TONY JONES:
Well, Senator Nick Sherry is the Minister for Superannuation and Corporate Law, he joins us now from Parliament House in Canberra. Thanks for being there Nick Sherry.
NICK SHERRY:
Good evening, good evening to your viewers.
TONY JONES:
As we found out, there are people out there being forced to pay between 300 and 2000 per cent in interest rates and fees, it's annualised obviously, on these very small pay day loans, that's usury pure and simple, isn't it?
NICK SHERRY:
Well, the fees are very high as a proportion of the actual sums that are borrowed. Pay day lending is typically sums of money of less than $1000. What we've seen in the last ten years or so it's that it is not just pay day lending. We're seeing the rise of property spruiking, it's another type of financial product and reverse mortgages.
We're seeing new types of financial product that are regulated or very patchily regulated, I have to say, at a state level and Labor's argument is that we need effective regulation, effective and fair regulation to ensure a good deal for consumers and that has to be done nationally through single standard regulation. It's very difficult to achieve that at state level.
TONY JONES:
Would you agree that these pay day loans, speaking specifically about them, are deliberately targeted some of the most desperate and financially stressed people in the community?
NICK SHERRY:
Well, I certainly think that the people targeted are on a debt treadmill, they're finding it very, very difficult to exist from day to day, week to week and they're desperate - they're in desperate need for relatively small amounts of money, usually less than $1000.
TONY JONES:
So, I use the term usury before. Do you steer away from that?
NICK SHERRY:
Well, I think what is important is, I mean, my hope is that we do - I do want to see national regulation in this area, I just thin it's necessary to have proper licensing, proper disputes processes, proper credit checks and a fair balance on fees, when - I mean, we do not want to see exorbitant fees in any area of lending.
TONY JONES:
Well, your Green Paper (on Financial Services and Credit Reform) says that it's not self-evident smaller loans like this are best regulated through a single national scheme. And so the fear is, the Federal Government will work on the other areas you talked about earlier and leave these pay day loans to the states in the mishmash of regulations across all the states. You're saying that won't happen, is that right?
NICK SHERRY:
Well, we've got a two-stage process, we've got an agreed agenda on things like mortgage broking, on margin lending, trustee companies, non-deposit taking institutions. The states and the Commonwealth have signed up to simple standard regulation in those areas and there remains some other areas and not just pay day lending. Property spruiking as well is another area, typically, of new financial product.
I am very keen to see national regulation in those areas but there's no agreement yet to do that, but I am keen to see it happen and we'll consult with the consumers, with the industry organisations and I would like to see all financial service products and providers nationally regulated.
I mean, your example there showed internet access, very easy internet access so clearly people are accessing that product across state boundaries so you do need national regulation, national licensing, proper disputes resolution and I think the proper processes to ensure that the fees are not grossly excessive.
TONY JONES:
Yes, the green paper is sort of anomalous because it says the use of pay day loans may be affected by regional differences which would have to be taken into account in a regulatory system but what do regional differences have to do with basic fairness?
NICK SHERRY:
Well, some states do regulate in different ways. So in putting together national regulation we do have to take account of those particular circumstances even though it's quite patchy, they do differ from area to area. But the first bridge to cross is shifting the power so that we have a full national, simple standard regulation by one government and not six states and two territories. And then we have to develop the specific regulations that are fair and balanced and protect consumers. I am actually very keen to go much further than the regulation of these particular products. I think we've got to deal with the fundamental problem here.
That is, many people do need proactive assistance, financial assistance and advice before they get themselves on these treadmills of loans with high interest rates. Now in the recent budget for example, we provided $20 million for financial counselling. I think we've actually got to go to the core and the cause of the problem, not just to the regulatory issues around the lending practices.
TONY JONES:
Interesting point you raise. I mean, we know that microcredit is a phenomenon in the Third World. I mean, should there be a role for it here with institutions, perhaps backed by the Government, which don't take such huge profits from the loans that they actually give to people in trouble, like those people we saw there, Heidi and Garry(*) and a broken down car, $2000 loan, and this pay day system ends up blowing out to $6000. I mean, it's impossible for people, isn't it?
NICK SHERRY:
I think there is a role for Government to get people off the treadmill of debt when we're dealing with relatively insignificant sums of money to you and I and to many of the viewers but for people in desperate circumstances, and need a few hundred dollars, there is a role for Government to be involved in proactive counselling. When people borrow money in these circumstances they tend to go back time and time again and the debt just builds up as does interest on interest and it becomes crushing. And I think it's in, not just their interest, their families but for the good of society that we need to be proactive in counselling around basic budgeting, and the impact of interest on interest over time.
For many people, these are not easy concepts and we have to do a much better job. And I do think there is a role for some form of microcredit assistance to get people off this treadmill of debt in some of the circumstances they find themselves in.
TONY JONES:
Would you be prepared to back a microcredit bank if one were to emerge from somewhere in the public?
NICK SHERRY:
Well, the first step is, let's get the regulatory powers and then look at the mixture of regulation and proactive solutions to help people who are, by any judgment, in very desperate circumstances in our community that they have to resort to what are effectively very high, very high fee products.
TONY JONES:
Is there a role for the welfare system here? I mean, to tide people over when they get into situations like this?
NICK SHERRY:
Well, I think we'll find that the welfare organisations are already substantially involved in, many of them in counselling, and helping out families in other ways, who find themselves in these circumstances.
TONY JONES:
I mean by that the public welfare system, not private charity.
NICK SHERRY:
Oh, look, well - the Commonwealth delivers financial counselling services to a fairly limited degree at the present time.
TONY JONES:
We're talking about small loans here, I mean, along the microcredit system you were referring to as being - you might favour?
NICK SHERRY:
First step, let's get the regulatory powers. Second step, let's look at the forms of regulation and other proactive solutions where Government can assist. I mean, Government can't do everything, but I think it's in society's interest to get people off this treadmill of debt and high fee products, because that's for the good of society ultimately, and ultimately good for their families.
TONY JONES:
There's a question of morality here too, isn't there? I mean, let's go through some of the loopholes in these pay day loans documents that we've been sent. Here's one from Needy Money, a company that provides a $2,000 loan over 90 days but there's a credit fee, an application fee, an account fee that all add up to $880, that's before you even start paying anything back.
So that's $2,880 you owe straightaway, plus if you fall behind in your payments, there's all sorts of extra penalties that accrue. As you say, people find it hard to pay these things off if they're in difficulty. So they end up getting in this spiral of debt that they're signed up to by these companies. Is that actually morally correct that they're doing that, these companies?
NICK SHERRY:
Well, these are people in desperate circumstances. Look, I notice there are fee caps, percentage fee interest caps in some states and then, of course, providers in some cases have found a way around by charging other fees.
TONY JONES:
Yeah, well here - I'll give you another example while we're on this topic. The promissory note, we have one from a company called Aussie Cash (*) where a loan from $300, just to get that loan, the customer has to pay a note promising to pay $480 less than a month later and as they point out, it actually works out at an annualised interest rate of 782 per cent per annum. It actually says that on the document.
NICK SHERRY:
Yes, I've looked at some of these documents. The fees are there, they're very stark, and it's frankly quite frightening given the level of fee for the amount of money borrowed. I'd have to say, in all the financial products, there are lots of different types of fees right across the financial sector.
But what it does illustrate is, you referred to a promissory note, I mean, that's a loophole that's being used to get around some of the regulations that exist in some of the states at the present time. That's another loophole we've addressed in terms of disclosure and dispute. But we need comprehensive licensing, we need codes of conduct, we need appropriate regulation to ensure people are not charged usurious fees or extraordinary fees, and we need proactive assistance to get people off these treadmills of rolling debt, interest on interest.
As I say, it's in their family's interest and society's interest. It's very important that we do have national regulation, because many of these providers are
providing loans across state boundaries, and it's very difficult then to get effective regulation at a state level. No criticism on the states. The world's just moved on. We've got lots of different types of new, quite often complex fee products which are not readily understood, but need to be nationally regulated.
TONY JONES:
Well, Nick Sherry, we appreciate you coming on, it's a complicated subject, but a difficult one obviously for people to cope with out there. We thank you very much for coming on explaining this and we'll look forward to seeing what actually happens and having you back once changes come into play. Thank you very much.
NICK SHERRY:
Good night, good night to your viewers.