More than 30 consumer and community organizations have called for a ban on payday loans during the coronavirus crisis, which some high-interest credit providers have used to promote their products.
The appeal, coming from organizations such as the Consumer Action Law Center, The Salvation Army and the Australian Council of Social Services, came as the court upheld measures taken by the business regulator to ban loans that were using a legal loophole to charge extremely high interest.
The Stop the Debt Trap Alliance said the Australian community was already at “crisis point” due to high household debt and said payday lenders, who can charge interest rates of more than 400%, were ready to take advantage of soaring unemployment.
He said 1.77 million households took out more than 4.7 million payday loans between April 2016 and July of last year.
“With thousands more losing jobs over the next few months, these loan sharks are going to be rubbing their hands,” the alliance said.
“Our financial advisers are worried and anticipate a deluge of people with payday loan debt and rent to buy due to the Covid-19 emergency.
“There is only one solution if the government wants to help keep their heads above water: to suspend all payday lending and lease purchase activities for at least six months. “
In a marketing text seen by Guardian Australia, lender Jacaranda Finance, which charges interest of up to 140% per year, said that “the coronavirus has made it difficult to approve a loan.” The company, whose company records show owned and controlled by Daniel Wessels, a man from Queensland, suggests in the text that potential borrowers use their cars as collateral to improve their chances of approval.
Wessels defended the text message as “empirical” and rejected the term “payday lender”.
“There are a multitude of compliant and heavily regulated credit providers out there that the term is loathsome to,” he told Guardian Australia.
“With credit shrinking across all sectors of the financial ecosystem, it has never been more important for reputable and responsible lenders like Jacaranda to offer our services.”
Another lender, Perth-based Cash Now, says on its website that “in the context of the Covid-19 situation, we are always open and will always be here to help you”. It charges interest of up to 430% per year.
“As our office is physically closed due to the Covid-19 crisis, the message is there simply to inform clients that we are still open during this time as we have received numerous calls from our clients to check if we are still open for business, ”said director Patrick Cheow.
“We are not using the pandemic to promote our business. “
The Stop the Debt Alliance said that for people who were unable to afford basic necessities such as food and rent, high interest loans were “a recipe for financial disaster”.
“They present themselves as a stopgap for people caught in a difficult situation, but this business model – with its high fees and exorbitant interest rates – is based on the exploitation of people and forcing them to take out loan after loan. after loan. “
Consumer groups have also hailed a legal victory by the Australian Securities and Investments Commission against the company Gold Coast Cigno.
In September, Asic used new powers to ban a deal in which, along with taking out a loan, a borrower agreed to pay a large introductory fee to a related company.
This has had the effect of circumventing laws limiting the amount of interest that can be charged on small loans.
Cigno challenged the ban in federal court, but Judge Angus Stewart on Wednesday ruled in favor of the regulator.
He said laws allowing Asic to ban products should be read broadly because they were designed to prevent consumers from being harmed.
Cigno, whose company records show it is controlled by former rugby union player Mark Swanepoel, acted as an introducer of another company controlled by members of the Swanpoel family, Gold-Silver Standard Finance.
In a case cited by the judge, a woman borrowed $ 120 from Gold-Silver Standard Finance as part of a loan arranged by Cigno.
Cigno charged $ 90 for “finance charges” and $ 5.95 per week for “account maintenance fees”, while Gold-Silver Standard Finance charged a credit charge of $ 6.
The total to be repaid was $ 263.60, but the woman could not afford to repay $ 66 bi-weekly and immediately defaulted.
“She was billed for various refusal to honor fees and ongoing weekly account maintenance fees,” said Stewart.
“As a result, she became obligated to repay $ 1,189 of the original $ 120, which is 990% more than what she borrowed.”
Cigno did not respond to questions from Guardian Australia.
Consumer Action Law Center chief executive Gerard Brody said Asic “must not hesitate to crack down on companies that scam people so blatantly.”
“Exploiting lenders who target people in difficulty and push them into deep debt have no place in our community,” he said.