Fringe Credit Providers - Discussion paper

A public discussion paper has been released. Submissions close 10 October 2003.

The providers of credit in the credit industry can be divided into ‘mainstream credit providers’ and ‘fringe credit providers’. The former are made up of banks, building societies, credit unions and national finance companies. The latter refers to all those credit providers on the fringe of the credit industry such as payday lenders and micro lenders.

The fringe credit market has increased in size and visibility significantly in the past few years and it is becoming clear that the Consumer Credit Code in its current form is providing insufficient protection for clients of fringe credit providers.

The Code regulates most consumer credit in Australia. Until recently, the majority of fringe credit loans were unregulated as section 7(1) of the Code exempted loans under 62 days. A recent amendment to the Code extended its coverage to short term high return lending. This amendment was only a first step and has addressed many of the major consumer issues with fringe credit lending, including:

• requiring contracts to be in writing;
• requiring the disclosure of fees and charges; and
• providing borrowers with the legal capacity to challenge harsh and unfair contracts.

It was acknowledged at the time of making this amendment that it was only the first step in regulating fringe credit providers and that further reform would be needed to address other areas of concern such as:

• the refusal by some fringe credit providers to disclose annual percentage rates to assist borrowers in understanding the true cost of loans and to make comparisons with products of other credit providers;
• the imposition of fees that translate to exorbitant rates of interest;
fringe credit providers taking security over essential
• household items; and
• fringe credit providers insistence on and use of direct debit authorities.

This Discussion Paper provides an overview of the fringe credit provider market and the problems in the market. A number of policy options are then advanced and assessed to address these problems.

Commonwealth, state and territory consumer protection agencies want to hear your views on the options for changes to current laws for payday and micro lenders outlined in the discussion paper. Comments should be sent to:

Fringe Credit Providers Project
Office of Fair Trading
GPO Box 3111
BRISBANE QLD 4001.
Email: OFT-P&L@dtrft.qld.gov.au
Fax: 07 3119 0019

Submissions closed 10 October 2003.

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