Close watch on ‘predatory’ loans

The Department of Consumer Protection is closely monitoring the activities of several fringe lending organisations that are changing short-term borrowers exorbitantly high rates.

Consumer Affairs Minister John Kobelke has dubbed the as-yet-unnamed lenders “predatory loan sharks”.

The high interest short-term lenders, sometimes called ‘pay day’ lenders, have skirted the state’s consumer protection laws by resorting to the use of promissory notes that are not covered by the consumer protection code.

The new practice was first noticed last year when lawyers at several publicly funded Perth community legal centers noted the existence of the new-style promissory notes that borrowers had signed, thereby agreeing to pay up to 10 times the amounts borrowed.

Western Australia is the second state to have commenced moves against this type of lending organisation.

Victorian Consumer Affairs Minister Marsha Thomson said action was taken last year against a finance company associated with the Henry Kaye National Investment Institute.

“Previously, we have led the way in pursuing changes to the national Consumer Credit Code, for example in improving protection for people who were exposed to predatory interest rates of up to 600 per cent for short-term ‘pay day’ loans,” Ms Thomson said.

Mr Kobelke said he had raised the issue with other state governments last year but was concerned it was taking too long to co-ordinate amendments.

“As a result I have asked the Department of Consumer Protection to advise whether I can take an amendment directly to the state parliament to remove this loophole,” he said.

According to a department background document, WA’s “predator loan sharks” usually lend between $200 and $500, charging an annual rate of about 800 per cent.

“If debtors default they incur interest charges of 5 per cent per day, which can add up to an annual rate of more than 4,000 per cent,” the document says.

Neither the Department of Consumer Protection nor Mr Kobelke’s office would name the lending organisations to WA Business News.

But it is understood that legal action launched by several of these organisations against defaulting borrowers was being monitored and the transactions assessed by departmental experts.

A department officer would not speculate on whether Mr Kobelke would resort to naming the organisations in parliament at a future date.