Ask ICAN’s financial counsellors how many clients present with hardship issues relating to payday loans and consumer leases, and they will tell you it’s the majority. Although Small Amount Credit Contracts (SACCs) may not always be the obvious driver for someone seeking financial counselling, it’s often the underlying cause. Vulnerable people – whether they are working or not – sign up for these short-term high-interest loans in desperation, not understanding what it will really cost them, both financially and emotionally.
The ‘Stop the Debt Trap Alliance’, is a group of 20 consumer, non-profit and community services groups, campaigning for the implementation of the recommendations from an independent government review of SACCs. The alliance, led by the Consumer Action Law Centre, recently descended on Canberra for a “national day of action”, calling on the federal parliament to enact laws to combat the business practices of payday lenders and consumer lessors. The proposedlegislation would ensure that no more than 10% of a consumer’s income would be spent on loan repayments, including a cap on the total amount of payments to be made under a consumer lease.
“ICAN joined the Debt Trap campaign because our financial counselling team sees the detriment these products cause on a daily basis, they’re targeting people that can least afford them,” said ICAN CEO Aaron Davis. “We have firsthand knowledge of the problems Indigenous and non-Indigenous Australians face when accessing goods and services, and why we need reform.”
Consumer Action Law Centre CEO, Gerard Brody, says so many people are caught off guard because payday lenders and consumer lease providers deliberately target vulnerable people and, under current laws, can get away with charging high fees and taking huge portions of people’s incomes to pay off the loans.
“Payday lenders do not conduct effective affordability checks, and they can charge exorbitant fees with equivalent interest rates of between 100 and 400 per cent per annum.”
It’s about money, not mateship
ICAN Financial Counsellor Unaisi Buli deals with the fallout every day. “One of the first things we do for our clients is to look at their bank statements so that we can work out their money story. If payday lenders did the proper affordability checks, they, like us, would know when someone is already overcommitted. Instead, they provide another unaffordable loan so that a person, or their whole family, spiral into a debt crisis where basic needs like rent, electricity, and food get sacrificed to keep up with the unconscionable payments.”
It’s not just loans that payday lenders offer; it’s a relationship, something that frustrates ICAN’s financial counselling team. As Sharon Edwards explains, “the relationship that our clients have with payday lenders is like a double-edged sword. People come to us with the view that the payday lender is their best mate, they’re there for them in a time of need, when there are little or no options for support elsewhere. Some lenders make it their business to remember birthdays and kids names. Of course, these are just sales tactics. If payday lenders actually cared about the vulnerable people that walk through their doors, they would support the proposed reforms.”
ICAN continues to see many people struggling throughout North Qld with complex financial counselling needs, including a significant number of insolvency cases, insurance advocacy matters and family/relationship breakdowns due to spiralling debt stress. Add unaffordable payday loans into the mix, and it is no wonder people feel like giving up. Not seeing a way out of the debt trap and being unable to get any financial traction for life’s basic demands, including back to school expenses, or car rego has dire effects on physical and mental wellbeing. As Sharon puts it, “just because there is a demand for something, it doesn’t mean that it’s a solution. There needs to be a significant increase in the availability of safe, affordable, fair finance options for people in need.”
Assistant Treasurer Michael Sukkar said the government was currently considering public submissions to consultation on a “suite” of reforms to SACCs and consumer leases.
“Our response to the Review of the Small Amount Credit Contract Laws supported the vast majority of the Review’s recommendations, including caps on charges and borrowing amounts,” Sukkar said.
“We recognise the need for reform in these areas and that reforms must strike the right balance in enhancing consumer protection, while also ensuring these products and services can continue to fulfil an important role in the economy,” Sukkar said.
For our client’s and their families’ sake, we hope it’s sooner, rather than later.