By Richard Scott,
, August 2008
Watch out, loan sharks! A national regulation being touted could wipe out dodgy lending practices in Australia. Superannuation and Corporate Law Minister Nick Sherry recently announced that the federal government will assume responsibility for the regulation of all consumer credit in Australia. Previously regulated by states and territories, the Council of Australian Governments (COAG) has agreed on a national takeover.
This will hopefully see a more efficient and responsive regulation of products and services such as credit cards, home mortgages and personal loans, including payday lending.
COAG has agreed that the federal government will regulate mortgages, mortgage brokers, non-bank lenders and margin loans.
It is thought national regulation will provide more consistency across the whole country, with less wiggle room for unscrupulous lenders. According to Sherry, previous patchy regulations have allowed certain credit providers to target and exploit people in desperate circumstances, especially those in need of relatively small amounts of money or with bad credit ratings.
The biggest offender in this case would be payday loans. These are basically small loans with short-term repayment, usually your next pay cheque. The problem is that borrowers tend to be hit with hidden fees and unreasonable interest rates, causing them to default and pay even more. Such practices are hard to regulate as companies tend to operate across state boundaries via the internet.
It’s hoped the proposed measures will help protect low-income earners and those struggling with debt from extra fees and unprincipled practices. There will be help for the vulnerable with financial counselling and the explanation of concepts such as basic budgeting and the impact of compounding interest.
Current consumer credit regulation is “failing consumers”, according to CHOICE senior policy officer Elisa Freeman.
“We have to look to national regulation to close loopholes and be responsive to the market as it evolves,” she says.
While COAG has agreed to a national takeover, the new regime will take up to 18 months to implement, according to
Mortgage and Finance Association of Australia CEO Phil Naylor. It is thought likely the single regulatory body will be ASIC (the Australian Securities and Investments
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