Australia’s payday lending industry has been urged to get on the front foot and take steps to show it is committed to responsible lending in the wake of last night’s damning Four Corners investigation into the industry.
Good Shepherd Microfinance has called on lenders to establish a new “responsible referral framework” which would see payday lenders refer people on low incomes to the No Interest Loan Scheme (NILS), rather than sign them up to cycling loans with annualised interest rates of around 240 per cent.
Good Shepherd Microfinance CEO, Adam Mooney, said people on low incomes simply can’t afford to be paying such a premium for credit.
“Payday lenders are eager to tell you how quickly they can have the money in your account and how fast you’ll be approved, but what they don’t always disclose is the cost of credit,” said Mr Mooney.
“The reality is most lenders charge fees that are unaffordable for people on low incomes. Taking out just one of these loans can leave a borrower without enough money to pay for day-to-day living expenses such as food and utility bills, which often leads to entrenched poverty.
“People on low incomes would be much better served by accessing NILS to buy essential items where they’ll only ever repay the amount borrowed. In stark contrast to payday loans, NILS actually supports financial wellbeing and mobility and four out of five clients stop accessing payday lenders after using NILS,” he said.
Mr Mooney said Good Shepherd Microfinance has a strong track record of working with big business to help them understand the financial barriers for people on low incomes, and that he was willing to help the industry develop a framework which would see them refer eligible customers to NILS.
“We recognise that there is a market for payday loans and we’re not looking to run them out of town. What we want to do is help them identify clients who meet the eligibility criteria for one of our no interest or low interest loans and facilitate a referral to our national provider network in 670 locations across Australia,” said Mr Mooney.
Good Shepherd Microfinance’s call was echoed by the National Australia Bank, a long-time supporter of no interest and low interest loans, and the first major Australian bank not to pursue business from payday lenders.
“Young people are turning to payday lenders when they find themselves in a tight spot. This can set them back from the very beginning, impacting their ability to have a healthy relationship with money and their future financial confidence and resilience,” said Corinne Proske, Head of Community Finance and Development at NAB.
“We don’t want young people to get caught in a spiral of debt at the beginning of their adult life. As an industry, banks need to understand what is driving these choices so we can better support our customers.”
Mr Mooney said the payday lending industry’s response to last night’s story would be telling.
“Last night’s Four Corners exposed the nasty underbelly of the payday lending industry. Establishing a responsible referral framework is a tangible way the industry can show it understands and values responsible lending.”