Australians are facing financial ruin, even homelessness, after getting unaffordable credit at the ‘tap of a finger’ from payday lenders, a Senate committee has heard.
Financial adviser Lyndall Millburn told senators on Friday that one of her clients – who was due to appear before the public hearing but withdrew – was pushed into a financial crisis by payday lenders.
Ms Millburn explained how the Wiradjuri wife and mother of two secured seven short-term loans for her children to see doctors, one of whom has special needs, and to pay for the repair of the family’s car.
The sixth loan, for $250, cost $463 in total and was approved by lenders just four days after the family borrowed $500.
At one point, the mother had just $150 a fortnight to live on after paying loans, high-interest bills and rent. Lenders, meanwhile, threatened to raid the family’s bank account for missed payments.
“She was at risk of being evicted from public housing and she often struggles to put food on the table,” Ms Milburn said.
Another Australian mentioned in the hearings who leased a laptop from a lender was charged $15,000 for a computer worth $3,000, the policy director of the Consumer Action Law Center told senators, Tania Clarke.
“Because of the excessively high fees and irresponsible lending practices we are witnessing, these products typically lead to financial exclusion and almost always make the situation worse for the people we help,” Ms Clarke said.
“Payday loans can incur fees equivalent to an annual interest rate of over 200%, and there is currently no limit to what can be charged under a consumer lease.”
Government crackdown looms
Lawyers were asked to share consumer stories with the Senate on Friday as the Albanian government prepares to continue a crackdown on payday lenders and businesses that rent out their property.
Reforms before parliament would cap short-term loan repayments at 10% of household income and set limits on what lenders can charge.
The old cap was 20% and only applied to welfare recipients.
Ms Millburn said the main problem the Federal Government needs to tackle is that it is “too easy” for people to get high-interest credit, with lenders giving loans to financially vulnerable people in a “finger click”.
However, she said loans should always be accessible as many people need access to funds in an emergency, but they must be made affordable.
“Even though [repayments] cannot be withdrawn from Centrelink, they are taken directly from people’s accounts as soon as their salary reaches it,” Ms Milburn said.
“[Lenders] get their money first and they [customers] take what’s left.
The financial adviser also lamented the way lenders market products to financially vulnerable people, saying lenders are jumping at the chance to attract new customers, even if they have been rejected by other lenders.
“Someone applied for a loan from a payday lender, got turned down because it was unaffordable, but within 24 hours they had other offers,” Ms Milburn said.
“If it’s unaffordable for one, how can it be for another? It’s just appalling, these people are very vulnerable financially.
Many are missing in the composition scheme
The new short-term credit protections are being considered as part of a broad package of financial reforms that implement the 2019 recommendations of the Royal Commission into misconduct in banking, pensions and financial services .
A last-resort compensation scheme is also being legislated, which will force major banks and other financial advisers to foot the bill for those who lost money to dodgy advisers who went bankrupt.
Consumer advocates have long advocated for the scheme, but warn that the government’s current proposal does not go far enough as it will cap compounding payments at $150,000 and exclude parts of the industry.
Those fears were heightened on Friday after officials from Australia’s Financial Complaints Authority (AFCA) revealed that more than half of the $676 million in losses reported by those who said they received questionable advice may not be covered. .
Officials said they believed only $357 million in financial losses claimed by insolvent advisers fell within the scope of the proposed scheme.
These cases have yet to be formally investigated by the AFCA as they were ‘suspended’ before the compensation scheme was presented to Parliament, meaning around 1,880 people have been waiting since years of having their case heard by the complaints authority.