Bill to stop 'predatory' lenders wins Parliament's approval
NAB is supporting the crackdown on payday lending, which afford consumers greater protection when it comes to these types of loans.
The Financial Sector Reform Bill 2022 was passed by Parliament on December 2. It provides enhancements to the national credit laws that apply to payday loans (including buy now pay later loans), and consumer leases.
Assistant Treasurer and Minister for Financial Services Stephen Jones confirmed on Friday that payday lending reforms would become law. “These are long overdue reforms which will give consumers great protection and ensure that these forms of credit are provided on a fair basis,” Jones said.
Following a discussion paper released by the government on the future regulatory framework of BNPL on November 21, NAB said the changes would ensure that payday lenders and consumer lease providers can’t take more than 10% of an individual’s net income for loan repayments.
Additionally, the bank acknowledged that the Bill would stop predatory marketing and unsolicited communications. It would prohibit lenders from charging monthly fees for the residual of the loan term, where the balance was paid off early.
NAB head of consumer vulnerability Mike Chambers (pictured above) said the reform was an “important step” in protecting Australians from predatory lenders.
“It is often in desperate times that people access payday loans as a ‘quick-fix’ to make ends meet, without knowing the hidden costs involved,” Chambers said. “These debts can often spiral, leading to more long-term debt. It is important regulations are in place to stop this happening.”
Recent research conducted by NAB showed one in 10 Australians facing financial hardship had accessed a payday loan in the third quarter of 2022. These loans were the third most common type of debt used to manage financial hardship, the bank said.
Through a partnership with Good Shepherd, NAB provides no interest loans for Australians on low incomes to help finance emergency essentials, cars or whitegoods. Over the past 12 months, the big four bank confirmed it had provided capital for $47m of no-interest loans, for around 68,000 Australians.
In November, NAB warned consumers of the dangers of payday loans ahead of the Christmas season. Chambers acknowledged that Christmas could be a financial stressful time for many people, and that it could therefore be tempting to find a quick fix to manage costs.
“Payday loans can seem an attractive option, as they are often instant and have low credit controls in place, making them more accessible to people in desperate situations,” Chambers said. “What people don’t realise is there are often many hidden costs associated with the loans, on top of higher interest and late payment fees.”
Borro founder and senior mortgage Broker Cara Giovinazzo has previously expressed concern over the impact of buy now, pay later lending on people wanting to be approved for credit in future. Lenders were taking a harder line on BNPL activities, and facilities were appearing on clients’ credit reports, she said.
