ASIC flags payday lending concerns once COVID-19 fiscal stimulus dries up

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More Australians will likely turn to high-risk payday loans when the government’s coronavirus stimulus measures run out in September, Australia’s corporate regulator has warned.

But consumer advocates believe a surge in payday borrowers could prompt thousands of Australians to enter catastrophic ‘debt spirals’ and they urged the Coalition to avoid the so-called ‘cliff’.

ASIC commissioner Sean Hughes told the COVID-19 select committee hearing on Thursday that payday lending rates would be “very much on our watch” in September.

“We are taking a proactive stance in relation to [payday lending because at] the end of the various support programs, we think there will likely be an increase in utilisation of payday lending programs,” Mr Hughes said in response to questions from Labor’s Murray Watt.

What are payday loans, and why are they so dangerous?

Payday loans are capped at $2000, are short-term, high-interest and are offered by non-bank lenders.

Typically, they require fewer credit checks and financial security assessments than major lenders before an agreement is signed.

Non-bank lenders can charge a maximum of 20 per cent of the payday loan amount for ‘establishment fees’, and monthly fees of 4 per cent.