Payday loan mountain to top $1 billion as irresponsible lending skyrockets   
October 16, 2015

The number of borrowers with more than one payday loan at a time jumped from 9.8 per cent to just under 30 per cent between 2005 and 2015, new research has revealed.


ONLINE payday lenders like Nimble and Money3 have led to an explosion in short-term loans to Australians in financial distress, with the industry now on track to pass $1 billion for the first time in 2018.   

New analysis by research firm Digital Finance Analytics has revealed a rapid rise in the pace of lending over the past five years and suggests a widespread flouting of lending standards intended to prevent borrowers getting in over their heads.   

At the same time, the internet and social media has fast emerged as the single biggest channel both for people to find out about and access payday loans, also known as small-amount credit contracts.

According to the report, which analysed detailed financial data from 2005, 2010 and 2015 from a survey of 26,000 people, there are now 2.69 million Australian households classed as financially stressed, representing 31.8 per cent of all households — a significant rise since 2005.

During the five years to 2015, the total number of households using payday lending services increased by nearly 55 per cent from 416,102 to 643,087, DFA found.

That was driven by a nearly 1200 per cent increase in loans to financially stressed households, from 20,805 in 2010 to 266,881 in 2015. At the same time, the number of households classified as financially distressed using payday loans fell by five per cent, but still made up 59 per cent of payday borrowers.

The number of borrowers taking out more than one payday loan in the preceding 12 months has more than doubled from 17.2 per cent in 2005 to 38.0 per cent in 2015, and one in five borrowers were in arrears or default on a payday loan.

Worryingly, borrowers with more than one loan at a time jumped from 9.8 per cent to just under 30 per cent in the same period, in breach of regulations introduced in 2013 aimed at curbing the practice.

The study was commissioned by the Consumer Action Law Centre, Good Shepherd Microfinance and the Financial Rights Legal Centre, and come as submissions close to the Treasury’s review of small amount credit contract laws.

“This new research confirms our view that the current regulations aren’t working to ensure payday lenders only lend responsibly,” said Consumer Action Law Centre chief executive Gerard Brody.   

“Policy makers need to act now before online payday loans trap even more Australians in dangerous debt spirals.”

Mr Brody said the most vulnerable people in the community were hurt by payday loans, arguing the industry needed to “stop expecting special treatment” compared to other forms of credit.

“Payday lenders are a credit product and should be regulated like larger loans,” he said. “They should operate under the 48 per cent interest rate cap, the requirement that applies to loans above $5,000.”

Good Shepherd Microfinance said limiting repeat payday loans needed to a priority of the review. “Our microfinance workers see the harm caused by payday loans and consumer leases every day — they’ve been seeing it for years. Minimising repeat borrowing across the industry is crucial to protect vulnerable consumers,” said CEO Adam Mooney.

In its submission to the review, Good Shepherd has called for consumer leases or rent-to-buy schemes, which it describes as “credit in disguise”, to be subject to the same regulations as payday lending.

“Many of our clients have previously juggled a combination of multiple payday loans and ‘rent-to-buy’ contracts,” he said. “We need measures that include consumer leases in repeat and multiple lending provisions. The simplest and most effective way to do this would be through mandatory positive credit reporting.”

Almost 44 per cent of those surveyed in 2015 found out about payday loans through the internet or social media, coinciding with a sharp rise in borrowing among younger demographics, particularly in the 29-38 age bracket.

Using industry modelling, DFA estimates that by 2018, eight in 10 payday loans will be online, while the value of all payday loans written is estimated to exceed $1 billion for the first time.

The size of the market has always been difficult to pin down, as unlike other consumer finance categories there is no consistent reporting of payday lending data.

Some estimates put the size of the category at between $800 million and $1 billion in 2012, but DFA’s analysis only includes new loans written and excludes defaults, refinances and loans carried forward.

On Monday, the Federal Court approved a $23 million settlement of a class action brought against the nation’s biggest payday lender, Cash Converters, by a group of more than 35,000 customers who claimed they were charged interest rates of up to 633 per cent.

frank.chung@news.com.au

Payday lending is out of control.

The Heartless Felon wrote on Nov 5^th, 2015 at 1:49pm:




if its there .. people will use it...sadly like HECS doesnt matter if you can afford it or not...ITS THERE grab it..

if someone  is going to lend you $50 every off week.. then why bother to manage what you get?? 

why both to save for a rainy day or Uni fees.. when you can spend spend spend and be merry all year round...

then borrow it where it sits on your record until the day it is all paid back.. in a lot of cases never..

Quote:




Because people can't keep up with the cost of living. They borrow for day to day expenses because they are not making ends meet.

So let's put everything up another 5%.

....and get back double.  For the big end of town.   

Well the why would be answered simply by financial stress...

A significant number of Australians simply do not earn enough to make ends meet. That's the bottom line.

The fun fact here is that, at some point, those with multiple debts to "payday" loan mobs will simply up stumps and not be able to pay - then there will be an issue.

It's a funny old thing that only recently in the news housing affordability was discussed as a growing problem - people cannot afford to buy their own home and, as if that isn't problematic enough, rentals are getting more expensive to the point where many cannot afford to rent. We are developing our own working poor culture here.

The Government response to this? Let's raise the GST because that will certainly help those who struggle financially to make ends meet. Obviously if we increase the cost of living, then that will make it easier to pay high rents or save for that deposit for a home....

So, a bit of irresponsible lending can only be a bit more icing on the cake let's face it.

The Heartless Felon wrote on Nov 6^th, 2015 at 8:00am:


Absolutely, hence my disgust in offering a 5% increase in GST as somehow being a step to addressing these issue by our Governments...

When multi nationals are facilitated by our own Governments wringing their hands in order to avoid their tax share, when we have tax breaks that indisputably favour the wealthy at the direct expense of those struggling, it would seem there are more than a few steps that stand out looooooong before we raise the GST.

Raising the GST at some point might be appropriate, however, to my mind, it is very disturbingly telling that raising the GST (which demonstrably impacts the less well off mostly) is the first go to point of our Government. Even more telling, the suggested (I say suggested because when the economic reality starts to hit, compensation will be the first casualty) compensation plans will use up MOST of the extra revenue raised. That then means that "other" measures with no room for compensation will have to be added on...

Just make the top end pay their share might be a reasonable starting point.

Phemanderac wrote on Nov 6^th, 2015 at 8:12am:



How dare you suggest that.

The poor CEO's will have to take a cut in their bonuses.

Multinational conglomerates will have to pay millions in tax rather than the $100 they pay now.

Not to mention the mining magnates......we won't go there.

It's so much easier to take $50 a week off the pensioners.