Payday loans (also known as Cash Advance Loans or Check Advance Loans) refer to a type of fast cash loan that is typically under $2000. The loan itself is known as an unsecured loan, as it does not need a security against it. Even though the loan is small, this can be risky business for the lenders and this is why they will hit them up with very high interest rates of up to 45%!! In some cases, only a recent pay slip or a centre link statement have to be provided to obtain these loans, assessments taking 60 seconds on some occasions. This alone make it very arguable that they are lending these responsibly. Correctly assessing a customer’s financial situation before you lend them money is called lending responsibly, its questionable that with these instant loans, enormous fees and super high interest rates the only ones with pockets of cash are the lenders! This can quickly send the consumer in to a downward spiral of bad debt.
Pay day loop holes, with extra fees, hidden clauses and quick easy top up’s, have allowed these companies to prey on the high risk, desperate cash poor consumers in need of a quick fix, sometimes lending from one cash loan to pay out another! It is still important to be aware that you will end up paying back way more that you borrowed in the first place.
Australian Credit Licenses were put in place by the Australian Securities and Investments Commission to ensure the regulation of fair credit lending activities around the country. Strict penalties may apply to those who unlawfully engage in credit activities without proper licensing or authority, and without complying with the National Credit Code. To be eligible for a credit license, you must fulfil the following eligibility requirements:
Another ongoing eligibility requirement for the licensee is that they will always act in the best interest of the consumer in regards to credit assistance that they provide to them. If credit activities aren’t engaged in within 6 months of obtaining a credit license, this must be reported to ASIC.
If you sell credit….then yes! Any business in Australia that is involved in credit lending activities may be required to hold a current Australian Credit License or authority from a certified credit licensee.
Under the National Consumer Credit Protection Act 2009 (governed by the National Credit Code) credit activities that fall under the code include:
You will only be considered to be engaging in credit activities if your business conduct involves credit contracts or consumer leases, to which the National Credit Code will then apply.
The short answer is yes BUT pay day lenders spent lots of time finding loop holes to engage sometimes without! Now, not everyone engaging in credit activities will necessarily need their own license. You could be excluded from complying with the NCC if you fall into any of the following situations:
* This includes situations where there is no agreement in place
There are criminal and civil penalties imposed on those who are found to be engaging in credit activities without a credit license or contraventions of general conduct obligations, including:
If convicted of an offence, the maximum term of imprisonment is two years.
It is important for consumers to be aware that holding a credit license does not guarantee the quality of the licensee’s services, and that employees or directors of a registered licensee don’t necessarily hold licenses themselves. Let’s face it people tend to do the wrong things if they feel it may help them personally, it is always best to question, if its too good to be true it usually is!!
ASIC are cracking down on these types of loans to try separate the good from the bad, but this is all a work in progress. Be aware that during a pandemic is perfect breeding ground for more of these companies to pretend they have a solution for consumers hardship, when in fact they will be creating more financial burdens. There are better ways you can get help and manage your debt, by talking to your current provider or financier to reduce outgoings or visiting the Government ‘s MoneySmart Website for more options.