Preying Payday LendersBy Dave Fleming : 20 March, 2019
Payday Lenders Continue To Prey On The Unwary In The Absence Of Stronger Laws
Lenders Show a Total Disregard for the regulations
Consumer advocates are relentless in their demands for change in the fast cash loan industry. Nevertheless, the Federal Government is still yet to strengthen policies and regulations aimed at the small consumer lending industry to standardize and safeguard borrowers from sneaky and un-monitored lending schemes.
Consumer activists have been pressing the Federal Government to make tougher laws and regulations to advocate the welfare of borrowers who are prone to applying for fast cash advances.
Based on a study done by the research firm DFA or ‘Digital Finance Analysis’, it is clear that short term mortgages offered by money-lending institutions such as Nimble, Cash Converters and Money3 have drastically shot up during a span of five years. Documented evidence shows that there is an obvious disregard for standard lending guidelines and procedures which were initially put in place to serve as protection for borrowers so they will not plummet into black debt holes.
Demand for Pay Day Loans Skyrocketing
The short term money institutions have exhibited tremendous increase in demand for the services that they offer and it is estimated to exceed the $1 billion mark for the first time come 2018.
These days, it is becoming more and more accessible for consumers to seek and file for fast cash advanced loans with the power of clicking away on their smartphones and accessing social media as well as adverts on the internet.
A research done in 2015 shows that 44% of payday debtors discovered the convenience of borrowing through social media. An incredible surge for loans applied for by the younger consumers aged 29 to 38 is evident in the 2015 survey.
A DFA report supported by facts from a survey with 26,000 respondents in the years 2005, 2010, and 2015 shows an alarming number of roughly 2.69 million Australian households that could potentially be financially strained. The survey further showed that about 31.8% of Australian households could be having problems regarding money and this has been steadily snowballing since 2005.
Getting Hooked on Fast Money
The DFA reports says the total progress of Australian families resorting to short term loans rose from 416,102 to 643,087 which implies that the increase is up at an alarming rate of 55%.
In just 5 years’ time from 2010 to 2015, the count of financially strained families has exploded with a 1200% growth from 20,805 to 266,881. The numbers of families who are financially struggling and availing of short term money loans have decreased by 5%. The overall number of borrowers still comprised 59% of all payday loan applicants.
The Number of Addicts Grow
It is disturbing how each mortgagor is applying for more than one fast cash advance loan at the same time. Studies show that in the preceding months in 2015, payday loans have grown from 17.2% to 38%. The numbers have more than doubled and 20% of these borrowers are with overdue amounts and even defaulting on their fast cash advances.
It is alarming that in 2015, the tally of debtors simultaneously applying for more than one short term credit borrowing for themselves has increased from 9.8% to 29%. A law was made known in 2013 focused on eliminating the unhealthy practice of consumers having more than one short term loan at the same time however it was not strictly imposed. Careless debtors are in danger as they take out more than one loan at the same time which only results in accumulating more debt just to pay the prior loan and so on.
Getting Stung with 300% Interest Rates
On average the usual payday loan amounts to a couple hundred dollars and not higher than $2000. The term fast cash is coined from the borrowers urgent need of the money, hence creditors take advantage of the demand and impose unreasonable interest rates. The interest rates when summed up on an annual basis can add up to as high as 300%.
Regrettably, workers who are on the lower wage bracket make up the majority of those who resort to fast cash advance loans as it is difficult for them to make ends meet in between pay checks. It gets worse when the borrower suddenly comes face to face with another emergency spending issue and fails to allocate money to pay as required by the creditor. When a mortgagor does not pay on time, the creditor will then impose late fees, further piling up on his original loan and burying the low wage earner deeper in debt.
As the penalty and interest rates add up they will drown the debtor deeper into debt and they will get caught in a sticky web and have no other solution but to file for another fast cash advance and the circle never ends.
Outlandish Fees can Sink the Boat
The harm of short money lending begins as soon as one applies for it and the creditor slams a ridiculous establishment fee on the total amount owed. A fee that is typically 20% of the total amount is already stacked on top of the loan from the beginning.
If for example a person loans $1200 with a fast cash advance plus $336 of total fees and charges. Subsequently if the debtor fails to pay the required amount in time, another set of late fees and interest will be charged on top.
Normally, money lenders charge a default late payment fee of $35 and an additional $7 daily fee which means borrowing $1200 and paying two weeks late could result to a whopping $1699 that needs to be settled by the debtor. Debtors are easily paying at an interest rate of 39% for a loan that was settled over a course of six weeks. The annualised interest rate boggles the mind.
Government Promises Fall Flat
Supporters of the national consumers are stressing out over the fact that the Government is giving a free medium for evil lenders to continue abusing the vulnerability of the Australian consumer. It has been a slow year since the authorities have made the promise of establishing better policies that would guard Australian borrowers against cash loans with unjust fees imposed by short term money lending establishments.
Authorities have made a promise to strengthen lending policies after receiving a report from an independent body reviewing lenient small contract credit policies. The review provided, discussed in detail how the financially stressed Australian consumers are being schemed into applying for fast cash short term credits without the lender analysing if the consumer is capable of paying or not. The review further explained how Australian borrowers are deceived and pushed further into debt with their inability to keep up with the high interest charges and unnecessary fees.
The Federal Government is still yet to exhibit any form of action or interest in the matter.
Katherine Temple who is senior policy offer to the Consumer Law Advocacy Centre said she couldn’t see why the authorities are still holding back against this matter. Temple declared that the government’s lack of action on the issue only allows for the money-hungry creditors to continually abuse the hapless Australian borrowers.
Sometime the only time Governments react is when the situation gets totally out of hand. Then, the danger is, they will over react and close the industry down altogether. The ‘Catch 22’ then becomes, where do these vulnerable people go to relieve their cash needs?
About About Dave Fleming
Dave is enthusiastic and fascinated by the digital and social media worlds. He is passionate and enjoys entrepreneurial pursuits, wealth creation financial strategies, health, fitness as well as cooking. Dave is the webmaster at www.mastermortgagebrokersydney.com.au, which is an information website pertaining to loans. He has a deep commitment towards writing about and helping people understand the basics of how the financial world works.
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