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Westpac under pressure over payday loan link

Payday lender and pawnbroker Cash Converters figured prominently in the ABC’s Four Corners program. Payday lender and pawnbroker Cash Converters figured prominently in the ABC’s Four Corners program.
One of Australia’s most ethically-challenged industries – the payday loan sector – is facing a clean out by regulators as investigations are launched into a string of illegal lending practices.

Revelations on the ABC’s Four Corners program that lenders are dishing out loans to drug addicts and people already in debt have sparked an outcry from community lawyers for credit laws to be tightened.

The Federal Government will review the effectiveness of existing legislation in June, but in the meantime ASIC is investigating claims that three payday lenders have been manipulating credit assessments to approve loans to borrowers with limited capacities to repay debt.

While current laws are supposed to prevent lending to borrowers who are still repaying other loans, several lenders in Melbourne and Sydney appear to be exploiting loopholes to expand their credit volumes.

Payday lenders have a legal obligation to reject applicants who are still repaying multiple loans, but ASIC is now investigating cases where desperate borrowers had taken out more than 10 loans within a year.

The industry is also being called to account for permissive lending policies that have helped heroin addicts to continue feeding their habits.

Pressure mounts on government and Westpac

With the review of lending laws due in the middle of the year, community lawyers are pushing for Federal Government to rein in the industry by tightening restrictions and increasing criminal sanctions.

They are also calling on Westpac to sever its links with the largest players in the industry – Money3 and The Cash Converters.

While the other major banks refuse to provide funding for payday lenders, Westpac is continuing to support their activities with wholesale finance.

The bank boasts on its website that corporate responsibility is not an add-on or an extra to “the nuts and bolts of our business”.

And it goes on to sermonize that “for our business to be genuinely sustainable, corporate responsibility must be part of the very fibre of our company, part of our DNA”.

If this is all true then why is the bank such a vital part of the payday credit market?

Social Ventures Australia decision an embarrassment

Westpac consistently ranks as the most socially responsible bank in Australia.

The latest award received by the bank came from Money magazine in June last year even though it was known then that Westpac was a big backer of the payday lending industry.

The judging panel included the executive director of Social Ventures Australia, Ian Learmonth, who highlighted Westpac’s support for a $100 million scholarship program as “setting a new benchmark in corporate philanthropy”.

It is unclear whether Mr Learmonth and the other judges considered the fact that most banks, led by the National Australia Bank, refuse on principle to have any dealings with payday lenders.

Westpac’s links to payday lending also appeared to count for little in the minds of international judges who ranked the bank among the 100 most sustainable companies in the world last year.

Most Australian don’t like payday lenders

A survey of public attitudes to payday lenders has found that only one in five Australians view the sector favorably.

An alliance of community legal centres and consumer advocates sponsored the national poll.

The survey found 77 per cent of respondents would support legislation that restricted the fees and interest that payday lenders could charge borrowers.

And 83 per cent of people surveyed said they did not approve of payday lenders being able to access the bank accounts of borrowers to ensure that they received priority payment over the customer’s other living expenses.

The sponsors of the survey included CHOICE, the Melbourne-based Consumer Action Law Centre and Good Shepherd Microfinance.

Adam Mooney, CEO of Good Shepherd Microfinance, said the human impact of payday lending was damaging for everyone in Australia.

He advised people in desperate need of financial support to consider taking out a no interest loan that was backed by state governments and the National Australia Bank.

“Instead of paying up to three times the value of a fridge, furniture or bed through a fringe lender, simply pay the cost of the item itself over 18 months with a no interest loan, backed by the Australian and State governments and NAB,” he said.

Author: George Lekakis Financial Services Editor

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