Government tightens payday loan laws
The Turnbull Government has released its response to the final review of small amount credit contracts.
Retaining the existing price caps on loans and introducing a cap for consumer leases are part of the government's response to the independent review into Small Amount Credit Contracts (SACCs). In its response to a review of the sector from earlier this year, the Turnbull Government said the changes will apply 12 months following the passage of legislation through Parliament, which is expected to be during 2017.
The initial review was conducted by the Treasury in April of this year and outlined 24 recommendations, 10 regarding SACCs, eight for consumer leases and six for both.
The Hon Kelly O'Dwyer MP, Minister for Revenue and Financial Services, said the government supported the vast majority of these recommendations, either in part or in full.
“The final report has made a number of recommendations designed to increase financial inclusion and reduce the risk that consumers may be unable to meet their basic needs or may default on other necessary commitments,” Minister O'Dwyer said.
“Implementation of these recommendations will ensure that vulnerable consumers are afforded appropriate levels of consumer protection while continuing to access SACCs and leases.”
The government will:
- Retain the existing cap on SACCs - Currently 20% establishment fee and 4% monthly fee for loans under $2,000
- Lower the SACC protected earnings amount to 10% of the consumer's net income - Currently capped at 20% of a consumer's gross income for those receiving 50% or more of their income from Centrelink payments
- Remove the assumption that an SACC is unsuitable if either the consumer is in default of another SACC or has had two or more SACCs in the previous 90 days
- Introduce a cap on total payments on a consumer lease which will be equal to the base price of the good plus 4% of that price per month
- Introduce a protected earnings amount for consumer leases which will be 10% of net income for all consumers
These recommendations come off the back of a recent announcement from ASIC that direct debit fees will be incorporated into the existing SACC fee cap.
The government also had the following responses to some of the other recommendations:
- A national database of SACCs should not be introduced at this stage, but major banks should be encouraged to participate in the comprehensive credit reporting regime at the earliest date
- SACCs should have equal repayments over the life of the loan, but if a contract does not meet this requirement, the proposed 48% APR cap should not be imposed
- SACCs will still be able to receive a payment for referrals made to another SACC provider
- The current default cap will be maintained, as opposed to the proposal of a $10 per week maximum
- The government will prohibit door-to-door selling of consumer leases, but not the proposed complete bank of unsolicited selling and marketing of these goods
The government is expected to conduct a further review into the effectiveness of SACC legislation within the next three years.