Inquiry into Small Amount Lending

In 2008, the Minister for Consumer Affairs, the Honourable Tony Robinson MP, asked Mr Robin Scott MP, Member for Preston, to undertake an Inquiry into the Small Amount Lending sector.

The Inquiry sought to:

• Update the Government's knowledge and understanding of those aspects of small lending practices that are causing most consumer detriment
• Identify ways in which the current range of protections and initiatives, both regulatory and non-regulatory, could be improved to increase their capacity to address key and critical problems facing consumers
• Review interstate and international initiatives relating to capping price
• Identify and analyse policy options
• Identify and examine compliance and enforcement issues and opportunities and propose a strategy to address them

The final report was launched by the Minister and Mr Robin Scott MP on 30 April 2009.

Download Small Amount Lending Inquiry 2008 report (PDF|1.1MB)

Be cautious when considering credit from Fringe, Payday and Micro-lenders.

The credit industry can be divided into 'mainstream credit providers' and 'fringe credit providers'. Mainstream credit providers include:

• banks
• building societies
• credit unions and
• national finance companies
  

Fringe credit providers refer to all those credit providers on the fringe of the credit industry such as payday lenders and micro lenders.

Payday lenders usually offer customers short-term, high-interest loans between paydays and have previously operated outside of the Consumer Credit Code.

Payday loans are now covered by the Consumer Credit Code when the:

• total fees and charges exceed 5% of the credit amount, and/or
• annual interest rate exceeds 24%
  

The lender must now provide the borrower with a pre-contractual statement of terms and conditions including the:

• amount being advanced
• fees and charges that apply
• annual percentage rate (which must not exceed 48% per annum) and whether the rate varies upon default, and
• interest calculation method

The statement should also state where applicable, that the borrower is contractually required to bear enforcement expenses.

The provisions of the Code also mean that most payday lenders are required to register with the Business Licensing Authority as Credit Providers. If you are considering using the services of a payday lender, you can search the Credit Provider Public Register for details of the lender concerned.

If you would like to learn more about this topic, CAV has produced a comprehensive information sheet Pay day lenders and the consumer credit code, that you can print and read at your leisure.

Bill Facilities (Promissory notes) and the Consumer Credit Code

On 30 November 2007 a significant amendment was made to the Consumer Credit Code (the Code) regarding the use of bill facilities, that is, promissory notes and bills of exchange. From this date, the Consumer Credit Code applies to the use of bill facilities where the credit is provided wholly or predominantly for personal, domestic or household purposes.

The application of the Code to bill facilities is brought about by the Consumer Credit (Bill Facilities) Amendment Regulation 2007 (the Regulation). By bringing bill facilities within the Code, consumers will benefit from key protections in the Code, including full disclosure of fees and charges, controls on the calculation of interest, access to hardship arrangements and procedural protections in enforcement situations.

Until now, bill facilities have been exempt from the Code, because they were mainly used for commercial purposes. However, bill facilities (especially promissory notes) have more recently been used by some consumer credit providers to avoid the Code. Promissory notes generally carry very high interest, penalties and other charges, and are targeted towards vulnerable and disadvantaged consumers. The enactment of the Regulation closes this loophole, and will ensure greater consumer protection for vulnerable and disadvantaged consumers.

Further information about this Regulation can be found on the Credit Code website, www.creditcode.gov.au