Tighter credit laws aim to put squeeze on loan sharks
Kirsty Needham, Sydney Morning Herald, 14th of October 2005
New rules to stop loan sharks charging vulnerable consumers more than 145 per cent interest will help curb a huge debt trap problem, consumer groups say.
Legislation aimed at payday and fringe lenders was introduced in State Parliament this week.
In an unrelated move, the Federal Court ordered a Sydney lender, Cash King, to pay back $170,000 to 50 customers.
Katherine Lane, a solicitor with the Consumer Credit Legal Centre, said that even though by law lenders could not charge more than 48 per cent interest, including fees and charges, in practice most people paid more than 100 per cent interest.
The Minister for Fair Trading, Diane Beamer, has introduced legislation to tighten the Consumer Credit Code and "stop unscrupulous lenders from avoiding the current maximum interest rate provisions".
Previously the interest rate cap applied only to loans under 62 days. Ms Beamer said lenders were extending their terms to 63 days to avoid penalties. The new laws will close the loophole by covering all consumer credit contracts. Offending lenders will face penalties of up to $10,000, and contracts can be declared void and money refunded.
Ms Lane said one client had recently obtained a $1000 loan, but had had to pay $1000 in fees.
People forced to use fringe lenders were commonly on social security benefits or "in massive problems with their mortgage and can't get a loan anywhere else".
"It is usually an urgent living expense ... that causes people to take out these loans," she said.
Greg Tanzer, the executive director of consumer protection for the Australian Securities and Investments Commission, said those in financial difficulty should be careful about using their home as security.
