Payday Lenders Under Fire

Payday lenders are out to exploit those hit hardest by the domestic slowdown, welfare bodies are warning.

The South Australian Council of Social Service has spoken out against payday lending companies after receiving a volume of complaints from concerned consumers.

Borrowers are being unfairly lured into taking out loans which, in some cases, appear to be interest-free, but which instead incur massive fees.

Cash Converters is one firm that has come under particular scrutiny for this practice. Despite their claims that no interest is payable on their loans, the charges often result in huge return rates for the lender.

The Advertiser reported that a desperate mother who took out a loan of $1,500 from the Cash Shop faces repayments totalling $2,600 in just four months – 73% interest.

Consumers turning to payday loans because of their struggles against the increasing cost of living are finding their problems exacerbated by interest rates and/or fees in excess of 100%.

“Extraordinary” and Exploitative

Ross Womersley, executive director of the Council of Social Service, conceded that such lenders fulfil a service, but slammed the “extraordinary” costs that struggling consumers had to face.

Unfortunately many payday lenders – not all – really do exploit the vulnerability of people with interest rates that are just absurd and unreasonable.

Of more concern to many will be the important market position that payday lenders have forged for themselves as joblessness rises.

To Womersley, a lot of lenders are worried about speaking out against these institutions because they are concerned about having to turn to them again.

And surreptitious providers are finding ways to charge rates of up to 1,000% APR, say those seeking stronger regulation for the industry.

It seems unthinkable, but these rates pale in comparison to the 4,000%+ APR charged by some providers in the UK, where payday loans are big business.

A recent update on our sister Finance Blog in the UK tells how experts, journalists, and consumer groups turned on payday lending company Wonga after it was caught marketing itself to university students as a credible alternative to the standard government-backed student loan – despite the firm’s eye-watering 4,000% APR.

Many such lenders suggest that their business model can only survive through higher rates. It is easy to see such rates as proportionate to the level of risk. But such companies can profit massively, and their owners too.

Is it time for regulation? It’s certainly worth trying for affordable credit in any shape or form before subjecting yourself to legal loan sharking. See if Which4U can help.


Keith McDonald

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One Response to “Payday Lenders Under Fire”

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