No justice in dodgy debt trap
Author: Samaritans CEO, Brad Webb
“Fast cash! Same day approval! Bad credit history? No worries!”
Sound familiar? The adverts are everywhere, it can feel hard to avoid sometimes.
More often than not, these ads are selling short term, high interest loans. Some call them payday loans, I call them debt traps.
Social justice is about removing barriers to equality; it’s about tackling systemic problems that drive injustice.
So today, on World Day of Social Justice, I’m calling out this injustice that unfairly targets vulnerable people in our communities.
For people who have secure work, a steady income, stable housing and enough money in savings for a rainy day, a fast loan may be unnecessary.
But for people who are out of work, or trying to get back on their feet after homelessness, or struggling with mental illness or problem gambling: it’s a debt trap waiting to happen.
The problem with payday loans, as well as consumer leases where people ‘rent-to-buy’ goods, is that they’re underregulated. They fall under the umbrella of ‘Small Amounts Credit Contracts’, which means they can skim under banking regulations and are too often targeted to people who take them on in desperation.
A case study shared in the 2019 payday lending report commissioned by the Stop The Debt Trap Alliance details a women who got stuck in a debt spiral after fleeing domestic violence and spending several months homeless. When she started working fulltime and found housing, she ended up taking out five loans over a six-month period to cover her rental bond and the initial period of rent. Samaritans Financial Counsellors hear similar stories of hardship in the Hunter region.
More than 30,000 payday loans that target vulnerable people are taken out each week.
For each week that goes by with this issue unaddressed, people are spiralling further into debt.
In the last five years, more than 320,000 people fell into a spiral of debt from these payday loans. That’s the equivalent to the entire population of Newcastle being given loans they could not repay, where often they end up taking out additional loans to repay the original loan. Who can possibly escape from a trap like that?
This isn’t exactly “news”. It’s certainly not news to the Federal Government, who ordered an Independent Review into payday lenders and consumer leases five years ago. At the time, this was seen as a positive move in acknowledging this as a sector that needs improved safeguards to protect consumers.
The Review produced a list of recommendations for legislative changes applying to the umbrella of Small Amounts Credit Contracts (payday loans and consumer leases included), all designed to protect consumers from being lent more money than they could ever afford to repay. The Turnbull Government endorsed almost all of the recommendations through public media statements in 2016. Sounds like progress, right? Wrong.
Since the Turnbull Government’s 2016 public statements committing to action and committing to changing laws to protect consumers, nothing has been done.
What is a simple act of legislative change – a function of Government that they execute on various matters without issue, all the time – has been buried.
Confused and angered by the inaction, community organisations, like Samaritans, joined the efforts of other advocacy groups to hold the Government to account.
Over the past four years, groups of financial counsellors have descended upon Canberra – multiple times – to try to get the message of legislative change through to people of influence.
In 2018, Samaritans met with Federal MP for Newcastle, Sharon Claydon, and others, to declare our support for legislative change.
In 2019, we took the matter to the State Government via the Minister for Better Regulation and called for a ban on instant cash loan machines. The machines had popped up across the Hunter, Central Coast and around NSW, and offered on-the-spot loans from ATM-style machines in shops including tobacconists.
Over the years, the Federal opposition has made numerous attempts to reintroduce the matter to the parliamentary agenda, and all have failed.
A Private Member’s Bill has been introduced into the Senate by Griff Sterling (Centre Alliance) and Jenny McAllister (Labor) and, if passed, would require the Parliament recognise and debate better regulation of the payday loan and consumer leasing sector. The Bill is currently under review by the Senate Economics Legislation Committee.
This is progress, but it has taken literally years to get here, and there are no guarantees.
The change that our Government can make to legislate and regulate this industry should be quick and routine, and its impact will be huge. Will we see social justice prevail?