Payday Loan Laws

Australia Payday Loan Laws & Legislation

For a thorough discussion of the payday loan industry and access to our payday loan training materials, we recommend you proceed to

Payday lending is regulated in South Australia under the Consumer Credit Code, which is national legislation regulating consumer credit providers generally. The Credit Code provides important protections for borrowers including requirements for payday lenders to disclose the cost and terms of loans and allowing borrowers to challenge unjust loans in the courts. However, the Government is concerned that these protections do not go far enough in protecting consumers from payday loans and is examining options for further action that could be taken in South Australia, in addition to the national legislation, to protect consumers.

In the meantime there are things that you can do to ensure that you don't get trapped.

Alternative sources of financial assistance

Features of payday lending
These are some of the common features of payday loans:
* loans tend to be for a fixed fee rather than at an interest rate
* loans are usually for a period of 7 to 62 days
* the average amount of a payday loan is $250
* the most common form of repayment is a direct debit arrangement authorised by the borrower
* some payday lenders require security over goods that the borrower owns, e.g. a motor vehicle or furniture
* payday lenders will often roll over loans for a further period for an additional fee resulting in an escalating debt
* payday lenders may charge fees that would be equivalent to very high annual interest rates.

Problems with payday lending
There are widespread community concerns about payday lending. In-depth research summarised the problems as follows:
* Payday lenders may charge high rates with effective interest charges as high as 1300% per annum.
* Payday lenders' clients are generally low-income consumers.
* The rolling over of payday loans leads to a rapidly growing debt that consumers may find difficult to repay.
* Lenders who require direct debit as a form of payment guarantee have priority access to the income of consumers, leaving them exposed to other financial difficulties.

Some payday lenders appear to lend to people who simply do not have the capacity to repay the loan, or not without hardship.OCBA is aware of recent increases in the number of people on Centrelink benefits who are giving direct debit authorities to payday lenders. This would suggest that some people are being left with insufficient income for basic living expenses.

QUEENSLANDERS are still being whacked with annual interest rates of 1300 per cent on short-term or payday loans while southern states are protected with caps of about 48 per cent.

The State Government has again been accused of dragging its feet on plans to slash and cap the rates, but says more time is needed to achieve a satisfactory outcome for consumers and lenders.

Consumer groups believe the relaxed laws compared to other states have contributed to the rapid growth of the short-term loan industry in Queensland, where operators are free to charge whatever interest rate they want.

Lenders contacted by The Courier-Mail were offering interest rates of 30 per cent or 40 per cent a month, compounding into hundreds of per cent over a full year.

Fair Trading Minister Margaret Keech would not agree to an interview or comment on a possible cap level, but said in a statement the needs of both lenders and consumers will be considered.

Queensland payday lenders have been forced to detail all fees and charges in writing for the past five years after the Office of Fair Trading brought them under the Uniform Consumer Credit Code.

The measures were intended to close a loophole that exempted full disclosure on loans of less than 62 days, but instead drew strong criticism for not putting a lid on rates.

Victoria, NSW and the ACT cap their rates at about 48 per cent, but Queenslanders are still being stung with rates between 250 per cent and 1300 per cent.

"The concept of the interest rate cap is highly complex and I am focused on finding an outcome that balances the needs of all parties, with consumer welfare and continued financial viability for lenders being key considerations," Ms Keech says.

But the industry believes the introduction of a rate cap would put legal operators out of business and encourage illegal lending.

"There is a lot of competition in the market place," says National Finance Services Federation Queensland president Rob Legat.

"If someone could come in and undercut the current interest rates, then you would see change, but no one has because it is a high-risk industry and it costs a lot to run these offices," he says.

Mr Legat also works as a legal director for Fast Access Finance, a Gold Coast-based company that offers loans with interest rates of 20 per cent a month and a $50 application fee.

As for an appropriate cap level, he says: "You've got to look at the separate industries. The Government works on an annual interest rate but the loans our members work with work on six month, monthly or weekly rates.

"If you take the interest rates on those loans and make them yearly, they blow out and look astronomical.

"A weekly payday loan might charge $10 a week on a $100 loan, but becomes 520 per cent over a year. I don't think that's too bad."

But consumer groups such as the Financial Counsellors Association of Queensland are tired of waiting for the introduction of a cap level. They believe the vulnerable on low incomes are being taken advantage of.

A thesis by Griffith University consumer law lecturer Therese Wilson says the average short-term borrower is in their late 20s or early 30s and earns $24,000 a year. The loan terms may only be for two weeks, but the high annual interest rates between 235 per cent and 1300 per cent are where many come unstuck.

FCAQ president Lola Mashado says the relaxed laws compared with other states have encouraged many shonky lenders to set up their business in Queensland. "We want to see some change made around payday lenders and loan sharks," she says. "Just capping the interest rate is a start, but I don't think it's the only way. More regulation needs to occur so their practices are looked at more thoroughly."

Austarlia New South Wales

Australian payday loan operators typically us the "broker model" in order to acieve higher fees resulting in greater APR's than those allowed in several of the provinces. This is a rather basic approach used not on in Australia, but additionally in Canada, South Africa, and many states in the US (Texas is but one example).

Payday lenders Payday loans are loans provided for less than 62 days. Until recently they were unregulated but are now covered by the Consumer Credit Code. This means that all the protections of the Code and the documentation required by the Code applies to this type of loan in the same way that it applies to personal loans, credit cards and other types of credit.

You should be aware that payday lenders are not allowed to charge any more than 48% interest, and that no fees can be charged on top of this.

Prior to 1 December 2001 lenders did not charge interest, but set fees according to the amount of the loan. This is de facto interest, but since it was not expressed as an annualized interest rate, the consumer may have been unaware of the true cost of the loan compared to other possible sources of credit. If annualized, the cost of credit for pay day loans would average up to 1000%.

The Consumer Credit (New South Wales) Amendment (Pay Day Lenders) Act 2001 amends the Consumer Credit (New South Wales) Act 1995 to apply the provisions of the Consumer Credit Code to those providers of short term, high interest credit. Banks and other authorized deposit taking institutions are expressly excluded from the effect of the amendment.

The new laws require pay day lenders to disclose the cost of credit as an annual percentage rate. All fees charged which are in the nature of interest will be included in the annual percentage rate. The maximum interest rate of 48%, which currently applies in New South Wales, will be calculated to include fees and charges as well as interest. This applies only to pay day lenders. The Consumer Credit (New South Wales) Special Provisions Amendment (Pay Day Lenders) Regulation 2001 outlines how the rate must be calculated.

For a thorough discussion of the payday loan industry and access to our payday loan training materials, we recommend you proceed to