Tuesday, October 11, 2011

Payday lenders fight "loan shark" image as government moves to cap excessive interest rates

The payday lending sector has stepped up it's campaign to thwart federal government plans to cap annual interest rates on loans which can sometimes exceed 500 percent.

While the government concedes payday loans are necessary for some people, it wants a cap of 48 percent on loans above $2,000 to protect consumers who are often on social security benefits.

But payday lenders warn that would limit credit for many and make some resort to loan sharks to make ends meet.

The National Financial Services Federation, which represents Australia's payday lender sector, is being advised by John Lamidey of the Consumer Finance Association in Britain.

In an interview with AM, he defended the payday lending business model and likened the applicable interest rate to a pint of beer on a 25 pound loan over a week.

Not surprisingly the "pint of beer" defence has been ridiculed by the Consumer Action Law Centre's media and communications officer Dan Simpson who writes:

"The reality is these loans are typically between $200 and $500 and the overall cost of the loan is particularly onerous for someone on a limited and fixed income (and research suggests most borrowers are).

"The reason lenders don’t have a problem with people paying back their loans isn’t because they only lend to those who can afford it -  it’s because repayments are secured through direct debits which take the repayments out of the borrows account on payday or pension day. Many borrowers can’t afford the loans but it isn’t the lender who goes without, it’s the borrowers who are often left without enough to live on after the repayments have been direct debited "

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