Almost five years after the introduction of new consumer protections, lenders continue to issue unsuitable loans, the Australian Securities and Investments Commission said.
ASIC’s review of 288 borrowers spread across 13 lenders found two thirds of the loans could be unsuitable, under the National Credit Act.
It included cases where borrowers received more than 50 per cent of their income from Centrelink, or had multiple payday loans.
Australia’s $400 million payday lending sector has more than doubled in size since 2008, and the industry’s two share market listed players, Money3 and Cash Converters, have seen their market values more than quadruple in that time.
ASIC deputy chairman, Peter Kell, said lenders needed to improve their practices quickly, or face court action.
“The payday lending sector is on notice to improve its practices or further enforcement action is inevitable,” he said.
“This is a strong area of focus for us because many of the customers include very financially vulnerable members of the community, people on very low incomes and we want to make sure they are offered the full protection of the law.”
ASIC has issued 13 infringement notices to payday lenders since 2010 and secured refunds worth more than $2 million for 10,000 customers.
In February, one payday lender, The Cash Store, which was bought by Money3 in 2013, was fined almost $19 million over dodgy lending practices.
Kell also said ASIC was closely watching attempts by lenders to get around laws by expanding into other areas like pawn broking or gold buying.
The National Credit Providers Association, which represents payday lenders, said the industry was still working through the complexities of consumer protections issued over the past five years.
But CEO, Phil Johns, said most lenders were acting in accordance with regulations and the industry would continue to work with ASIC to improve standards.
“There is still some way to go before we can say with absolute certainty that the industry has worked through all the complexities of its regulatory environment, but our members are working diligently to ensure consumer protection and compliance are top priorities,” he said.