Stop the debt trap
March 2, 2020
Anglicare is shining a spotlight on the harm associated by payday loans and calling for stronger protections.
Tasmania is experiencing the fastest growth of payday loans in the nation. But with a quarter of Tasmanians living in poverty, we are the people who can least afford them.
“Alarm bells should be ringing. These loans are too easy to access, which means that people are lured into borrowing what they cannot afford,” said Chris Jones, Anglicare’s CEO. “We are seeing families overwhelmed by debt and turning to Anglicare for help”.
Through a payday loan you can borrow up to $2000. This might seem like a quick fix if you’re short of cash but these loans can be a debt trap.
There is inadequate regulation around payday lending. Payday lenders are not required to follow the same stringent approval processes as banks. There are also high fees and interest rates hidden in the fine print, which rise even higher if repayments are not made on time.
Payday lenders generally insist on people signing a direct debit authority. This ensures lenders have priority over other demands on a person’s finances, including buying food and meeting other essential household expenses.
“Payday loans are a debt trap,” said Jonathan Turk from Anglicare’s Financial Counselling team. “People who can’t afford the rego or the power bill, or the repayments on an existing debt, jump into them to alleviate immediate financial stress, but it is then common for people to end up paying back two or three times more than the amount they originally borrowed”.
To make matters worse, some payday lenders approve people for multiple loans based on their original application and not their current ability to pay.
Across the State, Anglicare’s financial counsellors are seeing more people accessing payday loans, particularly among women who are single parents.
For well over a decade Anglicare has been calling on successive governments for regulatory reforms of payday loans.
We recently made a submission to a Federal parliamentary inquiry into payday loans.
Anglicare’s submission has called for the Government to enact laws to make payday lending safer and fairer, through tighter regulation of the sector and penalties for breaches.
We recommended payday lenders be prevented from issuing a loan if repayments will exceed 10% of the person’s income.
Anglicare also called on Parliament to ensure financial counselling services, and no or low interest loan schemes, are better promoted and supported.
Many people who experience financial hardship are unaware there are alternatives to payday loans. FREE financial counselling is available Australia wide through the National Debt Helpline, which Anglicare manages in Tasmania.
It is also possible for eligible people to access no or low interest loan schemes. This is possible through the No Interest Loan Scheme (NILS). These loans can be used to buy a secondhand car, white goods, household furniture, or computers. They can also be used to help pay for car repairs, and education or medical expenses. The application process is online and Anglicare’s financial counsellors can provide support with this.
“Payday lenders invest heavily in marketing their products,” said Jonathan. “To counter this, there is a need for wider promotion and increased funding of the alternatives to meet the real need for these services”.
A financial counsellor can support people to manage their finances and set budgets.
They can also negotiate with banks, creditors and utilities. These institutions have options to help a person to pay back their debt faster which can be facilitated if a financial counsellor is involved.
“Recently, a person was about to take out a payday loan for over twelve hundred dollars to pay their outstanding electricity bill, so their power could be reconnected,” said Jonathan. “Luckily this person sought financial counselling first”. Through this process, the amount due was reduced and the electricity reconnected the following day.
As well as working with people to tackle debt, financial counsellors are experts at supporting people to develop a savings plan. “The aim is for people to build financial resilience into the future, so they are not as exposed when the unexpected inevitably happens,” said Jonathan.
If there are wider issues at play, financial counsellors can refer people to other Anglicare services – for example, if a person is experiencing family violence, or being harmed by gambling, or would like to change their use of alcohol or other drugs.
“But what we’ve noticed is the reality that many people with debt, do manage their finances well,” said Jonathan. “They simply do not have enough money to cover the basic costs of living and this is why they jump for a payday loan,” said Jonathan.
For this reason, Anglicare also continues to advocate for a rise in the rate of Newstart.
