The Liberal Government initially introduced legislation back in 2017 that would enforce stricter protections for payday loan customers under then-prime minister Malcolm Turnbull.

This legislation, called the National Consumer Credit Protection Amendment, has since stalled, with the Coalition stating that they would wait until the banking royal commission to make any changes.

This bill proposed the following changes:

  • Impose a cap on the total payments that can be made under a consumer lease (currently, there is no cap on the total amounts of payments that can be made);
  • Require small amount credit contracts (SACCs) to have equal repayments and equal payment intervals;
  • Remove the ability for SACC providers to charge monthly fees in respect of the residual term of a loan where a consumer fully repays the loan early;
  • Preventing lessors and credit assistance providers from undertaking door-to-door selling of leases at residential homes;
  • Strengthen penalties to increase incentives for SACC providers and lessors to comply with the law

The cap on lease payments that can be made under this new legislation would be restricted to 10% of a customers income.

Centre Alliance MP Rebekha Sharkie told The Guardian Australia that she couldn’t see why the government wouldn’t support the payday lending bill, since it was initially the coalition’s idea.

“We have very little protection for payday lending, which preys on the most vulnerable people, some of who don’t know they are paying hundreds of per cent interest,” she said.

What are payday loans?

According to ASIC, payday loans are loans of $2,000 or less. Payday lenders are those who specialise in providing these short-term, high-cost loans.

Payday lenders are not allowed to charge interest, but instead charge fees.

ASIC’s rules state that credit providers are only allowed to charge the following:

  • A one-off establishment fee of 20% (maximum) of the amount loaned
  • A monthly account keeping fee of 4% (maximum) of the amount loaned
  • A government fee or charge
  • Default fees or charges – up to 200% of the total loan amount

Much of the debate around payday lenders stem from the fact that many advertise ‘cheap’ interest-free loans that may in-fact be wildly more expensive, due to excessive additional fees.

Critics of payday loans also believe they target vulnerable people who have a low-chance of actually meeting their repayments, thus attracting high default fees.

The National Credit Providers Association (NCPA) – the peak national industry body representing the Small Amount Consumer Lending Industry in Australia – rejects these proposed changes.

The NCPA has a petition page where consumers can sign to attempt to veto these new laws.

“Proposed new laws are being considered that will further restrict your financial freedom and exclude even more Australians from getting access to small loans and credit when its needed most,” the NCPA’s site says.

“This is a massive intervention into your personal life to control your access to small loans and credit.

“The proposed new laws will increase costs, further restrict your financial freedom and exclude even more Australians from getting access to small loans and credit when it’s most needed.”

While industry-wide data is not available, it’s estimated that more than one million Australians take out payday loans per year, according to the Australian Centre for Financial Studies (ACFS)

The ACFS also found in 2015 that the demand for short-term, smaller loans had increased twenty-fold, due to growth in the number of products and their online presence.

For feedback or queries, email will.jolly@savings.com.au