Attention: Personal loans, BNPL credit need urgent regulation


Emilie Chantiri* advocates for regulation of payday loans and Buy-Now, Pay-Later (BNPL) services, saying young people fall through the loopholes.

Getting a payday loan is easy, but therein lies the problem. Not enough is being done to prevent payday lenders from giving money to people who might have trouble paying it back.

The lack of background checks on loan applicants and the lack of regulation for payday lenders has caused many people to go deeper into debt after taking out one of these loans.

Why do borrowers struggle to repay?

It is often the young or the most vulnerable who use these types of loans, largely because they cannot get credit cards or loans from traditional banks.

Typically, approved lenders don’t charge interest on payday loans, but they can charge high fees.

This means that those who take out a loan may end up having to pay back a lot more than they expected.

For example, most payday lenders charge a set-up fee of 20% of the amount borrowed and a monthly fee of 4% on top.

Which means that for a loan of $2,000, a borrower would end up paying a setup fee of $400 plus a monthly fee of $80.

Then, if this person defaults, the fees or charges can reach 200% of the total amount of the loan.

Loopholes are a concern

Many people seek out payday loans when they are in financial difficulty.

Consumer advocates fear loopholes in lending laws could open the floodgates to predatory lending for millions of vulnerable Australians.

These advocates say payday lenders can sidestep the Credit Law through loopholes and insist that more regulation is needed to tighten those loopholes to protect consumers.

One such person is Fiona Guthrie, CEO of Financial Counseling Australia, who said financial advisers continue to see people who have taken out payday loans getting trapped in a cycle of debt.

She explained that people often felt overwhelmed with financial stress, which meant it was difficult to know what to do and where to turn.

“This stress of course manifests itself in all aspects of a person’s life, affecting their relationship and often their physical and mental health,” Guthrie said.

“Children in families where there are financial difficulties are obviously also negatively affected.

“People may feel like there’s no way out of debt, but there are always options.

“And the sooner you seek advice, the better.

“Pick up the phone and call a financial adviser on the National Debt Helpline on 1800 007 007.”

And remember, financial advice is a free and confidential service.

Global call to regulate BNPL

Another often overlooked credit pitfall is that of buy-it-now, pay-later (BNPL) services.

In fact, consumer groups from nine countries have called for urgent action against BNPL credit providers.

The global call around BNPL coincided with World Consumer Rights Day, which fell on March 15, 2022.

Australian consumer organisations, including CHOICE, are calling on the government to introduce legislation that will reduce the cost of payday loans and make the product safer.

“The government drew up bills in 2017 that would allow this to happen, but did not follow through.

“We need these laws introduced,” Guthrie said.

And CHOICE has joined consumer groups in all nine countries calling for urgent action against BNPL providers, with new data showing many Australians are struggling with this form of debt.

CHOICE CEO Alan Kirkland said companies have been allowed to sell unregulated loans to Australians for quite a long time.

“Failure to act will create additional hardship for individuals and families who are already doing things the hard way,” he said.

A key regulation requiring urgent action for BNPL products is that it be regulated in the same way as other forms of credit.

This includes ensuring that measures such as caps on fees and charges, restrictions on unsolicited marketing and obligations to assist those in financial difficulty that apply under national laws are extended to BNPL.

Another key reform is to require BNPL providers to assess whether it is appropriate and affordable to provide credit to people without the risk of causing financial harm.

Are you concerned? Here’s what you need to do

Before applying for a payday loan, there are other options for managing bills and debts.

Call 1800 007 007 from anywhere in Australia to speak to a free, independent financial adviser.

You can also talk to your electric, gas, phone, or water provider to see if you can work out a payment plan.

If you receive government benefits, ask if you can receive an advance from Centrelink.

The government’s MoneySmart website also has options that can help.

* Emilie Chantiri is a Sydney journalist and bestselling author of Savvy Girl Money Book and The Money Club. She writes articles focusing on business, money, finance, management, work issues, and property.

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