FCA welcomes today’s news that the Senate will be holding an inquiry into businesses that target people in financial difficulty, often causing harm in the process.
Financial counsellors have long been calling for stronger regulation of payday lenders and rent to buy companies. The Government promised stronger regulation of this industry last year, but we are still waiting for the laws to be introduced.
There are also some shocking examples of payday lenders that are exploiting regulatory loopholes and charging extortionate interest and fees.
Irresponsible lending is not a costless business decision – it means some people don’t have enough money for food or rent, and often has detrimental impacts on health and relationships.
Other businesses that can harm Australians doing it tough, are credit repair companies, debt negotiators, budgeting services and debt agreement brokers. Regulation of these businesses is sorely needed. Often these businesses not only fail to improve someone’s financial hardship, they exacerbate it. For example, credit repair agencies offer to fix a person’s credit report – but often this money is wasted as it isn’t possible to remove a legitimate default listing.
Financial counsellors report seeing more and more clients with debts to buy-now, pay-later firms, the most well-known of which is Afterpay. The problem with this business model is that there are no requirements to lend responsibly. These buy-now, pay-later products, which seem particularly attractive to younger people, have the same problems as credit cards – small amounts quickly add up. The outcome is that many young people may be starting their financial lives with impaired credit ratings.
One of the reasons these businesses have grown exponentially is the serious shortage of free, independent, community-based financial counsellors. Face to face financial counselling agencies have long waiting lists. Calls to the National Debt Helpline, the phone financial counselling service, are at record levels. Current estimates point to a 5% increase this year, on top of 12% last year.
FCA, financial counselling agencies and financial counsellors look forward to telling our clients’ stories to the Inquiry and putting the case for adequate regulation.
If the current Royal Commission had been extended to this part of the financial services industry, we have no doubt that the issues uncovered would have been profoundly shocking.
CEO Financial Counselling Australia
0402 426 835