Monday, 12 November 2007

Cash Converters take fright as Queensland accepts the need for rate caps

Payday lenders won't wear interest cap

From ABC Far North Queensland, 19th October 2007
By Derek Tipper

Payday lenders and financial counsellors disagree about the need for controls on interest charges on short-term loans, as the Queensland Government decides on the value of an interest rate cap.

Ever needed cash quickly and borrowed the money from a short-term lender? Whether you understand these transactions as payday loans or as the lenders prefer to call them, micro credit, chances are you paid back much more than the average $250 of the loan.

Each week borrowers need anywhere from $100 to $1000 to make ends meet. Spooked by stories of borrowers paying back $5000 on a $100 loan the Queensland Government is proposing to follow other states and cap the interest rate charged on these loans at 48 percent.

The move has the support of financial counsellors and consumer advocates like Indigenous Consumer Assistance Network general manager Aaron Davis. Mr Davis said many of his clients simply do not understand the concept of interest and are not capable of entering into a contract.

The industry is dead set against an interest cap. Rob Leggett, the Queensland President of the Financial Services Federation argues it would drive scrupulous operators out of the business of pay day lending because they simply couldn't make a profit. Mr Leggett said a cap was just bad business.

One of the biggest players in the industry, Cash Converters, is so concerned about a cap they have adopted a marginal seats campaign, lobbying 33 Queensland MPs whose electoral margins are smaller than the number of 11,000 signatures on a petition tabled in the Queensland Parliament opposing the proposed interest rate cap.

Cash Converters has also posted a video on You Tube purporting to depict customers supporting the need for payday lending, they also bought a full page ad in the Sunday Mail urging the government to reconsider.

Cash Converters General Manager Ian Day said a 48 percent cap would discriminate against low income earners and others who struggle to get credit. Mr Day said while scrupulous lenders oppose an interest cap they support regulation of the industry. But financial counsellors working with borrowers who get into trouble with these loans are not convinced.

David Tennant, chair of Australian Financial Counsellors and Credit Reform Association said claims by pay day lenders that a 48 percent interest cap makes their business unviable had not been borne out in the states, such as Victoria and New South Wales, where a cap already exists.
Mr Tennant said any lender that could not make a profit under a 48 percent interest rate cap should leave the industry.

ICAN'S Aaron Davis said there was an alternative to the current pay day lending products, with organisations offering interest free loans for the purchase of necessities. Queensland Attorney General Kerry Shine confirmed Queensland will have an interest rate cap but was not prepared to say what the interest rate would be.

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