A disability support pensioner who claims she was offered 63 loans over a six-year period by Cash Converters despite them knowing she had a gambling problem and would struggle to repay is taking the payday lender to court.
The court action is the latest legal controversy for Australia’s largest payday lender, which has been hit with a string of class actions from customers around the country in recent years over claims of exorbitant interest rates.
In this case Cash Converters is accused of irresponsible lending practices in relation to a 57-year-old Melbourne disability support pensioner which says she has a gambling addiction and would therefore not be able meet the loan repayments without significant hardship.
The Consumer Action Law Centre (CALC), which is representing the client in the case before the Federal Circuit Court, claims the payday lender repeatedly offered the pensioner loans despite knowing she is a disability support pensioner with a gambling problem. The centre claims Cash Converters should have known the customer could not meet repayments on the loans.
Jillian Williams, director of legal practice at the Consumer Action Law Centre, said in a statement the case is an example of how current payday lending laws have failed vulnerable Australians.
“Lenders have to assess the ability of borrowers to be able to pay the loan. In this case our client alleges Cash Converters only assessed income and ignored significant warning signs,” she said.
“Payday loans are an extremely expensive product and it’s well documented that repeated use can worsen a borrower’s financial situation.
“That’s why lenders have a legal obligation to ensure loans aren’t ‘unsuitable’ and that they won’t cause financial hardship.
“We allege Cash Converters gave repeated loans to a person when it was quite clear they were unsuitable.”
In a statement provided to SmartCompany this morning, Cash Converters managing director Peter Cummins said the Consumer Law Action Group’s claim about the case evidencing a failure in new federal consumer credit legislation is “highly misleading”.
“Only seven out of the 31 loans from group companies were made to this borrower since that legislation fully commenced on 1 July, 2013, a period of 27 months,” he said.
“It is surprising that CALC has launched this action without exhausting the consumer protections provided under the Consumer Credit Protection Act for hardship and for external dispute resolution by the independent credit ombudsman”
But Consumer Action Law Centre chief executive Gerard Brody told SmartCompany this morning the problems with payday lending are widespread and the centre is calling for an overhaul of the laws introduced in 2013, including reforms that would see a stronger cap on amounts that can be loaned.
Brody says the whole industry is “pretty shocking” but this is a particularly appalling case of irresponsible lending.
“It’s pretty indicative of the types of conduct we generally see from payday lenders,” he says.
“Our experience from clients is that most are repeat borrowers, reliant on multiple payday loans.
“That’s our central concern with payday lending.”
Brody says while from a lender’s perspective a large number of short-term loans might make for a good customer, from the borrower’s perspective it can have a negative snowball effect.
“What tends to happen, particularly for those on a low income or under financial stress, because of the way in which the loan is structured with a direct debit on payday, the repayments are taken from their income and leaves them with not much money left over,” he says.
Brody says the law states payday lenders need to obtain at least three months of bank statements for every advance, and while Cash Converters had done so in this case, he alleges the lender had been only looking at income rather than expenses.
“The law is pretty clear, to lend responsibly, it should be understanding process of loan and taking steps to verify a person’s situation, not just income but outgoing,” he says.
Brody cites a report by the Australian Securities and Investment Commission from earlier this year that detailed widespread problems with compliance in the payday lending space, including criticisms of the industry not keeping much information on file about the purpose of such loans or evidence it had considered someone’s situation.
He says SMEs in the payday lending space should only be advancing a loan where it will not cause substantial hardship.
“We think payday lending businesses should be offering fairer loans and appropriate rates,” he says.
“Any small business, any payday lending business – you should be complying with law.”