Interest-free loan option helps prevent vulnerable people from falling prey to “dangerous” payday lenders
Single mom Tina Edwards was desperate for a loan to help pay for her three-year-old son’s surgery, but her options for getting approved quickly were limited.
- Payday loans are high cost short term loans of up to $ 2,000
- Due to the high repayments and the short loan period, many people fall into a debt spiral
- But Low or No Interest Loans (NILS) are available at 60 locations across Queensland
The 44-year-old dance teacher ran her own studio, but is currently unemployed and paid by Centrelink’s only parent in the Logan area, south of Brisbane.
Ms Edwards’ son, Cooper, suffered from severe sleep apnea and required removal of his tonsils and adenoids.
“Her sleep apnea was getting worse, as was her behavior,” she said.
“It was hyperactivity during the day, loss of appetite, very tired, lethargic, no energy – very sad for a three year old.
Ms Edwards opted for private health care, but the operation was going to cost almost $ 5,000 – and even with a little money saved, she needed to borrow $ 1,500.
Given her financial situation and tight deadline, she considered the limited options available to her: going to a payday lender that would have high interest payments or accessing an interest-free loan program. (NILS) via a community center.
Ms Edwards found the Logan East Community Neighborhood Association who were able to quickly provide her with an NILS and are now repaying the loan through Centrelink, saving her from having to go to a payday lender.
“I couldn’t wait any longer, not when it comes to your child’s health,” Ms. Edwards said.
“I looked at others [payday] loans, but I was more concerned with repayments with such high interest – I’m not sure how people in my situation could repay those amounts. “
Payday lenders ‘attack’ communities
Payday loans – also known as small credit contracts, cash loans, or quick loans – are high-cost, short-term loans of up to $ 5,000, repaid over a period of 16 days to a year.
Gillian Marshall-Pierce, of Logan East Community Neighborhood Center, said online and in store the payroll industry targeted low-income people.
“Interest rates can be huge and people often don’t understand what they’re signing.
“You may just really need a refrigerator or need something and then you pay a management fee of $ 400, an interest rate of 46.7% on that, and easily a loan of $ 3,000. can turn into a loan of $ 10,000. “
Ms Marshall-Pierce said that due to the high repayments and the short loan period, many people have spiraled into debt.
“We are seeing people who are living in paycheck-to-paycheck survival mode and just don’t have enough to put food on the table or savings,” she said.
“People who are already in trouble cannot repay this loan, so they could in desperation go out and get another loan to get that place of origin back and that creates a complicated financial situation.”
A report in line with the Stop the Debt Trap Alliance, which is a national coalition of more than 20 consumer advocacy groups, found that the industry is booming in Australia with the gross payday loan amount estimated at $ 1, $ 7 billion in 2019.
The report found between April 2016 and July 2019, around 1.77 million Australian households took out more than 4.7 million individual payday loans worth around $ 3.09 billion.
More support for interest-free loans
No interest loan of up to $ 1,500 is available to people earning less than $ 45,000 and can be used to purchase essential goods and services.
Low-interest loans – also known as StepUp loans – are between $ 800 and $ 3,000 and are repaid over three years with an interest rate of around 5.99%.
The loans are managed by Good Sheppard Microfinance and are available from various providers in 60 locations across Queensland.
Queensland Council of Social Service (QCOSS) chief executive Mark Henley said loan programs needed to be more widely available.
“This is a state government backed program that needs to do more to make sure people, especially in the Queensland area, have access to it,” he said.
“The affordability of life is getting harder and harder, and payday lenders are getting more and more sophisticated in the way they market and target people – it’s become an incredible problem.”
Ms Marshall-Pierce said the state government needs to expand the lending network to meet demand and better community resource centers currently offering the loans.
“It’s not just about geographic spread, it’s about boots on the ground to have those face-to-face conversations with people in financial difficulty and with those who have their best interests at heart – they won’t find that. if they go to a payday lender, ”she said.
“We recently have regional towns affected by droughts, floods, cyclones and natural disasters and some have payday lenders in their town and nothing else.
“The state government has an existing infrastructure footprint in Queensland and they are community centers – any city or regional center has one and it is there to take if it invests in them. to provide these loans and change lives. “
Queensland Communities Minister Coralee O’Rourke said the state government annually funds a $ 7 million financial education and resilience program to operate two low-cost and low-cost retail stores. financial value – Good Money – on the Gold Coast and Cairns as well as providing financial services across the state.
“We are currently working closely with the community sector because we know how important it is to have opportunities where people can access affordable products and financial assistance so that we can cover all areas,” she declared.
“If you are in an area where you don’t have access or don’t know where to get help, you can contact my department or you can contact Good Sheppard Microfinance.
“I am very keen to keep my door open to get in touch with the community organization. They have the solutions on the ground and we know government works best when we work with the community.
Low interest, interest free loans are available at 60 locations across Queensland across Good Shepherd microfinance.
Urgent reform needed
The federal government announced plans to tighten laws on small consumer loans and leases in 2016 after a review of the sector.
The Coalition accepted most of the recommendations and said it would present a bill with the reforms to Parliament in 2017, but it was never tabled.
The federal government has since launched a Senate investigation into the payday lending and consumer leasing sectors – which were not considered as part of the Royal Commission on Banking – which is now open for submission. .
Mr Henley said the federal government was dragging its feet to implement reforms that were desperately needed.
“Payday lenders are an area that is not well regulated and they target low income people,” he said.
In a statement, Deputy Treasurer Michael Sukkar said the federal government was considering public submissions on final reforms to ensure the right balance.
“The government recognizes the importance of protecting vulnerable consumers of financial products, which is why it is making changes to improve the protection of consumers of small credit and rental contracts,” a spokesperson said. .
“However, it also recognizes that low-value credit lenders and consumer leasing providers play an important role in providing credit to consumers who in many cases cannot access traditional forms of finance. . “