7 February 2014

Public Consultation on Consumer Credit Regulations

Note

This media release announces that draft regulations to enhance consumer protection for Australians who may need to borrow 'payday' loans has been released for public comment.

The Assistant Treasurer, Senator the Hon Arthur Sinodinos AO, today released for public consultation draft regulations to enhance consumer protection for Australians who may need to borrow 'payday' loans.

These are small amount loans, often for very short periods of time, but can be high risk for vulnerable or low-income consumers.

"People often borrow money from payday lenders in order to meet short-term commitments but excessive charges can worsen the financial position of the consumer in the long-term," said Senator Sinodinos.

"The draft regulations are designed to prevent lenders avoiding the cap on costs of payday loans, protecting consumers from excessive fees and promoting a level market," said Senator Sinodinos.

From 1 July 2013 there has been a cap on costs for small amount credit contracts, which are loans of less than $2,000 cash in hand to the consumer, with a maximum term of 12 months.

Some lenders have been attempting to circumvent the cap on what can be charged on these loans as well as the licensing and responsible lending requirements. The draft regulations clarify the law to prevent providers from being able to circumvent the cap on costs and responsible lending obligations.

They also make clear boundaries between the small amount and medium amount credit contracts. Industry is uncertain that the wording of the law gives effect to this and the amendment will ensure that the small amount lending cap is consistently applied.

Draft regulations are available on the Treasury website.

Submissions close on 7 March 2014.