'fringe Lending Sector' Under Fire

The Age

Saturday May 31, 2008

Ruth Williams

FINANCIALLY vulnerable people are being lured into loans with "excessive" fees and interest rates, the State Government says, prompting a pilot program aimed at reforming the so-called "fringe-lending" sector.

Consumer Affairs Victoria has welcomed a scheme by National Australia Bank and non-bank lender Mobile Finance that will make small loans available to people unable to access credit by other means.

NAB will provide up to $1 million loan capital to Mobile Finance, trading as Money Fast, which will use it to offer unsecured loans for amounts up to $5000 online and over the phone - amounts smaller than those usually lent by the big banks.

CAV is concerned that vulnerable people are turning to fringe lenders who, the department says, often charge interest rates of up to the 48% allowed in Victoria and much more in states, such as Western Australia and Tasmania, where interest rates on unsecured loans are not capped.

CAV director David Cousins said some fringe lenders had displayed "predatory" behaviour towards financially vulnerable people. "These are people who are desperate, on low incomes," he said. "It would be good to see the major lenders responding and developing products which are appropriate for this market."

It is hoped the pilot program, which will run for a year, will show how much it costs a lender to provide small personal loans, and whether such high rates are justified.

An independent advisory group, which includes the CAV, the NSW Office of Fair Trading, RMIT University and CHOICE, will monitor the program.

Money Fast chief executive Justin Hatfield said the comparison rate of the loans was 28.25% over 12 months. NAB says it will break even on the project, while Mr Hatfield said profits would "cover our costs and go back into loan collateral".

The move comes after last year's Affordable Credit Summit, hosted by CAV, and the findings of the Consumer Credit Review in 2006, which called on mainstream credit providers to offer more affordable credit for small amounts.

NAB said the project was an extension of its micro-finance programs, which aimed to "address financial exclusion by helping Australians access fair and affordable financial services."

© 2008 The Age

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