The industry charging Australians up to 800% in interest
Published 21-SEP-2017 11:23 A.M.
4 minute read
Hey! Looks like you have stumbled on the section of our website where we have archived articles from our old business model.
In 2019 the original founding team returned to run Next Investors, we changed our business model to only write about stocks we carefully research and are invested in for the long term.
The below articles were written under our previous business model. We have kept these articles online here for your reference.
Our new mission is to build a high performing ASX micro cap investment portfolio and share our research, analysis and investment strategy with our readers.
Click Here to View Latest Articles
Some Australians are being slugged up to 880 per cent interest on small ‘payday’ loans or ‘rent now’ schemes.
To most people, this is a patently bad deal, so what would motivate anyone to borrow such high-interest instant cash?
With housing and energy bills at historic highs, small loans have exploded.
According to ASIC, the number of people borrowing small loans – instantly approved in most cases – has increased by over 75% in just 10 years.
With a staggering 21 per cent of Australian households claiming no access to emergency cash, the speed and convenience of small loan lenders exploit the desperate situations of the most vulnerable Australians.
These products are geared towards repeat borrowing according to Fiona Guthrie, Executive Director of Financial Counselling Australia.
“The twist with these loans is that many people find they can’t pay them off and so they have to get another loan to pay off the first one,” she said.
“This means that they already can’t make ends meet. If you’re on a low, fixed income, and you have debts you can’t pay, then more debt is not going to be the solution.”
The new-age loan shark
Research indicates that over a million Australians are taking out between three to five loans annually, with 40 per cent of small loan customers borrowing more than 10 times a year.
Infamous franchise Cash Converters is one of the major players in the payday lending market, and has attracted significant scrutiny in the past. The pawnbroking giant was hit with a $17 million class action in March 2016, which accused the company of charging a ludicrous 420 per cent against vulnerable borrowers.
After an extensive investigation, ASIC ordered the company to refund eligible consumers $10.8 million. It also issued Cash Converters a $1.35 million fine after it found it had failed to verify consumers’ expenses and prior credit history before approval.
“Payday lending is a high priority area for ASIC, and we will continue to pursue lenders who do not follow their responsible lending obligations,” said ASIC Deputy Chairman Peter Kell.
While Cash Converters has traditionally dominated Australia’s short-term high-interest loan market, new competitors have arrived on the scene in recent years. Nimble is one of a long list of alternatives offering a similar service.
Nimble has been aggressive in its free-to-air television advertising for several years now, portraying its ‘smart little loans’ as fluffy and innocent. Yet ASIC wasted no time going after the sketchy lender, ordering Nimble to pay $1.5 million back to over 7,000 customers.
In a review of Nimble’s practices, the watchdog found ‘significant deficiencies’ in its approval and compliance processes, with the company also ignoring repeat borrowing from customers.
ASIC’s Peter Kell noted that the outcome was yet another example of the Commission’s strong focus on the payday lending sector. Consumers Federation of Australia chair, Gerard Brody, has advocated for the government to do more about fast cash lenders, with some charging up to 200% upon missed repayments.
“These industries prey on people on low incomes or in tough spots, trapping them in high-cost products even though they may be struggling to pay for the basics like rent and food,” he said.
Kelly O’Dwyer has since promised to reign in the sector, with the Minister for Revenue and Financial Services pledging to increase consumer protection and limit excessive lending.
In the meantime, a mind-boggling sum of interest payments will be paid out by those who can least afford it.
In financial trouble? Help is at hand:
ASIC’s Moneysmart financial guide
This article is General Information and contains only some information about some elements of one or more financial products. It may contain; (1) broker projections and price targets that are only estimates and may not be met, (2) historical data in terms of earnings performance and/or share trading patterns that should not be used as the basis for an investment as they may or may not be replicated. Those considering engaging with any financial product mentioned in this article should always seek independent financial advice from a licensed financial advisor before making any financial decisions.
General Information Only
S3 Consortium Pty Ltd (S3, ‘we’, ‘us’, ‘our’) (CAR No. 433913) is a corporate authorised representative of LeMessurier Securities Pty Ltd (AFSL No. 296877). The information contained in this article is general information and is for informational purposes only. Any advice is general advice only. Any advice contained in this article does not constitute personal advice and S3 has not taken into consideration your personal objectives, financial situation or needs. Please seek your own independent professional advice before making any financial investment decision. Those persons acting upon information contained in this article do so entirely at their own risk.
Conflicts of Interest Notice
S3 and its associated entities may hold investments in companies featured in its articles, including through being paid in the securities of the companies we provide commentary on. We disclose the securities held in relation to a particular company that we provide commentary on. Refer to our Disclosure Policy for information on our self-imposed trading blackouts, hold conditions and de-risking (sell conditions) which seek to mitigate against any potential conflicts of interest.
Publication Notice and Disclaimer
The information contained in this article is current as at the publication date. At the time of publishing, the information contained in this article is based on sources which are available in the public domain that we consider to be reliable, and our own analysis of those sources. The views of the author may not reflect the views of the AFSL holder. Any decision by you to purchase securities in the companies featured in this article should be done so after you have sought your own independent professional advice regarding this information and made your own inquiries as to the validity of any information in this article.
Any forward-looking statements contained in this article are not guarantees or predictions of future performance, and involve known and unknown risks, uncertainties and other factors, many of which are beyond our control, and which may cause actual results or performance of companies featured to differ materially from those expressed in the statements contained in this article. S3 cannot and does not give any assurance that the results or performance expressed or implied by any forward-looking statements contained in this article will actually occur and readers are cautioned not to put undue reliance on forward-looking statements.
This article may include references to our past investing performance. Past performance is not a reliable indicator of our future investing performance.