New regulatory requirements for financial product design and distribution a positive for pay day loan customers

The Hayne Royal Commission into the banking sector has opened up the opportunity to introduce significant new protections for banking and financial services customers in Australia.

The payday loan sector was not a major focus of the Royal Commission. There have been significant reforms in relation to customer protections for payday loans over the past ten years. Those reforms reflect and reinforce that fact that payday lending performsa vital role in Australia’s financial services – providing access to small, short term loans for people that often cannot access personal loans or other financial services through the “conventional” banking sector.

Like the banking sector, there are examples of payday (more properly known as Small Amount Credit Contracts, or SACCs) lenders that have acted unscrupulously or unconscionably, especially in relation to the ability of some borrowers to service their loan obligations. However, unlike the banking sector (which famously resisted the establishment of the Hayne Royal Commission), the payday loan sector has and continues to be subject to routine and regular review by the Federal Parliament and by regulators such as ASIC. This has resulted in continued adjustments to the payday loan sector, aimed at continuing to improve customer awareness of and experience with payday loan products.

The recent announcement by the Australian Securities and Investment Commission (ASIC) that it is consulting on guidance for new product design and distribution obligations for financial services products. This is a welcome development for payday loan customers. First, it opens up the whole financial services sector to implementing transparent and clear communication for customers, along with appropriate warnings, in much the same way as the payday sector is required to. Second, it removes opportunities for the “conventional” financial services sector to benefit from the lack of knowledge of vulnerable customers, in the same way that the payday sector has been required to communicate its products since the introduction of specific legislation in 2013.

Reputable operators in the payday loan sector, like Spondooli, recognise that often they are providing credit to some of the most vulnerable people in society – people who can’t access credit through banks because they have a casual job, or because they have a poor credit history or because they have had a significant change in circumstances which means they can’t meet their immediate financial needs. It is right that these members of our community are protected through regulation and law. And while the payday sector is often targeted with negative scrutiny, including from the conventional banking sector, the fact is that the Royal Commission has identified that in many cases these are exactly the people that haven’t been protected by the “mainstream” financial services sector, all while the payday sector has continued to work to improve customer protections.

At the end of the day, the payday loan sector is in place to help customers when they most need it and is subject to the most robust regulatory regime in the world. No reputable lender wants to see their customers entering a cycle of debt or lumbered with useless financial products. It is encouraging to see the rest of the financial services sector being brought up to the same level of scrutiny in favour of credit consumers.

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