Australia: ASIC Investigates Payday Lender

Cash Store under investigation in Australia over payday loansThe Australian Securities and Investments Commission (ASIC) is apparently investigating the country’s second biggest payday loans company – The Cash Store – after allegations that it is knowingly lending money to people it knows will not be able to repay it, according to a report on news.com.au.

It is alleged that the credit calculator on the Cash Store website recommends loans even when the income for the potential client is exceeded by their expenses – a charge that is denied by the company. If true, this is something that is forbidden by the National Consumer Credit Protection Act.

In case you are wondering why a loan company would want to lend money to people who do not have enough money coming in to cover even their current expenses, the answer is twofold.

Firstly, the Cash Store can make the use of debt collectors to “motivate” the client into finding ways of prioritizing repayment of the debt.

Secondly, it is able to take advantage of the consumer credit insurance (CCI) that it encourages clients to take out.

While legally this insurance is optional – it contributes an additional amount of up to 3.5% to the loan – the news.com.au report claims that an internal email from a Cash Store executive to staff encourages them to “always” include the insurance with the loan.

To give you an idea of how much money is involved, the Cash Store – which has more than 80 branches throughout Australia – approved short term loans worth more than $8 million in just the first quarter of this year.

It’s not the first time that this company has come under fire: it attracted the wrath of consumer and legal groups after a stunt where it delivered flyers at Christmas-time that promised ‘Holiday Money’ of ‘at least four hundred dollars’ and implied that the money was pre-approved.

You can find the full story here.

Philip

5 Comments

  1. Consumer credit insurance – it sounds like a scam! And it really sounds like a scam the way they are playing it, giving loans to people who can’t pay them back and going after the insurance companies instead. The person who really loses out in the end is the shareholders of the insurance company. That may sound like a bunch of rich people, but unfortunately it’s not, considering that the 401k that many people pay into today are betting with such an idea nad spred over similarly unstable stocks in the market.

  2. All of these predatory lending systems should be outlawed. I can’t believe theses companies aren’t run out of town ahead of pitchforks and torches.

  3. Wow, the Cash Store is really pushing the market around, I didn’t realize the extent of their fraud. 8 billion dollars in just one quarter? That’s a huge amount of poorly planned, unstable loans that are threatening Australia’s economy. I know that the law doesn’t want to step on independent business too much as it’s just a wild animal to try to control, but if they don’t get this under control it could have serious repercussions for all of these people’s buying power and the revenues of other consumer businesses in the *very* near future.

  4. I’m not sure how these companies manage to still exist. I guess there are enough loopholes in the law system and they are smart enough to take advantage. Unbelievable!

    • That’s just it – they try to get around the law without breaking it. The authorities try to bring in new laws to control it, but that takes time, and then they find a way around the new law.

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