Direct debit fees for payday loans banned by ASIC
The change came after an independent review of payday lending laws.
In an announcement today, the Australian Securities and Investments Commission (ASIC) has banned direct debit fees charged on small amount loans (payday loans). ASIC said in a statement that the new rules, which will apply to any payday loan provided from 1 February 2017, came about after an independent review of payday lending laws.
These fees are usually charged by third-party companies.
The review panel which recommended this new law had been tasked with examining and reporting on the effectiveness of laws relating to Short Term Credit Contracts (SACCs). The panel was established in August 2015 and considered written submissions as well as roundtable discussions with interested stakeholders.
The panel's final report, released in March of this year, recommended that direct debit fees should be incorporated into the existing SACC cap (a 20% establishment fee and 4% monthly fee). This report also examined consumer leases, outlining 24 recommendations for these and SACCs in total.
SACCs are defined by ASIC as being loans of less than $2,000 with terms of between 16 days and one year. Following an announcement from Google in May banning ads for payday loans with terms of less than 61 days, many lenders now have 61-day terms as a minimum.
The 12-month grandfathering period offered by ASIC, to ensure "a smooth transition for both consumers and industry", will see the change come into effect from February. Existing loans from before that date won't be affected.