Good Shepherd Microfinance, Australia’s largest microfinance organisation, has welcomed the Australian Government’s review into high cost payday loans and consumer leases, better known as ‘goods rental’ or ‘rent to own’.
Through its network of 1,500 microfinance workers in 670 locations across Australia, Good Shepherd Microfinance and its community partners hear firsthand the consequences of these high cost products.
Chief Executive Officer, Adam Mooney, said “the large majority of people on low incomes simply can’t afford to be paying such a premium for credit or a lease”.
“We are seeing that the negative impact of payday loans and ‘rent to own’ is disproportionately affecting women who often turn to these products due to income inequality and financial exclusion,” said Mr Mooney.
“That is, being unable to work due to carer responsibilities, being paid less, or being underemployed through variable short term casual or contract arrangements which are increasing in the health, education and community sectors.
“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’re trying to do is entangle the borrower in endless expensive credit.”
“By continually extending the credit, a borrower can be left without enough money to pay for day-to-day living expenses such as food and utility bills, which often leads to entrenched poverty,” said Mr Mooney.
While the business model is different, consumer leases share many similarities with payday loans: they target people on low incomes, camouflage the cost of their products, and in many cases, can make the customer’s financial situation worse.
Mr Mooney said goods rental companies advertise a weekly repayment rate which may seem affordable, but what they don’t tell you is that by the time the contract ends you’ll have paid almost three times more than someone who bought the product outright.
“In dollar terms a consumer lease will see you pay around $1,800 for a $650 fridge and will take three to four years to repay. It’s a stark contrast to our No Interest Loan Scheme, under which a $650 fridge costs just that – $650.”
“You just need to look at how these companies advertise. We’ve seen companies marketing directly to people who are unemployed, on a carers or widow allowance, and those receiving the Disability Support Pension,” said Mr Mooney.
Good Shepherd Microfinance offers a safe, fair and affordable alternative to payday loans and goods rental. Its award winning No interest Loan Scheme (NILS) offers loans to people on low incomes for essential items like fridges, washing machines and school expenses.
“People on low incomes would be much better served by speaking with a microfinance worker about using NILS to buy essential items where they’ll only ever repay the amount borrowed. NILS supports financial wellbeing and mobility and four out of five clients stop accessing payday lenders after using NILS,” said Mr Mooney.
“We value the potential for payday lenders and goods rental companies to make a positive contribution which supports the financial inclusion of people on low incomes over time.
We also encourage the entire financial services sector to consider a client’s capacity to repay and the human purpose of the loan in the pricing and marketing of their products.”
Mr Mooney said Good Shepherd Microfinance was looking forward to contributing to the Government’s review.
“We’ll be asking the Government to look at introducing new consumer protections to both the payday lending and consumer lease sectors, but will also be highlighting the importance of, and the need to further invest in, products and services that promote financial inclusion.”