On 10 December 2016, Principal Solicitor Gemma Mitchell spoke on Heritage FM about issues surrounding pay day loans.
What are payday loans?
Payday loans are loans of up to $2,000 which must be repaid between 16 days and 1 year. Payday loans are usually advertised as a fast and easy solution to short term money troubles.
However, the reality is that payday loans typically carry high charges and additional fees resulting in consumers paying off much more than was originally borrowed.
Recently we have seen investigations into payday lenders amid claims that they have not been lending responsibly.
There is information on the Australian Government’s MoneySmart website for consumers about the investigations and whether consumers might be entitled to a refund for fees and charges associated with their payday loans. This information may be access at: https://www.moneysmart.gov.au/tools-and-resources/news/cash-converters-refunds
Requirements to be met by credit providers
All credit providers in Australia are required by law to lend responsibly – this means that they cannot give you a loan if the loan is unsuitable for you.
The first step a lender needs to take before offering you credit is to make enquiries into your financial situation and your requirements and objectives and for the loan. Lenders should find out the amount of credit you want, the length of time for which you will need the loan, your purpose for taking out the loan and whether you have any additional requirements.
Secondly, lenders must take steps to verify the information you are providing to them – this can be done by the lender asking you to provide them with your pay slips and bank account statements. Payday lenders cannot just estimate your expenses.
Thirdly, the lender must make an assessment of whether the loan would be unsuitable for you.
A loan is unsuitable if you would not be able to meet your repayment obligations under the loan, or if you can only comply with your obligations with substantial hardship.
If you have taken out a payday loan and you think the lender has not acted responsibly then you should call CCLSWA’s telephone advice line on 9221 7066.
Additional requirements specifically for payday lenders.
In addition to these general responsible lending obligations, there are also some requirements that are specifically applicable to payday lenders only. These additional protections have been added to protect vulnerable borrowers from entering into loans they can’t afford. Often CCLSWA see borrowers that fall into payday lending debt spirals.
A debt spiral occurs when the borrower is taking out multiple payday loans to pay off their existing debts or to meet their existing repayment obligations.
Presumptions were introduced so that a payday loan is automatically unsuitable where:
- You are in default under another payday loan; or
- You have had 2 or more payday loans in the past 90 days.
Payday lenders must also obtain your bank account statements for the past 90 days to help them assess whether the loan is unsuitable for you.
There are also caps on what payday lenders can charge you for fees. An establishment fee can only be up to 20% of the value of the loan, whereas any monthly fee can only be up to 4%.
From 1 February 2017, payday lenders will not be able to charge borrowers direct debit fees.
Warnings for borrowers
Warnings should be displayed before the borrower can access any loan application and should warn borrowers about the expensive nature of payday loans.
Additionally these warnings should outline that the consumer may not need to take out a loan today as there may be other options available to them.
These options might include seeking the assistance of a financial counsellor, working out a payment plan with existing lenders or utility providers or seeking other borrowing options.
What can you do about your payday loan?
Firstly you can contact CCLSWA for legal advice. We will be able to advise you of all of your rights and options. You can call CCLSWA on 9221 7066. You can also check out our website at www.cclswa.org.au
You may also contact a financial counsellor. Financial counsellors offer free information and advice to those experiencing financial difficulties. To find a financial counsellor that is nearest to you, you can go to their website: http://www.financialcounsellors.org/
Before taking out a payday loan you might consider negotiating with your utility providers and existing lenders under your home loan and car loans to reduce your repayments over a specified period of time.
Instead of getting a payday loan, you could also consider applying for a no interest loan.
The no interest loan scheme (NILS) offers no-interest loans from $300 to $1200. These loans can be used to pay for essential household items such as whitegoods, some medical and dental services, and education essentials such as computers and textbooks. To be eligible, you must have a Healthcare or Pension card or earn less than $45,000 after tax. You must also be able to show a willingness and capacity to repay the loan within 12 or 18 months.
If you believe that you have been given an unsuitable payday loan you may be entitled to a waiver of the fees and charges applicable to the loan but in most circumstances, you will likely still need to repay the principal amount of money borrowed.