Personal Loan Education

05/12/2011

On Friday, the Parliamentary Joint Committee on Corporations and Financial Services, which was inquiring into the changes, found that proposed short-term lending reforms did not strike the right balance between consumer protection and industry viability.

The draft bill caps the costs that will apply to finance contracts of up to $2000 that run for less than two years.

Lenders will be limited to charging an upfront fee of 10 per cent of the total amount borrowed and two per cent each month for the life of the loan. Apart from fees payable in the event of default, the lender cannot apply any other charges. For larger loans, a credit provider is prohibited from entering into a contract where the annual "cost rate" exceeds 48 per cent. Lenders will not be allowed to refinance small amount contracts. The aim is to stop debt rolling over and compounding.

The committee said the evidence presented did not support the proposed fee and rate caps. It recommended that the Government "revisit" the measures and undertake further consultation with stakeholders.

Source: Banking Day