Payday loans: our hidden debt crisis

Something is going wrong in this country if we can’t stand up for our most vulnerable fellow Australians. Yet it seems many politicians are more interested in plotting and infighting than doing their jobs and standing up for justice.

On Friday I attended a roundtable with locals in Ringwood, together with community organisations and financial advisers who were concerned about the way some payday lenders are exploiting struggling people. What I heard shocked me. The payday-loan industry is raking in profits at the expense of the vulnerable.

Here are the facts. Payday loans are almost exclusively used by people on low or very low incomes. For such people, these small loans can help them survive until the next pay cheque. But often, people are getting sucked into loans they can’t afford. They end up in helpless situations of ever-increasing debt.

The system is in urgent need of fairer regulation. Some consumers face interest rates as high as 884 per cent. Research shows that 40 per cent of people who get a payday loan are unemployed. A quarter get more than 50 per cent of their income from Centrelink, and the average number of loans per borrower is 3.64.

These loans are held by those most unable to manage them. There have even been reports of lenders targeting the mentally ill. In July, community legal service WEstjustice found that in a group of clients who are patients of a mental health unit, 23 per cent had a payday loan, and 25 per cent of them had more than one loan.

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On Friday we heard how desperate people get sucked into these unmanageable loans, which can seem like a “quick fix” at first. But people may lack the financial literacy to understand the fine print. They then find themselves in spiralling debt – yet they’re offered more loans to get out of the mess. It’s like getting trapped in quicksand.

One case study of loans taken out by Centrelink recipients showed a $700 washing machine ended up costing $2176, a $345 dryer ended up costing $3042 and a $498 fridge ended up costing $1690. The rate of vulnerable families being exploited by payday lenders has almost doubled over the past decade: 650,000 financially stressed households now hold a payday loan. So why is nothing being done?

The government is refusing to fulfil its promise to enact its own legislation to better regulate the payday-loan industry. It promised to enact the reforms in Autumn 2017, after commissioning a report, accepting its recommendations and even drafting a bill. Yet since then they’ve done nothing.

There has been a revolving door of assistant ministers in charge of the work. None has acted. Sadly, this includes the member for Deakin, Michael Sukkar, who was assistant minister to the treasurer before he resigned to the backbench after backing Peter Dutton in the leadership spill.

Plenty of plotting, zero action to protect ordinary Australians.

That the government prefers to back lenders rather than vulnerable consumers reflects their back-to-front priorities. The government was stubbornly against the royal commission into banking until the banks themselves conceded, in response to community pressure, that an inquiry was needed. Look at the corruption in the banking sector that has now been exposed.

The government has since admitted it was wrong to refuse the royal commission, but they’ve learnt no lessons. They’re doing the same thing with payday lending: refusing to act, while vulnerable Australians continue to be exploited.

Politicians should stop fighting among themselves and start fighting for the issues that matter. I doubt they will. The government remains hostage to forces who care more about big banks and lenders than vulnerable Australians.

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