Consumer Advocates, Payday Loan Operators Spar Over Rate Caps in Queensland, Australia
By Paul RizzoPayday Loan Writer
The Courier-Mail reports that Queensland, Austrailia residents are still being walloped with annual interest rates of 1,300 percent on short-term or pay day loans while the country's southern states are protected with caps of about 48 percent.
The State Government has been accused of dragging its feet on its plans to slash and cap the interest rates, but says more time is needed to achieve the most satisfactory outcome for consumers and lenders.
Consumer groups believe Queensland's relaxed laws compared to other states have contributed to the rapid growth of the short-term loan industry.
Local lenders contacted by The Courier-Mail were offering interest rates of 30 percent or 40 percent a month, compounding into hundreds of percent over a full year. Fair Trading Minister Margaret Keech would not agree to an interview or comment on a possible cap level, but said the needs of both lenders and consumers will be considered.
Queensland payday loan firms have been forced to detail all charges and fees in writing for five years after the Office of Fair Trading brought them under the Uniform Consumer Credit Code. The measures were intended to close a loophole that exempted full disclosure on loans of less than 62 days, but instead drew strong criticism for not capping rates.
Victoria and New South Wales, by comparison, cap their rates at about 48 percent, but Queenslanders are still being stung with rates between 250 percent and 1,300 per cent.
"The concept of the interest rate cap is highly complex and I am focused on finding an outcome that balances the needs of all parties, with consumer welfare and continued financial viability for lenders being key considerations," Keech said.
But the online payday advance industry believes the introduction of a rate cap would put legal operators out of business and inadvertently encourage illegal lending.
"There is a lot of competition in the market place," says National Finance Services Federation Queensland president Rob Legat. "If someone could come in and undercut the current interest rates, then you would see change, but no one has because it is a high-risk industry and it costs a lot to run these offices," he said.
Mr. Legat also works as a legal director for Fast Access Finance, a Gold Coast-based company that offers fast cash advance funds with interest rates of 20 percent a month and a $50 application fee.
"You've got to look at the separate industries. The Government works on an annual interest rate but the loans our members work with work on six month, monthly or weekly rates… If you take the interest rates on those loans and make them yearly, they blow out and look astronomical," he said. "A weekly payday loan might charge $10 a week on a $100 loan, but becomes 520 percent over a year. I don't think that's too bad."
But the Financial Counsellors Association of Queensland (FCAQ) and other consumer groups are tired of waiting for the introduction of a cap level.
A thesis by Griffith University consumer law lecturer Therese Wilson says the average short-term borrower is in their late 20s or early 30s and earns $24,000 a year. The loan terms may only be for two weeks, but the annual interest rates between 235 percent and 1,300 percent are where many come unstuck.
Many say the relaxed laws compared with other states have encouraged many shonky lenders to set up their cash loan business in Queensland.
"We want to see some change made around payday lenders and loan sharks," FCAQ president Lola Mashado said. "Just capping the interest rate is a start, but I don't think it's the only way. More regulation needs to occur so their practices are looked at more thoroughly."
