“Some lenders like not-for-profit Speckle are offering rates that are 50% lower than the ceiling rates set by the regulator and that can make a big difference.”
And if you’re struggling to make repayments on an existing loan, get in touch with your lender.
Given the coronavirus crisis, lenders are more willing to provide leniency to individuals who may not be able to make repayments because of job losses or have scrapped late fees for a period of time.
“Others might be able to change your payment schedule.”
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