Australian Payday Lenders Fight Back Against Reform
May 23, 2011
The Australian government has proposed reforms on credit practices which threaten to drive payday lenders out of business. Payday lenders throughout Australia have protested against the reforms which they claim will produce the unintended result of eliminating a viable credit option for hundreds of thousands of Australian consumers.
Lenders have taken umbrage with the new laws particularly as they relate to interest rates. The reforms will place a cap on all interest rates, long considered the lifeblood of the payday advance loan industry. Leaders in the payday loan market suggest that if the reforms pass and their measures are instituted, payday centres across the country will close and their clientele will turn to other means to obtain cash, including black market operations, where the interest rates will be significantly more damaging than the current norm for the industry.
The National Financial Services, a pro-payday loan lobbyist, issued a report with the above findings, as well as other figures which indicate the elimination of such short-term lenders. This, in turn, would restrict the choices available to consumers and put them increasingly at the behest of big banks and loan sharks.
Further research conducted by the Queensland University of Technology posited that a cap on rates would prove detrimental to both the payday lenders as well as those consumers who rely on their services. Professor Stephen Corones spearheaded the report issued by Queensland University and noted that maximum interest rates on payday advance loans will effectively collapse the market and translate into a loss of opportunity. Moreover, Professor Corones noted that the most desperate payday borrowers will be made to feel that they have no choice other than to seek out illegal credit.
While consumer advocacy groups argue that payday advance lenders are taking advantage of desperate consumers through extremely high interest rates and copious fees, defenders of the industry are quick to note the need that payday loans fulfil. Furthermore, industry leaders advise, the interest rates and extra fees are perfectly reasonable given the extremely short-term nature of the loans. The pro-payday loan side of the debate also notes that poorer individuals and families have fewer resources than the more well-off, and they are typically excluded from the option of taking out a loan from a traditional bank.