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Pay Day Lenders to Face Fee Caps

By: admin|

Assistant Treasurer Bill Shorten announced that loans of less than $2000 could attract no more than 10% upfront fee plus a monthly fee of 2% cap.

Pay day lenders provide a valuable service to many people especially those that need extra funds to cover car repairs, utility bills and various other bills that arrive unexpectedly and without this well established existing structure in place, there will be many people unable to secure short-term financing. The government states that clients could obtain finance from schemes
run by not for profit organisations and Centrelink and has been established less than 1% of current funding is sourced from those areas and the rest from the pay-day lenders.

There is also a proposal to place a ban on refinancing of existing loans via pay-day lenders as a way to stop people get caught up in the debt traps. Perhaps a way to stop these issues permanently would be to introduce compulsory education starting at
primary school age educating people on the value of money and how to budget, along with how to avoid the debt traps which appear to be a common factor in the Australian society.

In the meantime how many current pay-day lenders and their families will also join the list of the growing unemployed in Australia due to the fact their value added service they have been offering to the many borrowers in Australia, will
disappear as to try and run a business on the low margins being proposed will not be a viable option. Major lenders will not take on the high risk, low dollar high costs borrowing clients that are being currently serviced by many hard-working Australia businesses. These dedicated and caring people and businesses provide a fantastic service to so many that are in a position of
urgent need and assistance, without the need for reams and reams of paperwork and investigations.

Pricing in any business model is all about risk versus reward and from my observation of the dedicated workers in the pay-day lending industry they certainly are in the industry to assist the many clients who need help and can obtain finance without the
feeling of begging or being placed through extensive reams of paperwork. Many observers of this industry also fail to understand that there are pay-day lenders that use and or risk their own funds to lend to clients and if the incentive versus
risk becomes unviable then that source of funding will also be withdrawn.

Getting the right pricing and formula is vital to all parties concerned, as if the pay-day lending disappears and or tightens up their lending policies to match the real risk of lending then not only will the industry become unviable but many needy clients will need to resort to other means to source urgent and quick financial assistance.


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