Consumer advocates are outraged at a slew of ‘brazen’ and ‘irresponsible’ payday lender ads. These ads are targeted at young people and aired on youth-focused channels during prime-viewing shows. But what outrages the consumer advocates the most is their misrepresentation of the consequences and uses of their loans.

Two payday lenders, MoneyPlus and MoneyMe offer loans (typically less than $2000) at virtually extortionate rates of interest – 300 per cent when calculated as an annual rate.

But what disgusts consumer advocates most is that these high-cost loans are being marketed as solutions to bill-paying problems.

‘Payday loans are dangerous,” said Consumer Actions Law Centre chief executive Gerard Brody. “And like other products that are detrimental to us, such as gambling or alcohol, they should come with strong warnings.”

Payday loans, especially those required to pay basic debts, only serve to defer and exacerbate financial problems. They “can also trigger ongoing reliance on payday loans, creating a debt spiral.”

They aren’t even necessary for some debts.

Utility companies, for instance, are required by law to offer repayment schemes for those who can prove financial hardship; thus negating the need for high interest loans entirely.

Yet fast loan sites like MoneyPlus offer quick cash for ‘immediate needs’ within 30 minutes of application. Among these ‘immediate needs’ are listed “bills – electricity, gas bill or speeding, parking fines.”

Further down the screen, however, (behind the ‘Warning About Borrowing’ shaded out tab), is the legal disclaimer (required by the National Consumer Credit Protection Act): “Talk to your electricity, gas, phone or water provider to see if you can work out a payment plan.”

Adam Mooney, chief executive of Good Shepherd Microfinance, said that the targeting of young people for these types of loans was a fast growing industry.

“The type of advertising we’re seeing is becoming much more slick; and the MoneyPlus ad is very brazen – literally in your face, cash flying about. They’re saying, ‘Come to us, it’s easy. Leave now, pay later, and everything will be okay.’

“The unintended consequence of the responsible lending code has been overcaution by banks, who are now moving even further away from customers on low incomes.

“Couple that with overall under-employment, and more people in the causal workforce who don’t meet bank credit requirements, and we’re seeing a lot of opportunists coming into the market. Payday lenders are seeing a golden opportunity.”

Mr Mooney said that 80 per cent of customers who used the Good Shepherd’s zero-interest loans were able to realise ‘economic mobility’. These people were able to fight their way out of financial hardship and welfare dependence to some position of stability.

Chief Executive Officer for the National Credit Providers Association, Phil Johns, said, on behalf of the lenders, that ASIC would have already weighed-in if there was anything wrong with the ads.

He made the argument that the debt payment programs offered by utility companies were inadequate to debtors needs. It was therefore incumbent on lenders to step in to take the risks others won’t.

“Small and medium amount credit contracts are the most heavily regulated credit products in the country,” said Mr Johns. “It takes more work at law to write a loan for under $2000 than a bank has to for a $50,000 loan – such are the requirements these days.

“If that’s what customers are coming through the door asking for credit for, (referring to high interest payday loans) that’s not the fault of the lender – it’s a social issue that hasn’t been resolved.”

Mr Johns then went on to defend the practice of taking out multiple back-to-back loans: “It’s vastly cheaper for the consumer to have 12 x $100 loans over the course of the year than one $1200 loan.

“Those who say it’s bad for consumers are simply bad at maths. Most consumer advocates and a lot of politicians grossly underestimate the intelligence of consumers.”

If consumers were as smart as Mr Johns makes them out to be none of them would need payday loans in the first place.

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