Lenders and government can do more for low income borrowers

Mainstream lenders and government agencies need to step up to the plate to increase protections and access to affordable credit for consumers on low incomes according to Centre for Credit and Consumer Law (CCCL) Director Nicola Howell.

“In this Anti-Poverty week (October 14 – 20), it is important to acknowledge the lifeline that small amount, short-term credit products can offer consumers on low incomes,” Ms Howell said.

“However Queensland is lagging behind other states in providing affordable options for low income earners.

“Some people just simply don’t have enough income to save for lump sum bills or emergencies.”

Research undertaken by the CCCL and others suggests consumers use short-term, small amount loans to cover day to day bills and expenses, pay lump sum transport costs including car registration or repairs, and to replace essential whitegoods.

Ms Howell said the options available to Queensland consumers are expensive, with some credit providers’ fees and charges equivalent to an annual interest rate of 240 percent.

“For some consumers, the high costs of these loans can lead to a debt spiral, where their financial situation gets worse, not better, after the loan is taken out,” said Ms Howell.

“In other states, governments, mainstream lenders, and community organisations have worked together to increase the availability of no-interest and low-interest loans.

“In Queensland, we are lagging behind, despite the efforts of many organisations, including the Queensland Microfinance Working Party.”

According to a report for the Queensland Council of Social Services, nearly 10 percent of Queenslanders live in circumstances where basic needs are not being met, Ms Howell said.

“These consumers need to have more affordable credit alternatives,” Ms Howell said.

“Implementing an interest rate cap to weed out the most expensive and exploitative credit products is an important part of the solution. At the same time, governments and industry need to show greater commitment to additional options.

“This includes effective hardship policies to reduce the need to borrow small amounts, more affordable credit products such as low interest and no-interest loans, closing loopholes in credit regulation, and greater funding for financial counselors so they can do proactive work as well as assist consumers in crisis.”

The Centre’s research on interest rate caps is due to be released later this year. Preliminary results are discussed in the Centre’s submission to the Queensland Government which is available at www.griffith.edu.au/centre/cccl.