Pay-day loans no solution for most, survey finds

Date
    August 13, 2012


THE vast majority of people taking out small short-term loans are on Centrelink benefits and fewer than half say the loans improve their financial situation in the longer term.   

More than half a million Australians use pay-day loans, so named because the loan is made on the security of the borrower's next pay cheque. At least $500 million is lent a year, most in amounts of $1000 or less and with very high interest rates.   

The Caught Short report examined three years of Australia's burgeoning pay-day lending industry, with funding from the Australian Research Council, National Australia Bank and Good Shepherd Youth & Family Service.

It found almost 80 per cent of those using pay-day loans were on Centrelink or pension payments, and more than 80 per cent of those were living with significant physical or mental health problems. Only 20 per cent of borrowers considered themselves better off after taking out pay-day loans; half said they were worse off.   


The Senate this week will debate the government's Consumer Credit bill, which targets predatory lending. Amendments will be proposed by the Greens who claim the major parties have capitulated to lobbying from big lenders.

The bill introduces a rebuttable presumption that a small-amount, short-term contract is unsuitable if it is the borrower's third loan in three months.

The Consumer Action Law Centre has written to the government arguing for a limit of four loans a year to end repeated borrowing. One lender estimated 98 per cent of customers were repeat borrowers.

Greens senator Sarah Hanson-Young said without a hard limit on multiple loans "borrowers will still be at risk from unscrupulous lenders who offer them numerous concurrent loans for smaller amounts''.   

But Phil Johns, chief executive of the National Financial Services Federation, said the bill's cap on default fees would make debt spiralling impossible.

Lenders were required to check a borrower's bank statements for the past 90 days, he said. The fault lay with the consumer, if they misrepresented what was on their bank statement to obtain a loan.

Steven Dukas began borrowing from a pay-day lender in 2004 to help meet his partner's medical bills.

He borrowed $100 from two lenders, paying one $65 a fortnight and the other $67.50.

''It just went on and on,'' he said. ''It was a vicious circle.''   

He settled his debts in May this year but even though he no longer uses pay-day lenders, Mr Dukas warned against their abolition, saying they were a last resort for many people.

RMIT researcher Dr Marcus Banks said the report reflected a conundrum: poverty drives demand for pay-day loans, but ''pay-day borrowing entrenches poverty''.

The report made six recommendations, including making Centrelink payments weekly to avoid borrowers using pay-day lenders to survive their ''off week''.   

But until broader issues such as an increasingly casualised workforce and rising living costs were addressed, market regulation was only a partial solution.


Read more: http://www.theage.com.au/victoria/payday-loans-no-solution-for-most-survey-finds-20120812-242v1.html#ixzz23O2ZSrN3

Or get a job.

Or spend less on mobile phones, movies and take out.

Or dont drink, smoke and gamble.

LOTS of ideas. The same ones that got the previous generation thru financial hardship...

Pay Day Loans - Are No Solution For Most.

They're not?  Well here was me thinking that a small loan at exorbitant interest rates was the solution to all my problems.