The Debt Trap report

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More than 20 consumer advocacy bodies from around Australia have released new data revealing that predatory payday lenders are profiting from Australians experiencing financial hardship and trapping them in debt.

The Debt Trap: How payday lending is costing Australians report is brought to you by Stop the Debt Trap – a national coalition of more than 20 consumer advocacy organisations including QCOSS. Coalition members include financial experts, community advocates and service providers who see the harm caused by payday loans every day through their advice and casework.

The report tells us that the payday loan market is booming in Australia and likely to be worth about $1.7 billion in 2019. The market has grown exponentially since April 2016 to June 2019 with more than 4.7 million individual payday loans taken out by about 1.77 million people. The value of these loans is in the order of $3.09 billion.

In Queensland the number of payday loans taken out is increasing. It is estimated that in 2019 there will be more than 307,360 loans, up from 245,239 loans in 2018, and 227,364 in 2017.

Other key findings are:

  • Digital platforms have resulted in an explosion of loans that originate online. Ten years ago, only 5.6 per cent of payday loans originated online. In 2019 that figure is expected to hit 85.8 per cent.
  • The number of women in financially distressed and stressed households using payday loans is growing, and single mothers are at risk.  Between 2016-2019 the number of women accessing payday loans increased from 77,000 to 287,000, a rise of 62 per cent. Forty one percent of these women are single parents.
  • Data shows that over a five-year period, around 15 per cent of payday loan borrowers fall into a debt spiral. On that basis, an additional estimated 324,000 Australian households have been allowed to enter a debt path that may result in an event such as bankruptcy.

As QCOSS’ most recent Living Affordability in Queensland report demonstrates, many Queensland households simply do not have enough money to get by, especially in regional areas. Incomes have stagnated, while the cost of essentials continues to rise. As a result, people are experiencing severe financial stress. The National Australia Bank and Centre for Social Impact annual study Financial Resilience in Australia 2018 estimates that more than 11 per cent of the population are in high financial stress and another 55 per cent are in low to moderate financial stress.

We also know that many people are “underbanked” in that they are excluded from mainstream credit and insurance services. The proportion of Australia’s financially excluded is a larger percentage of the population than many other developed countries. According to the report, Eight Years on the Fringe (2015) the proportion severely or fully financially excluded has not changed over the past eight years and is in the order of 16 to 17 per cent of the population.

People who are experiencing financial stress and are underbanked are more vulnerable to predatory practices by payday lenders.  We know that some of these companies actively target their services to people in areas of high socio-economic disadvantage, including through mobile services targeting remote communities.  Regional Queensland is especially vulnerable as these loans are now much more accessible via digital platforms.

QCOSS is calling on the government to implement the recommendations of the Small Amount Credit Contracts Review to make the system fairer by:

  • Putting in place protections to prevent payday lenders and consumer lease companies from taking more than 10 per cent of someone’s income to pay off debt.
  • Stopping lenders overcharging people – we know that some loans can have an effective interest rate of more than 400 per cent per annum.
  • Stopping payday lenders and consumer leasing companies from making unsolicited offers to current and previous customers and make them comply with responsible lending laws. ASIC regulatory action shows that some payday lenders are not complying with responsible lending laws.

Our politicians need to take action now to make this industry more responsible to act in accordance with the community’s expectations. People in Queensland should not be forced to choose between repaying debt or feeding their families.

Read The Debt Trap report here.

19 November 2019 |Focus area: ,