Small amount loans and payday lending

Katherine Bowden
Hello everyone. The webinar is being recorded so you’ll be able to access it at a later
date. It’s going to go on our information for community workers and carers page, which
is on the Legal Aid Queensland website. If you haven’t had a chance to look at that page
yet please do after the webinar, because there’s a lot of information that’s useful for community
workers there. I’ve got you all to raise your hand already to test the technology, so thank
you for that. So this is what you should see. You should have your control panels along
the side and most of you will be logged in using microphone and speakers.
We’ve uploaded two handouts today. The first one is the PowerPoint, so feel free to go
ahead and download that now. If you can’t see the handouts box it’s just on the right
hand side toolbar. The second handout today is a useful factsheet for you based on today’s
webinar. So you can download that at any time throughout the webinar. If you have any questions
we’ll be saving those until the end. So Paul will let you know when he’s calling for questions,
and we’ve already got a few that have come through before the webinar that we’ll save
for then as well. So if you haven’t yet asked a question, please do save it until the end.
You’ll see a questions box which would have been around the same area as the handouts
box, and you can type in there. That goes directly to us; no one else can
see those questions. But please remember don’t use any clients’ names and just use examples
only for your questions. If it’s not answered today, you can email [email protected]
and that email address is on the handout as well. Alright we’re going to launch a poll
and the question is what area do you work in? Now we know we’ve got the majority of
you from Queensland and we’ve got some people from interstate as well. So if you are from
interstate just tick outside of Queensland and if you’re from within Queensland then
please select Southeast Queensland, Far North Queensland or Regional Queensland. I can see
that we’ve got some responses already; thank you. I’ll just give you a few more seconds
to vote there; we’re at about 80 percent. Alright we’ll close the poll there. We’re
just going to share that on your screen now. So you guys will see that 42 percent are from
south east Queensland, next to that we actually have 33 percent of you from outside of Queensland
and then we’ve got 14 percent from regional and 11 percent from far north Queensland. Ok we’re going to go ahead and run a second poll. We’re just
wondering how much you guys know about Legal Aid Queensland already. So if you don’t live
in Queensland then feel free to select two options, the first option is down the bottom
there not in Queensland, and then let us know if you have a high, good, limited or no knowledge
of us. For everyone else just tick the one box please. So that’s just launched now.
So far we can see that most of you have a good knowledge of Queensland which is good
to see. Next to that is a limited knowledge – hopefully you’ll learn a lot more with
us today as well. Okay so we’ll close that there and share the results on the screen
again. You should see that 33 percent of you have a good knowledge of Queensland which
is great, and next to that is a limited knowledge. Alright now because we did start late today,
we’re still going to take the hour, so the first part of the webinar will be Paul presenting,
and the second half will be for question time. So I apologise if you have meetings that you
have to rush off to, but hopefully most of you can still stick around for the question
time. So Paul Holmes is our presenter today. He’s
a senior lawyer in the Civil Justice Services team. I’m sure many of you have already seen
his previous webinars with us. I’ll pass you over to Paul and go ahead and share that webcam.
So you should see Paul on screen there now. Paul Holmes
Welcome ladies and gentlemen. Just confirming you guys can hear me. What I’m
proposing to do today and to just quickly go over the outline, is just go through what
I consider the basics around going through payday lending. What we need to look at are
the things around what I think are most important for you guys as community workers, when it
comes to outlining payday lending. So I don’t propose to spend much time just going through
the outline, I want to dive straight in for you. The first thing I want to say is most
of this law is national legislation, the National Consumer Protection Act and within that the
National Credit Code. The only thing I would say, given we’ve got some interstate people
on the line, is just be careful about the rules people can use to enforce debts, because
they vary from state to state and are often enforced in state courts.
So if you’re in a different state and have questions about that enforcement type procedure
in your state, I’d recommend you contact your local Legal Aid Commission or your local community
legal centre or in some states there are specific consumer credit legal centres. So if you need
contact details about any of those, please feel free to shoot us through an email and
we can put you in touch with the right people. The other thing I would say is given the late
start, if you do have to leave early and have questions I haven’t got to, I’d also recommend
you shoot us an email and we can just reply to those on the email in due course.
The first thing I want to talk about is what are we talking about in this space. On that
side you can see there are really four categories. One being payday loans, which used to be loans
between paydays so 15 days or less. Happily, from my perspective, those loans are now banned
under the legislation. Next beyond that are small amount credit loans, which are loans
of between 16 days and a year, and people who make those loans are allowed to charge
a 20 percent establishment fee and 4 percent a month on those loans. They also have to
be looking through to the next criteria, which is medium amount credit contracts. In that
space we’re talking about loans of between $2001 and $5000. They’re allowed to charge
a $400 establishment fee and a 48 percent interest rate. For loans above $5000 they’re
allowed to charge a flat 48 percent interest rate.
The usual question I get at this point is why are the interest rates so high? Just to
give you a bit of context, at least in Queensland before an interest rate cap was introduced.
Now in this unit of Legal Aid we used to see interest rates in the region of 300, 400,
500 percent per annum, and the highest we ever saw was in the region of 1600 percent
per annum. So in terms of good legislation that’s helping our clients, I think this is
pretty good. Next in the space is what do people need to consider? If somebody walks
into a lender offering a small amount credit contract or a medium amount credit contract,
what do they need to do? The legislation is phrased, and I’m one of those people who hates
double negatives, but the legislation is phrased around a lender must enter a consumer into
a loan that is not unsuitable. It’s not that they have to enter somebody into the most
suitable loan, it’s whether it’s not unsuitable in their circumstances, and it recognises
the idea that there may be more than one product that a person could legitimately enter into.
Now in doing that, they have to make a number of enquiries. One is they actually have to
look at a person’s financial situation and make reasonable enquiries about that. I’ll
go into a bit more depth about that very shortly. But that looks at the idea that there’s actually
some requirement now for lenders to have a look at the person’s expenses and their income,
and actually have a good think about well could this person actually afford the loan.
And I think that’s really important. The second thing they have to do is make reasonable enquires
about a person’s requirements and objectives in seeking the loan. And that’s shaped around
the idea that that’s an important consideration in determining whether a product is not unsuitable.
And then thirdly, and in particular, when in the small amount credit contract space,
they have to take reasonable steps to verify that consumer’s financial situation. Now in
that context, a loan is considered not unsuitable if a consumer cannot meet their financial
obligations under the contract, or cannot meet them without substantial financial hardship. Where
the debate starts off in between consumer advocates like me and yourselves and the lenders,
it’s often around substantial financial hardship, because there’s at least a suggestion that
if somebody wants to enter into a loan that’s really important to them and they’re prepared
to wear a little bit of financial hardship, then that loan is not unsuitable. But where
it’s substantial financial hardship, then that loan is arguably unsuitable. That line
can often vary depending on whether it’s a consumer advocate’s perspective or a lender’s
perspective, and that can often make negotiations more difficult.
The second part we look at there is this idea of the loan not meeting the consumer’s objectives
and requirements. That’s often a difficult one in the sense that a consumer might want
to buy a very expensive car, but if they can’t afford it without substantial financial hardship,
that shouldn’t mean that they still get the loan. The other thing that’s worth considering
in this space is whether or not the contract is unjust. That looks at the ideas of whether
people understood what they were getting themselves into, whether they were in a position to understand
the contract at all. That’s often very factual and it’s often worth having a discussion with
a lawyer or with each other asking is this a contract that should have been given in
the first place. If it’s not, these are ideas that should be explored.
Now, the other idea I want to talk about is what is involved in making reasonable enquiries
about a person’s financial situation. This for me is one of the really important bits
about when we’re making a loan and when we’re linking, because they determine whether the
client is able to meet the loan or whether they’re not. One of the things I want to talk
about is how do lenders go about making this determination? Would they meet their obligations
to verify a person’s financial situation, if they went about processes that I’m now going to talk
about? One is can they meet an obligation to take reasonable steps to verify, and the
important bit here is, an individual consumer’s financial situation by using a benchmark.
One of the classics I’ve seen previously is they might apply the Henderson Poverty Index,
which is an index that looks at what is the bare minimum somebody needs to survive.
Do you know what’s really dangerous about that? For me, that treats everybody the same
and that’s not the ideal situation when we’re talking about making an assessment about a
person’s individual circumstances. So if somebody was to use a benchmark and just a benchmark,
I have serious questions about whether reasonable steps are being taken to verify that person’s
circumstances. But if somebody was to use the benchmark as say a starting point, and
then look beyond that to what that individual consumer’s experience actually is, then that’s
probably okay. Similarly, if you’re going to just allocate a percentage of a consumer’s
income to basic expenses, and the classic is say 15 percent for rent or 15 percent for
food, on its own, I don’t think that’s enough. The reason I don’t think that’s enough is
in my experience, a lot of our clients have unusual expenses, whether they be the fact that they
have to use a high proportion of their income to pay towards rent, or they might have larger
medical expenses than usual, or they might have six children and that means they spend
a lot of their money on food and other essentials. So again, if you just use a percentage of
the consumer’s income, I’m not sure that’s enough. But if you use that as a starting
point and then also look at a person’s expenses, then that might be okay. That’s why I say
looking at a consumer’s actual income and expenses is actually really, really important.
The reason I say that is really, really important is because the obligation is to verify that
individual consumer’s financial situation. If you’re going to do that and do that to
the best possible result for the consumer, you’ve actually got to analyse the actual
income and the actual expenses. In today’s world, the sorts of things that we spend money
on are often by via direct debit. Bank account statements actually give you a really good
picture of a person’s income and expenses, because the income is usually direct credited
and the expenses usually come out as a direct debit.
Now we’re just going to run another quick poll because I’m interested in what your experience
is out there. Poll number three is during your practice, have you heard of a payday
lender or another lender using a benchmark to assess expenses; using a percentage, both
or none of the above. So we’ll just leave that going for a minute to see what sort of
response we’re getting, and interestingly, so far we’re looking at about half of you
haven’t seen either practice used, and then we’re talking maybe fluctuating around a quarter
who have seen both, and interestingly about ten percent of you have seen one or both.
So that’s a really interesting idea, because what that says is probably different companies,
I think, have different approaches. That’s often why it’s really important to look really
closely at the documents you get from lenders, because that will show you, as we close that
poll now and share the results – what I think that shows you is because companies
have different approaches, taking steps like getting hold of the documents, which you’re
entitled to under the National Credit Code, are really, really important because that
will show you what that individual company’s approach actually is.
Now to move along to the next slide. What we’re talking about then is what requirements
are there? I’ve gone too far on the slide, my apologies. A lot of this we’ve already
talked about in the previous slide, because what that looks at is things like – have you
had a proper look at the expenses? Have you actually engaged with the consumer about what’s
currently happening, why do you need this loan? If you’re asking for this loan for basic
expenses like rent or something that might be available through a NILS loan – I know
we’ve probably got some NILS providers on the line. Have we looked at all of those alternatives,
which often are less costly than obtaining a small amount or a medium amount credit loan?
Feeding into that is if you’ve got that need or objective, are there ways of achieving
that need or objective without taking what, in my opinion, is an expensive product, particularly
when there are alternatives out there like the NILS scheme?
Just moving on, the next thing I want to talk about are small amount credit contracts, because
the requirements placed on small amount credit contract providers, are actually more onerous
than other lenders. The reason they’re more onerous is the government took a view that
the detriment that can be caused by these loans being given incorrectly to people who actually
cannot afford them is actually really serious, because more often than not, in my experience,
people trying to obtain these loans are people who are on low incomes or on Centrelink, and
are not in a position to easily pay them back. So the sort of presumptions that are in place
that are really important are if you’re getting more than 50 percent of your income from Centrelink,
repayments on a small amount credit contract or multiple contracts, can’t exceed 20 percent,
and that’s really, really important. Feeding into that is if they obtain three
months’ worth of a customer’s bank statements, and not just obtain them, because most companies
are fairly good at doing that, you’ve actually got to look at the data that’s in the bank
statements. Like I was talking about before, they show some really important stuff about
where the money is going and what sort of income you’re actually getting in, because
Centrelink direct credits and nearly all employers also direct credit. Similarly, if someone
has done you a statement of financial position and it shows some capacity and yet the bank
account is hovering around zero every fortnight, personally I’m asking serious questions about
where that extra money is going. Similarly, there’s a rebuttable presumption
that if somebody already has two small amount credit contracts, the third is going to be
unsuitable. Now there are some lenders out there that I’m aware of that have a practice
that if somebody already has two small amount credit contracts, they just don’t make third
one, because they believe it would take or be too difficult to rebut that presumption.
But I am aware of some lenders who will try and rebut that presumption, and I am aware
of people who have had multiple loans over multiple years, who just keep going back to
get a new loan every time the previous loan expires. While that may not fall foul of you
having three small amount credit contracts at once, where you’re rolling over small amount
credit contracts like that, I’m actually asking a serious question about whether you can afford
that without significant financial hardship. The reason I’m saying that is if you’re having
to get another loan to pay the previous loan, that’s not a good thing in my perspective
because that’s creating a debt spiral and that’s creating a dependence on obtaining
a loan, which is not going to help somebody financially. The other important thing is
if you’re already in default on a small amount credit contract, it stands to reason that
getting another one is going to be unsuitable. Because if you can’t afford to pay one, the chances
of you affording to pay two are not high. The other most important thing for our clients
is if you’re getting a small amount credit contract, the person who’s giving you that
money can’t take security, and that’s over things like a car. For our clients, particularly
in regional areas, they depend on a car to get themselves around and to get to work.
The other thing I wanted to raise is let’s just say the loan has been properly given
and there’s no issue and they can afford it and their circumstances change. It’s really
important, I think, in that context to remember that what we have is we can still ask for
hardship, because when the loan was given and the assessment was done properly that’s
fine. But the National Credit Law still provides protection to our clients if their circumstances
change and they can no longer make the payments. Although they’re directed at your short term
change of circumstances, in my experience, a lot of lenders are very approachable, but
if there’s a long term change of circumstances, they’ll try and work with you. So at least
the starting point is to at least engage around hardship, even if the loan has been properly
given in the first place. The other really important thing, I think,
that’s worth to discuss is let’s say the legislation has in fact been breached. What’s the sort
of stuff we can ask for? If a loan has been irresponsibly made, one of the things I find
a lot of people head straight to is well the loan should be waived. Unfortunately, the
law is not set up like that because there’s a recognition that if somebody has obtained
some money via a loan, they, more often than not, put the money they’ve obtained to some
benefit to themselves or their family. In those circumstances at least, my view is a
fair result is usually that the interest and fees be waived and an affordable arrangement,
without interest being entered into, to pay back the principle amount that’s been borrowed.
Now I recognise there are exceptions to that depending on the client’s circumstances, but
as a general rule, that’s usually my starting point. When we have that starting point that
at least, I find, starts the dialogue and discussion with the lender on the outside.
As I said earlier, it’s important, always, if the client’s circumstances have changed
or were not good to begin with, part of any resolution is hardship, because if they can’t
afford the loan they can’t afford to make those repayments.
Just to talk a little differently before we enter into the question time. It’s important
to remember that consumer leases and payday loans are very different things. And the consumer
leases, although there’s hardship requirements under consumer leases, they’re regulated by
their own section in the National Credit Code. There was recently a review undertaken by
Treasury looking at whether that’s a good thing. At least the suggestion, as I understand
it, was made as part of that review is that they should be subject to similar cost and
fees requirements as are small amount credit contracts. Given it’s a market that deals
with very similar clients, the idea of treating similar or like products in the same way legislatively
is probably a fair way. But given the election and what will happen following it, it’s something
we’re waiting on to see whether the new government wants to pursue any of those recommendations.
It’s not for me to say whether they will or not.
Finally, the other thing I want to just quickly do is just check in to make sure, in this
final poll for today, did you know consumer leases are regulated differently to the way
small amount loans were regulated, with the obvious caveat with the exception of the hardship requirements. So
we’re just going to run that poll very quickly. And just give you a few seconds to respond
to that. What’s really interesting to me about those early results is nearly half of you
weren’t aware of that difference and it’s probably something that isn’t very well publicised
by the consumer lease companies, because I think we all assume that because they’re very
similar products they’re likely to be regulated in the same way. So as we just share that
poll, that’s probably worth remembering that for whatever reason sometimes the legislation
doesn’t treat like products in the same way. It’s really important to remember that and
always check, because sometimes you get pleasant surprises about how they’re regulated and
the regulation which helps to – Now, just moving to the final issues before
we talk about questions. This is one of those circumstances where how it’s regulated differs
between state to state. Now pawnbrokers are where – most of you are going to know this
already, but pawnbrokers are where our client’s take a good of theirs into the pawnbroker,
they get money by leaving that good as security, and they can only redeem that good by paying
the pledge amount. What often happens is once our clients have pledged the goods, are unable
to afford to redeem the pawned good. The resolution that the company is able to take in those
circumstances is very different. Their resolution is they’re then allowed to sell the good,
and that’s regulated in Queensland by the Second-hand Dealers and Pawnbrokers Act. Importantly
for our clients there’s no obligation in the legislation to consider hardship on a
pawned good, which is very different to payday lending and consumer leases and everything
else in that credit space. So it’s really important that you remember that.
Finally, for those in Queensland for those of you who may not have dealt with us before,
we have a Consumer Protection Unit that provides advice on credit and debt; so all of these
issues. If you want to get in contact with us, I don’t believe we put the contact sheet
up as one of the handouts, but if you’ve got those sorts of questions – the contact sheet
is up I’m being told. Katherine Bowden
The email addresses are there. Paul Holmes
The email address is there. Please feel free to send us an email. We’re happy to at least
give you a starting point. Is it us? Yes you should book the client in the advice, and
then get them to call the call centre. We’re also happy to have conversations with you
in circumstances where you’re not sure where to go next when it comes to issues like that.
So if that’s something that you’re interested in taking us up on, we are very friendly and
I would encourage you to do that. I am aware that there’s a number of you online who we
do have regular conversations with, and I welcome those conversations because they’re
often very robust and we often get really good results for the client as a result by
us working together with financial counsellors, community workers and people helping the vulnerable
out there in the community. So that’s really important.
Just really quickly for those of you in Queensland, I won’t spend much time on this slide, but
there’s a slide there reminding you of where all of our offices are. It’s important to
remember that we do do a lot of phone advice so if clients are not in any of those areas
we can still link them in for legal advice about all of those issues. Katherine mentioned
earlier the website that we have, and the specific section of that just for community
workers. If you haven’t used that website, I’d recommend that you have a look, because
one of the other advantages of that website is all of Legal Aid’s factsheets are up there
for you to order for free, and if you’ve got any questions about doing that, please email
them to us and we’re sure to point you in the right direction.
Similarly, there’s the phone numbers. If you’ve got a client that needs legal advice, please
get them to ring any of those numbers and our excellent people in the call centre will
be able to book them in for the right advice session. The advice is usually very quickly
obtained. Now, we’re on to questions. Now there’s already a number that’s really important.
So what I’m going to say or what I’m going to start with is there’s one on bankruptcy.
The thing about bankruptcy, and while I’m starting on these earlier questions, if you’ve
got new questions please feel free to start sending them through and I’m going to answer
as many as I can. The first one that came through was regarding
bankruptcy and whether it happens often that somebody might be made bankrupt over payday
lending or small amount credit contracts. Now the starting point always, for me, is
that in terms of a creditor making somebody bankrupt, what they need to do is they actually
need to have a debt of more than $5000. That can be made up of one debt or that could be
made up of a number of creditors coming together to make the total more than $5000. So while
the debts are below $5000 that’s not a possibility. And in my experience, I don’t see very many
people being made bankrupt over just small amount credit contracts. Where I see people
being made bankrupt is often where they might have a couple of those debts and it might
be a number of large credit card debts or a large number of personal loan debts. So
in my experience, not yet. Other issues; and this is one we touched on
earlier and it’s the idea of multiple loans. The answer is, in theory, you can have multiple
payday loans or multiple small amount loans where a lender can show that those loans have
been responsibly made and that the person can actually afford to make them. If they
can do that and rebut that presumption I talked about earlier, then that is legitimate. My
experience though, is that’s not something that usually people are able to show. The
other variation of that is a lender will often say well I didn’t know about the earlier loans.
That goes back to the three months’ worth of bank statements that I talked about earlier.
There are very few payday lenders I know of or small amount credit contract providers
that I know of who do anything other than take their payments out as a direct debit,
because then they’re certain that they’re going to get their repayments on time and
in the right amount, and they show up on bank statements.
So I don’t accept, personally, the argument that subsequent lenders should not know or
can’t know about earlier loans. The only caveat I put on that is the circumstances where they
might have taken out the loan the day before and the payment hasn’t come out. Even then,
there’s still a requirement to assess whether they can do it responsibly.
There’s another question about why we use a benchmark for 30 percent of income as rent,
and I’m assuming that’s in the context of doing a statement of financial position as
a financial counsellor. Like I said earlier, I’m not saying benchmarks are bad, what I’m
saying is benchmarks on their own often won’t give you a true picture of a person’s actual
circumstances. I’m a big fan of treating individuals as individuals, because where you’re treating
individuals that way you get a much better perspective of where they’re at, and usually
you get a much better perspective of what they’re options are and what they’re best
alternatives are. So in those circumstances it’s not that I say benchmarks are bad, it’s
that I say if you are going to use benchmarks they should be used in conjunction with having
a proper look at what that person’s individual circumstances are.
Another interesting question was in the idea of bank statements, since we’re on them, is
whether we see problem gambling in those bank statements and whether that’s well identified.
In that context it’s probably not so much that you identify problem gambling very easily,
I think it’s more the idea that in doing a statement of financial position in conjunction
with the bank statements, you probably identify that there’s missing money, or you probably
identify that there’s repeat withdrawals from a similar source in the pub or club. If there’s
missing money in those circumstances, then I’m thinking another question should be asked.
That’s the way I’d go about it. So it’s not so much that they should be identifying the
problem gambling, it’s that they should be identifying that there’s missing money.
The other issues that were rightfully raised is whether Google’s banned payday lenders
from advertising. I’m obviously not going to comment on the appropriateness or not of
Google doing that, because that’s their decision as to whether they would do that or not. I
would obviously just say this; anything that is appropriately and legally done that is
of benefit to vulnerable consumers is a good thing. Now the next question to quickly look
at is this idea of what happens once you’ve established that you’ve breached the National
Credit Code or you’ve breached the National Consumer Protection Act and that the loan
shouldn’t have been granted? Usually the first step for me is to go back to the lender and
say okay we think you shouldn’t have given this loan and here’s why. You’ll say because
you didn’t assess their expenses properly or you didn’t obtain a bank statement properly,
or you didn’t meet your obligations under the code. Then they have an opportunity to
respond. In my experience, some of the times the lender
will say yes you’re right. In circumstances where they don’t your next step is to lodge
a complaint with the Ombudsman. Most people will be a member of the Credit Investment
Ombudsman in this space, but some are also a member of the Financial Ombudsmen Service.
In my experience, both those Ombudsman are very good at having a practical look at what
should actually have happened under the circumstances. That’s a good way of looking at it.
The next issue; if the client has paid over the value of the item and interest isn’t fair
to request a debt waiver. So just to clarify that question, I’m assuming that’s in the
context of a consumer lease rather than a payday loan, because in the context of a loan
my experience is the item being bought is often not in that context or that situation.
So in the consumer lease experience, what I often find is there’s an issue with people
paying three or four times the value of the good, and in those circumstances yes I will
often ask for a waiver because not only are they overpaying for the goods, often, in my
experience, clients believe that they are actually buying the good at the end and don’t
understand it’s a lease that they’re ultimately then returning. In those circumstances when
you can show that lack of understanding, and you can show that overpayment, I find a lot
of companies are happy to talk to you about debt waivers and transferring ownership of
the goods. But it’s always important to consider the person’s individual circumstances.
The next question, and keep those questions coming in, is around the idea of online lending.
In the age of technology that we currently have, and I’m sure we’ve all seen the ads
where you can get a response very quickly on your mobile phone, or you can get a response
very quickly when you jump online. That’s fine; you can get a response within 24 hours
or sometimes quicker. That might give the impression that there’s less regulation or
it’s easier to get loans in those circumstances. To be honest and in my experience, that’s
certainly not the case, because online lenders if they’re lending into Australia are subject
to exactly the same requirements as shopfronts or storefronts when it comes to assessing
a person’s income and expenses, assessing whether or not that loan is not unsuitable,
and then making a sensible decision about whether or not that person can make those
repayments without substantial hardship. In those circumstances it’s really important
to remember that just because it appears easier to get, doesn’t mean there’s any less requirements
on those lenders. I would be assuming, although I’m not aware,
they’ve probably have some very sophisticated technology to analyse the data that they’re
supposed to get in such a short period of time. If they’re not analysing the data properly,
then they’re on the hook in exactly the same way as any shopfront that is making a loan
and not analysing the bank statements or not meeting the presumptions against the loan
being unsuitable, or granting a third or fourth small amount loan when a client already has
two, three or in some cases more. So it’s always really, really important to remember
that. It’s important to keep those questions coming
through. The other thing that I think is really important to remember and I talked about this
earlier, is when we’re dealing with, and this is a good question, is clients who are coming
in crisis and are unable to pay loans like this. Our immediate response and I think it’s
a response we all make, is this idea well we need to help them with a hardship application
on the loan. That’s right, but I think there’s a second really important question to ask
there, and that second important question to ask is when did this hardship start? If
the hardship started almost immediately after they got the loan, then I’m asking the question
about whether that loan was responsibly made in the first place. In those circumstances
it’s important, not only to make a hardship application, but it’s also important to get
them to respond to the idea of how they assessed that a client could have responded to this
loan at all. I think that’s really, really important to remember that, because if we’re
not doing both of those things, we can be doing our clients a disservice, because, as
I said earlier, the consequence of an irresponsible loan is that amount of money that they’re
required to pay back is being reduced. Another question coming through that I’ll
just quickly deal with is this idea of how should casual income be treated and the fluctuations
that occur in those circumstances? This can be difficult because I’m sure you guys have
all seen the increasing casualisation of the workforce out there, and you’ll see people
who have been in a casual position for four or five years earning very similar amounts
of money across each fortnight. In those circumstances there’s an argument to say that there’s at
least a consistency of income that you can make the loan on. If a person has been in
a casual role for a month or two, then I’m less comfortable with the idea that you’ve
got consistent evidence about that person’s income, and where you don’t have that consistent
evidence about the income I think it’s dangerous to assume that that casual income is going
to continue to increase. Another really good question is this idea
around extending loans whereby you might pay a big repayment upfront for the first six
months of the loan and smaller repayments for the last six months and the consequence
of that is what this allows is that 4 percent monthly interest fee and that 20% admin fee
to be charged for more months. I know there are many in the industry whose view on this
to me is different, and so there’s been the odd robust discussion on this. I would question
whether it is in a client’s interest if they can afford to make the higher repayments for
the first six months, I want evidence of for what purpose do they suddenly want to reduce
the repayments so that they continue to have a loan on foot. In most circumstances in my
view, it’s always going to be in an individual consumer’s interests to pay that loan off as
quickly as possible, because that means less interest, less fees and if they successfully
paid that loan off, that’s often good evidence that that person might actually be able to
get a new loan from another provider or a new loan in other circumstances.
To link to that is this idea of does a payday lender has to sight the bank statements for
every loan? My view is I don’t accept the idea that just because somebody has been a
good payer in the past of payday loans, that that necessarily means their current circumstances
or their current statements means that this new loan is something that they can afford
to repay. Particularly given as we were talking about earlier issues around employment situation
isn’t great at the moment, there’s the casualisation of the workforce – people’s circumstances
do regularly change. If they do, and that person hasn’t or that lender hasn’t got up
to date bank statements, or the last bank statements were six months ago, nine months
ago or 12 months ago, I think that’s a problem, because you’re running the risk if you’re
the lender, of those circumstances changing, and where they do, I don’t think you’re meeting
your responsible lending requirements to assess that person’s individual circumstances. The
evidence would have shown those circumstances have changed.
Another difficult question is around what to do with child maintenance. In terms of
what to do with child maintenance, one of the queries I have about how you deal with
that, is often child maintenance payments aren’t consistent, because people have difficulty
in making those payments on time or, in some cases, they just don’t make them. So I think
it’s dangerous in those circumstances to rely on those payments being made or assuming those
payments will continue to be made. In those circumstances, I would be reluctant to have
that discussion or to assume that I could rely on those payments being made in order
to assess whether somebody can properly repay. Now we’ve probably got maybe about five minutes
to go, so if you’ve got any final questions I’d encourage you to put those in now.
In terms of the next question which is around signing a contract that has gone past the
cooling off period. That’s often an issue in Australian Consumer Law and there are specific
requirements whereby that cooling off period could be extended to between three and six
months. I don’t propose to go into that now, because it’s a little more involved, but if
you’ve got a specific question maybe with specific facts and you’ve asked in that context
that you wanted to talk about, I’m happy to respond to a more detailed email if you want
to send that through to me. Similarly, the next question we’re dealing with is around
an indefinitely lease and the fact that the person has paid an awful lot of money over
that time. I’d have a serious question about if that person wasn’t aware that that lease
was going to go and continue to renew itself almost, I’d ask questions about what are we
leasing? If it’s a good that has a shelf life of maybe
two years and is now redundant and they are still leasing that on an indefinite lease
four or five years later. I’m seriously questioning whether that’s a fair contract or a just contract.
I’m starting to think in terms of are there unfair terms here about was that contract
properly explained, and again that’s probably a definite discussion I’d like to take offline
if you want to send me some more details or continue that discussion, because that’s going
to very much depend on what’s in the contractual term itself.
In terms of asking for a debt waiver and the person responding about failing the loan – I
always get worried when a creditor or a lender talks about failing something, because I tend
to equate that with default. I could be wrong about that, but when I hear fail I think default
and I think that’s really, really dangerous. The question, I guess, to ask there is, is
there a risk that if you go back and ask for confirmation it’s been waived, what potential
consequences are there? I tend to think it’s worth confirming that that means you’ve waived
the debt, because if they’re thinking seriously and they’re continuing, that’s got a bad consequence
to the client and they’re going to do that regardless of how you’ve interpreted the loan
and what they have said. If they haven’t gone and default listed the loan, there’s no harm
in confirming an answer. There’s no harm in asking the question for your peace of mind
and your client’s own peace of mind. In terms of final questions, I think it’s
probably a good point to leave it off there. There’s one final question that has come in
around the idea of still being able to buy at the store involved but not get loans. To
me, that sounds like default regarding failing a loan, because if they can’t get the loan,
rather than defaulting them what they might have put them on is a no lend list. So it’s
probably in that circumstance where it’s confirming there was no default listing made, and it
was just an internal decision not to give them any further loan.
In closing … Katherine Bowden
Paul, just one last question; do you want to let the audience know if they were to take
something away today, what would be the most important piece of information that they could
take with them? Paul Holmes
I think in closing I’ll probably say two things about take aways. One is the earlier point
I talked about around looking at both hardship and irresponsible loans, because the crisis
we often see our clients in is really easy to focus on just the hardship when focusing
a hardship and the irresponsible loans allow you to often get a better result for the client.
The second thing I ask you to take away is keep an eye out for the use of these benchmarks
and these percentages that we were talking about, because although I don’t think they’re
wrong or bad, I think they should be used in conjunction with other things such as looking
at the person’s individual circumstances and focusing on those. So they would be my two
big take aways. Can I thank you guys very much for your involvement with questions today
and for your unbelievable passions as we battled our technical difficulties this morning.
I reiterate what we both said earlier, which is if there’s questions that we didn’t get
to or missed by mistake or you think of questions later about these topics that you want to
talk to us about, please send us an email and we’re happy to provide you an individualised
response to all of those. There’s a survey at the end – I’ll just pass you back to
Katherine to explain that. Katherine Bowden
Thanks Paul. Thank you as well Paul for your great presentation today; it was very interesting
and thank you to our audience for sticking around through those technical difficulties.
The webinar will be recorded, so if you know of anyone who had to head off early, just
let them know that it will be available on our information for community workers webpage,
which Paul mentioned earlier. As Paul said, please download the handouts. If you missed
the start, the handouts section is in the right hand side toolbar; there’s two there.
You can quickly download those now and they have all the contact details and the PowerPoint
slides for you. Paul mentioned that there is a survey and
that’s created by us and it helps us to determine which webinars to present to you, and which
topics are most in demand. So if you can take about five minutes to answer that for us that
would be great. We’ve got a scale of one to five, five being the highest which is written
on those questions there. Alright, well thank you very much everyone and we hope to see
you at our next webinar.

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