Borrowers who use payday loans will be better protected
than ever before, following the introduction of Australia's
first national cap on payday loans, with passage through
Parliament today of the Consumer Credit Legislation
Amendment (Enhancements) Bill 2012 (the Enhancements
Minister for Financial Services Bill Shorten said these
reforms will stop loan sharks from exploiting vulnerable
Australians: "These laws will place reasonable limits
on what lenders can charge. The cap on costs appropriately
balances consumer protection while still allowing lenders a
return that is commercial."
"The Gillard Government has moved to reduce the financial
harm caused by lenders who ruthlessly impose excessive fees
and charges simply because vulnerable consumers cannot
obtain alternative access to credit. These reforms continue
the Gillard Government's ongoing commitment to deliver
a fair go for all Australians," explained Mr Shorten.
"At the same time these laws ensure an appropriate balance,
ensuring that important sources of micro finance, such as
pay day loans, can continue to operate as responsible and
The Enhancements Bill introduces a cap for small amount
credit contracts where the amount borrowed is $2000 or
less, and the term is 1 year or less. For these loans the
maximum any lender can charge is an establishment fee of 20
per cent of the amount of credit upfront and 4 per cent for
each month of the loan. This provides for maximum charges
of $84 on a loan of $300 over 1 month.
The legislation will also introduce a number of other
important reforms including:
Applying a cap to other credit contracts based on the 48%
cap currently in force in some Australian States. The
Commonwealth cap addresses the range of avoidance
techniques lenders currently have devised to avoid that
Responsible lending obligations to address high risk
conduct by small amount lenders.
For seniors who use reverse mortgages, greater certainty
as to future outcomes when they enter into such contracts
that the amount they are required to pay cannot exceed
the value of the equity in their home (through a no
negative equity guarantee).
Simplifying the procedures for borrowers to apply for a
variation to their repayments on the grounds of financial
hardship, as it is in the best interests of both parties
to try and resolve these situations as quickly and simply
"These reforms build on other consumer protection and
credit reforms the Gillard Government has already
implemented to make lenders behave more fairly. The cap on
costs, responsible lending obligations, credit card
reforms, and the ban on mortgage exit fees - all
demonstrate this Government's ability to deliver
significant reforms that are beneficial to borrowers,"
Mr Shorten said.
20 August 2012