Consumer groups are pressuring the Coalition government once again to fast-track the development of new laws that will prevent predatory payday lenders from taking advantage of vulnerable Australians.
The Stop the Debt Trap Alliance, composed of several consumer groups, is pushing for the introduction of consumer protection laws which the government promised to prioritise in 2017.
The delay in the implementation of these laws is resulting in more people falling into debt traps, with predatory lenders profiting from short-term high-interest loans, said Gerard Brody, chief executive of the Consumer Action Law Centre.
"This is a significant issue that the government has known about for a long time and it affects so many people in the community and often those in very vulnerable circumstances," he told The Guardian.
Earlier this year, a report by the Financial Ombudsman Service (FOS) slammed the behaviour of some payday lenders, calling it "unacceptable". The report said there was a 130% rise in disputes against payday lenders.
Also read: How do home loans impact Aussies' wellbeing?
Payday lenders typically go after low-income consumers who need quick access to cash. Interest rates for these loans could be as high as 800% for consumer leases, or rent-to-buy schemes, according to The Guardian.
Assistant Treasurer Michael Sukkar said the government is "progressing changes" to enhance the protections for consumers of small amount credit contracts and leases.
"We recognise the need for reform in these areas and that reforms must strike the right balance in enhancing consumer protection, while also ensuring these products and services can continue to fulfil an important role in the economy," he said.
However, Financial Services Shadow Minister Stephen Jones accused the government of burying the legislation.
"They are the champions of payday lenders and have zero interest in defending vulnerable consumers. Dodgy lenders continue to take advantage of vulnerable Australians," he said.
The lack of legislation had rendered the Australian Securities and Investments Commission (ASIC) unable to enforce action against short-term predatory lending. However, ASIC Commissioner Sean Hughes said the commission's new product intervention power will be able to help tackle the issue of risky payday loans.
"The product intervention power provides ASIC with the power and responsibility to address significant detriment caused by financial products, regardless of whether they are lawfully provided," Hughes told ABC News.
While the law still allows short-term lenders to be exempt from credit licensing, ASIC's new powers will be able to stamp out dodgy loans, Hughes said.
"In this case, many financially vulnerable consumers incurred extremely high costs they could ill afford, often leading to payment default that only added to their financial burden," he said.
Breaching the product prevention orders could result in five years' imprisonment and fines of up to $1.26m.
While this is a positive move for the protection of consumers, Brody said more needs to be done to ensure all payday loans are regulated.
"Payday lending is a harmful business model because repayments take up so much of someone’s income, enticing them to become reliant on further loans," he told ABC News.
Collections: Mortgage News