In some cases, they ended up with interest, fees and other charges costing four-times the value of the items they had taken the loan out to buy.
She is now very concerned this will happen again in 2020 with major disruption to businesses and households and a health crisis likely to cause financial hardship combined with easier access to payday loans online than a decade ago.
“We’re in the early days, people are just starting to get grant funding and cleaning up [after this summer’s fires],” Ms Grinter said.
“The rate of online payday lenders compared to at the time of Black Saturday is concerning … In the last 11 years there has been an alarming increase of people being able to apply online in 10 minutes.”
She does not want to see payday loans ruled out completely, acknowledging that for some people it is the only form of credit available to them, but said better financial affordability assessments, caps on charges and fees and more oversight should be considered.
Senator McAllister, who is Labor’s families and communities spokeswoman, said there were many low-income workers turning to payday lending products that “often make their financial situation worse”.
“Now there are really specific pressures on low-income people,” she said, referring to the bushfires and more recently the impacts of coronavirus on businesses and potentially casual workers.
A government-commissioned review in 2017 found some customers were paying interest rates up to 884 per cent on lease-to-buy arrangements for goods.
But a proposed bill to put limits on the total payments that can be made and to stop payday lenders from issuing loans when repayments exceed 10 per cent of a borrower’s net income had “gone nowhere,” Senator McAllister said.
“For at least two years the government has been sitting on legislation,” she said.
Assistant Treasurer and Housing Minister Michael Sukkar said the government was progressing the reforms and was currently considering public submissions to “ensure the right balance is struck between enhancing consumer protection, while also ensuring these products and services can continue to fulfil an important role in the economy”.
“The government recognises the importance of protecting vulnerable consumers of financial products, which is why these changes are being designed to enhance protections for consumers of small amount credit contracts and leases,” Mr Sukkar said.
A submission from the Salvation Army to the inquiry said from their on-the-ground experience “people in crisis experience cognitive overload, which impacts their decision making” including around payday loans. Anglicare said low-income workers often live in precarious situations without financial buffers for a crisis.
“In the wake of the recent bushfires, the urgency of this Bill is only growing … In our experience,
many people turn to pay-day lenders after disasters, with serious long-term consequences for their
financial and mental recovery.”
Jennifer Duke is an economics correspondent for The Sydney Morning Herald and The Age, based at Parliament House in Canberra.