Rushing stricter payday lending criteria through the Senate door

author-avatar By on September 28, 2020
Rushing stricter payday lending criteria through the Senate door

Source: Wikimedia Commons

Consumer Action has flagged concern about the potential rollback of responsible lending criteria when it comes to payday lending.

Already there is a private members' Bill in the Senate proposing stricter lending criteria on small amount credit contracts (SACCs, also known as payday lending), and consumer leases (also known as rent-to-buy). 

Such restrictions would include a maximum payments cap for rent-to-buy schemes, and equal repayment and payment intervals for SACCs, among other criteria.

Consumer Action CEO Gerard Brody said the Senate Bill "should be passed as a matter of urgency", after a rollback in responsible lending criteria was announced for home loans last week.

“The Government and Treasurer Josh Frydenberg are putting the interests of banks and predatory payday lenders before those of everyday Australians, as the economic fallout of COVID-19 worsens,” Consumer Action CEO Gerard Brody said.

"Unaffordable credit will destroy our economy. These proposals are the kind of short-sighted thinking that led to the Global Financial Crisis."

However, as it stands, the announced rollbacks do not extend to payday lending and rent-to-buy schemes.

Buying a home or looking to refinance? The table below features home loans with some of the lowest fixed interest rates on the market for owner occupiers.

Lender
Advertised rate Comparison rate Monthly repayment Rate TypeOffsetRedrawOngoing FeeUpfront FeesLVRLump Sum RepaymentAdditional RepaymentsPre-approval
FixedMore details
NO UPFRONT OR ONGOING FEES

Basic Home Loan Fixed (Principal and Interest) (LVR < 70%) 3 Years

NO UPFRONT OR ONGOING FEES

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to made on variables as selected and input by the user. All products will list the LVR with the product and rate which are clearly published on the Product Provider’s web site. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. Rates correct as of October 16, 2021. View disclaimer.

Westpac's credit strategy team said despite the rollbacks, they expect demand for credit to remain subdued in many segments.

"As always, the devil will be in the detail, and a consultation process will now be implemented before final legislation is put in place," they said.

"However the move has the capacity to ease both the administrative and regulatory burden on the banks at a point in the cycle where regulators and governments are seeking support to maintain the flow of credit to the broader economy under exceptional circumstances."

Mr Brody said the rollback in the home loans space sets a precedent.

"The intended watering down of vital protections recommended by the SACC Review will defeat the purpose of the whole reform,” he said.

"The only explanation for these changes is that the Government has bowed to the sustained lobbying by industry. The ongoing delays and pandering to industry interests is simply unacceptable."

Bill finds critics

The National Credit Providers' Association (NCPA) has hit back at the Senate Bill, soon after Consumer Action lamented the potential easing of credit regulations.

NCPA chairman Michael Rudd said such reforms could end up disadvantaging consumers and exclude them from accessing credit.

"This makes no sense at a time when the Treasurer is saying to banks for a loan of $500,000 responsible lending laws are being relaxed and it's buyer beware, but for the same consumer who wants to borrow $500, they are making it harder and more expensive," he said.

"This is 'nanny state stuff' in the extreme and not what you would expect from the Liberal Party, the party of free enterprise.

"Instead, these reforms for the SACC sector will have the opposite effect and push more people to unregulated lenders who provide harmful products and are often misrepresented through the media and consumer advocates as SACC providers."

Mr Rudd is also the CEO of Commit Co, a payday lender.


Disclaimers

The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:

  • The big four banks are: ANZ, CBA, NAB and Westpac
  • The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Great Southern Bank, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
  • The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
  • If you click on a product link and you are referred to a Product or Service Provider’s web page, it is highly likely that a commercial relationship exists between that Product or Service Provider and Savings.com.au

Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.

In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.

*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

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Harrison is Savings.com.au's Assistant Editor. Prior to joining Savings in January 2020, he worked for some of Australia's largest comparison sites and media organisations. With a keen interest in the economy, housing policy, and personal finance, Harrison is passionate about breaking down complex financial topics for the everyday consumer.

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