Payday Lenders Continually Abuse The Needy As Authorities Fail To Take Action
The Government Continue to Dodge the Issue
With pressure from consumer support advocates, the Federal Government has long been proclaiming that they will toughen up rules and legislations meant for the small consumer lending market along with lease setups in order to protect against flagrant unscrupulous schemes.
According to a new analysis from the research firm DFA or ‘Digital Finance Analysis’, it is evident that the growth of short term credit from corporations such as Money3, Cash Converters, and Nimble have dramatically fired up in the last five years. There is also proof that there has actually been a widespread negligence of the recognized financing requirements that have been previously established to act as a precaution and keep borrowers from further burying themselves right into a deep financial sinkhole.
Demand Escalates Exponentially
The short term money business has witnessed a drastic surge for consumers seeking their services. The lending trade is now forecasted to go past the $1 billion mark in 2018 for the first time in decades.
In a study made in 2015, it was found that 44% of payday borrowers learned about this type of borrowing through popular social media platforms. The 2015 survey showed the undeniable increase of credits from the younger population ages 29 to 38. Nowadays, consumers are finding it more convenient to find and apply for payday loans or more popularly known as fast cash credit with the help of social media sites and advertisements on the internet.
Warnings Falling on Deaf Government Ears
Consumer advocates have been clamouring for the Federal Government to make stronger rules and regulations to protect the masses that are more likely to use short term borrowing.
In the DFA report that is based on a survey involving 26,000 respondents in the years 2005, 2010 and 2015, it was exposed that an astounding number of about 2.69 million Australian families could be considered monetarily strained. The said financial data revealed that 31.8% of Australian families are having problems financially and this number is gradually increasing since 2005.
According to the DFA report, the overall growth of Australian families who are turning to short term lending went up from 416,102 to 643,087 in 2010 to 2015 and that means the number of borrowers blew up by 55%.
Within a quick five years from 2010 to 2015, the amount of fiscally stressed households witnessed a shocking 1200% growth from 20,805 to 266,881. The quantity of families considered to be financially struggling who were taking advantage of fast cash advances however went down by 5%. The number of debtors still showed an increase of up to 59%.
Like Being Hooked on an All Powerful Drug
It is considered alarming how debtors are chomping on fast cash advances more than one at a time. Evidence showed that in the earlier 12 months in 2015, short term loans have gone from 17.2% to 38%. Studies claim that one out of five debtors is even defaulting on short term credit or in arrears.
It is more disturbing that in 2015, the total count of debtors taking out one or more fast cash advances have blown from 9.8% to as high as 29%. In 2013, a law was announced to abolish the bad practice of having more than one payday loan at the same time but this rule however has no teeth and is not being strictly implemented.
There is a growing worry for debtors who thoughtlessly take out more than one fast cash advance at any one time, gradually drowning themselves in further debt. The normal fast cash advance is usually just a couple hundred dollars and not any more than $2,000. Due to the urgent need for the money being loaned in short term borrowing, lenders take advantage of the situation and charge relatively bigger interest rates. When interest rates are combined on a yearly basis, it shows that they actually go up to as much as 300%.
How Borrowers Quickly Become Dependent
Unfortunately, low income wage earners comprise the large number of consumers who avail of short term loans because of the dire need for money to survive in between pay checks. The situation takes a turn for the worse when a mortgagor, due to unfortunate circumstances, fails to pay the first loan on its deadline. When a debtor fails to pay on time, penalty fees are implemented adding up to the initial amount loaned and further burying him/her in debt.
As penalties and drawbacks add up, the debtor will get deeper into the debt hole which will compel them to take out another credit just to pay for the first one and the spiral begins all over again.
The evil of fast cash advances are rooted at the beginning when a consumer applies for a loan and lenders slam unreasonable establishment fees, well-knowing that the borrower will still go for it. The establishment fee is typically about 20% of the total amount borrowed and this gets added to the total amount to be paid.
Take for example a credit for $1,200 from short term money lenders which will eventually have fees and charges added to it amounting to $336 to be paid within 30 days. The borrower’s failure to pay on time will result to further penalty fees and bigger credit.
If a mortgagor is about two weeks late in payment completion, they could get charged a default fee of $35 plus an additional daily penalty fee of $7. In summary, being two weeks late from settling the total borrowed amount of $1,200 could mean a total payment of $1,699 including fees and charges. The mortgagor is easily handing over borrowed money with an interest rate of 39% over the course of just 6 weeks’ worth of loan.
The Growing Noise for Change is Still Being Ignored
Legislators assured the public of their vow to protect public interest after being provided a review from an independent body regarding small contract loan regulations. The independent review showcased the vulnerability of Australian borrowers and how they are being trapped into turning to fast cash advances without the lenders analysing if the borrower can actually pay on time. The said independent review exhibited that countless Australian mortgagors are being buried further into debt when they are obviously already unable to pay their principal credit plus the fees and interest rates.
Consumer advocates are steadily claiming that the government’s lack of initiative and action is allowing devious lenders to thrive and prey on vulnerable Australians. It’s been a year since the Federal government has taken steps to solidifying laws that would safeguard Australian patrons from money-making, high-interest short term lenders.
Unfortunately, there have been no known steps taken by the Government in spite of its word against the urgency of the matter.
Consumer Law Advocacy Centre’s senior policy officer Katherine Temple said that she doesn’t understand why the government continues to sleep on this issue. Temple expressed that further postponements of any steps by the government merely consents scheming lending institutions to prey on susceptible Australians.
One ‘Catch 22’ mentioned that stronger laws against short term borrowing could drive out lenders completely and this could mean those who need these types of credit the most could face bigger problems.
Bio: About Chris Steadman
Chris is enthusiastic and fascinated by the digital and social media worlds. He is passionate and enjoys entrepreneurial pursuits, wealth creation financial strategies, health, fitness as well as cooking. Chris is the webmaster at fast-check-advance.com, which is an information website pertaining to cash loans. He has a deep commitment towards writing about and helping people understand the basics of how the financial world works.