Consumers who resort to payday loans are some of the most vulnerable borrowers out there and taking advantage of their desperation is reprehensible.
Yet despite ASIC’s notification that payday lenders are under the microscope, we still read about situations where lenders are not following the letter of the law as determined by the NCCP.
Which brings me to news today of how Fair Go Finance Pty Ltd (a slight misnomer perhaps?) has been fined $34,000 by ASIC for excessive fees and interest on its payday loans. The lender is also undertaking to refund the interest and fees it overcharged from 550 of its unsuspecting customers.
With establishment fees of more than double the maximum allowed by law and default fees for not adhering to shorter repayment terms than stated by the loan contracts, this particular payday loan product has now been taken off the market – and rightly so given ASIC identified that “the loans were set up in a manner that attempted to avoid the protections offered to consumers under the National Credit Act”.
Whilst we acknowledge ASIC’s good work and their focus on the payday lending sector, we believe more must be done to educate consumers on the pitfalls of payday loans and the free dispute resolution processes that are available if they have signed a contract they believe is unsuitable for their circumstances.
Often, people in financial difficulty don’t have an awareness of borrowing options that are far cheaper in the long run. They are enticed by quick online applications and the potential of approval for even ‘bad credit’ loans. They are even less aware of how to get help once they experience financial hardship.
The law has documented Responsible Lending Practices, but what about Responsible Education Practices? Does a lender not have a responsibility to foster as much awareness as possible for the consumer; to educate and be totally transparent? At Money101 we believe that acting in the client’s best interest goes hand in hand with empowering them with the ability to make the best personal financial decisions possible, and typically this requires exposing them to accurate and relevant information and education.
Greater awareness must be achieved so consumers become attuned to avoid shonky and inappropriate financial products and services.
Jargon free education is the key.