PAYDAY LENDING
This fact sheet is for information only. It is recommended that you
get legal advice about your situation.
Using a Payday Lender is NOT recommended. If you need a small
loan quickly to pay expenses before your next payday it can
be difficult to get credit from a mainstream lender. You may be
tempted to take out a small amount loan from one of the many
“quick-cash” lenders that can be found advertised online or on the
street. However be sure to check all your options first because the
fees on cash loans like these can be extremely high, and you could
end up in a Debt Trap.
FACT SHEET
CALL THE
NATIONAL DEBT
HELPLINE ON
1800 007 007
Other options are:
●●
Get a No Interest Loan ph: 136457 or go to www.nils.com.
●●
Emergency relief - there are charities that may be able to
●●
Make a repayment arrangement on a debt claimed. This
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Get a Centrelink advance It is helpful to see a free financial
au (for household items, medical and dental)
help you with food, transport or chemist vouchers, rent or
accommodation, or part-payment of utility bills – see the
Department of Social Services website or call their national
number on 1300 653 227
often is the best option
counsellor for assistance. You can
call 1800 007 007 to find your nearest financial counsellor.
CASE STUDY
Financial Rights Legal Centre Inc.
ABN 40 506 635 273
Fact sheets are information
only and should not be relied
upon as legal advice. This
information only applies to
NSW.
©2017 Financial Rights
All rights reserved.
Maria needed money to repair her car. Maria has two small
children. One child has a disability which requires regular
visits to the doctor. The car is essential. Maria’s sole source
of income is Centrelink including family tax benefit. Maria
receives no child support from her ex partner. Maria already
had an outstanding small loan and a rental contract for
her washing machine when she approached Quik Bucks, a
PAYDAY LENDER for a loan of $500. They processed the loan
very quickly. Maria got her car fixed but the loan repayments
to Quik Bucks were deducted from her bank account, leaving
her without enough money to live on. Not knowing where to
turn, she got another loan from another PAY DAY LENDER to
cover her family’s food and energy bill. She feels she is now
stuck, taking out one loan to pay another, and losing some of
her income in fees every time. She had little enough money to
begin with!
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FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | PAYDAY LENDING
WHAT IS A PAYDAY LOAN?
FACT SHEET
A pay day loan used to refer to a loan that was paid back in full on your
pay day or over a couple of pay days. In 2013 very short term loans (less
than 16 days) were banned in Australia. Instead most pay day lenders
in the market now offer loans over longer periods, about seven weeks
on average. These loans are very tempting and easy to get, including
over the internet or using your phone, but they are expensive and a
lot of consumers get into serious financial trouble. Under the law, an
unsecured loan for $2,000 or less for a term of at least 16 days but
not longer than one year from a finance company is now called a Small
Amount Credit Contracts (“SACC”). These loans have been subject to
special rules since mid 2013.What is a credit report?
PRICE CAP
There is a limit to the amount that can be charged for a SACC but they
are still very expensive compared to other loans.
The costs are:
1. an establishment fee of 20% of the amount loaned
2. a monthly fee of 4% of the amount loaned
With a normal loan the amount of interest you are charged reduces
over time as you pay it back as you can only be charged interest on the
amount outstanding. With a SACC, the monthly fee applies to the whole
amount originally borrowed regardless of how much you have paid back.
The equivalent interest rate changes depending on how long you take
the loan over but it is usually between 100% and 500% per annum. This
is very high, even compared to a credit card.
The payday lender can also charge:
1. enforcement costs
2. government fees or charges (there should not be any)
3. default fees (the maximum amount you can be charged is twice the
amount loaned)
Number 3 above is a very important protection if you are struggling to
pay your loan. The lender cannot keep adding default fees every week or
month. They have to stop at the maximum amount.
If you want to check if you are being charged the correct amount you
can use the payday lending calculator at ASIC. If you think you have been
overcharged get free legal advice from us immediately.
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FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | PAYDAY LENDING
RESPONSIBLE LENDING – MAKING SURE YOU CAN AFFORD
THE LOAN
Since 2010, new responsible lending provisions came into force for all
consumer loans. Under these laws lenders have to take certain steps to ensure
that:
FACT SHEET
●●
consumers get loans that are suitable for their purposes and
●●
consumers can afford to repay their loans without substantial
hardship.
From 2013 additional responsible lending laws apply to SACCs in particular.
These rules say that:
1. payday lenders cannot take security (eg. a car) for a payday loan
2. pay day lenders must obtain and review 90 days of your bank
account statements before granting you a loan to make sure you can
afford the loan
3. a pay day lender has to think twice about giving you a 3rd pay day
loan in a 90 day period - the law says that there is a presumption
that this means you are already in a debt trap and the lender has to
be satisfied that it can show this is not the case before giving you
another loan
4. a pay day lender also has to think twice about giving you a pay day
loan if you have been in default on another pay day loan in the
previous 90 day period
5. required repayments on a pay day loan cannot be more than 20 per
cent of income for consumers who receive 50 per cent or more of
their income from Centrelink and
6. a warning must be displayed (online and on premises) or given
verbally over the telephone (if you are borrowing over the
telephone) to advise consumers of the high cost of small amount
credit and possible alternatives.
WHAT ABOUT LOANS OVER $2000?
There are also laws that cover loans between $2001 and $5000 which cap the
interest rate at 48% p.a. and allow an establishment fee of $400. The term of
the loan must be under 2 years. These loans are called Medium Amount Credit
Contracts. All other loans are capped at 48% p.a. including establishment fees
and any other ongoing fees except default fees and enforcement costs.
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FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | PAYDAY LENDING
WHAT WILL THE PAYDAY LENDER ASK YOU FOR WHEN YOU
APPLY FOR THE LOAN?
The payday lender will ask you for:
1. Bank account statements. Do not give the payday lender online
access to your statements. This compromises the security of your
bank account.
2. Proof of income eg. payslips, Centrelink statement
3. Details of your living expenses
4. Details of other loans
FACT SHEET
If the payday lender is not asking for this information it is likely they are not
complying with their obligations under the law.
WHAT SHOULD YOU DO IF YOU CANNOT AFFORD THE
REPAYMENTS?
You need to work out whether:
1. you could not afford the repayments when you got the loan, OR
2. your circumstances have changed and you now cannot afford the
repayments.
WHEN YOU COULD NEVER AFFORD THE REPAYMENTS
Payday lenders are required under the law to assess your financial position and
make sure you can afford to repay the loan without substantial hardship. This
means if you are having difficulty making the loan repayments from the 1st
payment, it may be arguable the loan was unsuitable and should not have been
given to you.
If the payday lender gives you a loan that cannot afford to repay this may be a
breach of the law. The most common outcome if this breach was shown is that
you only need to repay the amount you received in cash less any repayments
you have made although this is not guaranteed.
If you believe that you could not afford the loan get free legal advice from us
immediately.
WHEN YOU COULD AFFORD THE REPAYMENTS WHEN YOU
GOT THE LOAN BUT NOW CAN’T AFFORD THE REPAYMENTS
BECAUSE YOUR FINANCIAL SITUATION GOT WORSE
You can request a repayment arrangement on the grounds of financial hardship.
All lenders have legal obligations in relation to working with customers in
financial hardship. See our fact sheet on financial hardship for details on how to
do this.
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FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | PAYDAY LENDING
WHAT DO YOU DO ABOUT THE DIRECT DEBIT ON YOUR
ACCOUNT?
Most payday loans are repaid by direct debit. If you are in financial hardship and
you cannot afford the repayments you should consider either:
1. cancelling the direct debit with your bank (see our factsheet on how
to do this); or
FACT SHEET
2. arranging for the amount to be lower with the payday lender.
You should ring the payday lender and explain you are in financial
hardship. It is important that you ensure that your basic and
essential living expenses (e.g. rent, food and utilities) are paid
before you pay your payday loan. If money is leftover then you
should arrange to pay the amount you can reasonably afford. Get
legal advice if the payday lender will not agree to the changed
repayments.
If you feel you are caught in a trap where you have to keep getting expensive
loans to get by, call us for advice. Many people are trying to get by with too
little income. Unfortunately borrowing money to pay your every day expenses
only makes you even worse off in the long run as more and more of your money
disappears in fees.
MY LENDER SAYS THE CREDIT LAWS DO NOT APPLY TO MY
LOAN
Pay day lenders have come up with many tricky ways to avoid the law sothat
they can charge you more, or avoid some of the other rules which should apply
to them. If your lender says the law does not apply, call us for legal advice.
NEED SOME MORE HELP?
See Fact Sheet: Getting Help for a list of additional resources.
Last Updated: February 2017
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FINANCIAL RIGHTS LEGAL CENTRE | FACT SHEET | PAYDAY LENDING