The Federal Government has passed amendments to the Consumer Credit and Corporations Legislation Amendment Bill 2011  through the Federal lower house that will aim to better protect those who use payday loans.

 

"This bill will put the first national cap on small amount loans, limiting the extremities of what lenders are able to charge and complementing the Gillard Government's ongoing commitment to social inclusion by addressing the financial harm caused by some lenders who use the vulnerable financial position of their customers to their advantage,” Minister for Financial Services Bill Shorten said.

 

"This cap on costs appropriately balances consumer protection and a viable return for a responsible industry.  Lenders have confirmed to the Government that will be able to continue to operate under the 20/4 cap.”

 

The amended bill will:

  • Define small amount redit contracts as 1 year or less, keeping the amount as $2000 or less;
  • Cap costs for loans under $2000 so that the maximum any lender can charge for a small amount credit contract is 20 per cent of the amount of credit upfront and 4 per cent for each month of the loan;
  • Prohibit credit providers entering into a small amount credit contract with a term of 15 days or less; and
  • introduce an interest rate of 48%, plus an additional $400 to cover establishment costs for mid-tier loans of amounts between $2000 and $5000 with a maximum term of 2 years;

 

The bill also introduces the following responsible lending obligations to address high risk conduct in this market:

  • a rebuttable presumption that a refinance is unsuitable where the borrower is already in default;
  • a rebuttable presumption that a small amount credit contract is unsuitable where it would be the borrower's third such loan in the last 3 months;
  • a requirement for credit providers to obtain and consider a copy of the borrower's bank statements for the last 3 months before entering into the contract which will assist the Australian Securities and Investment Commission in enforcing the legislation.