Changes To Loosen The Noose On Short Loans

Sun Herald

Sunday November 13, 2005

By ALEX MITCHELL STATE POLITICAL EDITOR

STATE Parliament is passing laws to crack down on lending companies that impose grossly inflated fees and charges on short-term loans.

MPs were told amendments to consumer credit laws were being introduced because some lenders were inflicting interest rates ranging in effect from 500 to 2500 per cent.

In future, the annual maximum rate will be capped at 48 per cent including all fees and charges.

Liverpool MP Paul Lynch told Parliament he knew of cases in which people borrowed $100 and ended up owing $1000.

He referred to a case investigated by the charity Lifeline Macarthur of a three-month loan of $2000, at an annual interest rate of 28 per cent with fees and charges of $750. On an annualised basis, the rate was actually 288 per cent, he said.

He rejected industry assertions that legal changes would send lenders to the wall.

"I have some doubts about how any industry that is making 48 per cent on its loans cannot make a buck. I believe one is entitled to a degree of cynicism and scepticism about that," he said.

The laws are aimed primarily at payday lending, designed for those who need cash quickly by borrowing in advance of their next pay cheque.

MPs were told that short-term credit providers made 12,800 payday loans a month in 2003; transactions were now worth more than $200 million a year.

"Surveys suggest the borrowers who use payday lending are most likely to be in their 20s or 30s, are most likely to have low incomes, to rent and not own their premises and are most likely to be borrowing money for everyday living expenses," Mr Lynch said.

Parliamentary secretary Graham West, MP for Campbelltown, said: "This bill recognises the need to give a hand to those people struggling to make ends meet and who are powerless in the world of credit providers to negotiate or bargain."

Auburn MP Barbara Perry welcomed the move by some major banks to provide low-interest loans to low-income earners.