“Do not over-commit on high-interest loans”: social groups urge people in difficulty

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WELLNESS organizations are warning cash strapped people to resist the lure of a quick financial fix from “payday” lenders offering short-term, high-interest loans.

WELLNESS organizations are warning cash strapped people to resist the lure of a quick financial fix from “payday” lenders offering short-term, high-interest loans.

But some lenders have come out in defense of their industry, saying they are helping low-income people when no one else will.

Cranbourne Information and Support Services General Manager Leanne Petrides said some people who turned to payday lenders did not understand the contracts or the massive interest and fees they would end up paying. Fighters could avoid the spiral of debt with interest-free loans through social organizations.

“Often times the budget gets even more out of control with the fees associated with (payday) loans, and some people end up buying goods from pawn shops or taking out other payday loans,” said Ms. Petrides.

Susan Magee, executive director of Casey North’s community information and support service, said the service sees the impact of payday loans every day, with up to 80 new families a month seeking emergency relief.

“A lot of these people rely on payday lenders,” Ms. Magee said. “Our financial advisors routinely see clients in extreme financial difficulty, often caused by the impact of interest on payday loans.”

Windermere senior housing worker Sarah Truscott warned that high reimbursements left families with few essentials, forcing them to rely on underfunded welfare agencies for relief.

Rita Battaglin, the Pathways and Support Services Manager at the Springvale Community Counseling and Counseling Office, said financial advisers are seeing more and more people accessing payday loans to cover basic expenses.

“They tend to have no choice but they end up going from paying off to a new loan to cope with the rent next month, so it’s just this spiral with the fees piling up,” he said. Ms. Battaglin said.

“People don’t seem to understand the scope of what they’re getting into.”

Cashmart Dandenong director Simon Akie said short-term lenders have been misrepresented.

“I’ve been in this business for 25 years and believe it or not, I’m here to help people,” Mr. Akie said.

“We do more good in the community than all these social organizations put together, helping people financially.”

Mr. Akie said short-term loans incur a 20 percent start-up fee and an interest rate of 4 percent per month.

Good Money Dandenong sees the financial difficulties caused by payday loans daily.

National Director Andrew Knight said that with annualized interest rates of around 240%, taking out just one of these loans could leave a borrower without enough money to pay for living expenses.

“Most of the residents of Dandenong who take out payday loans do so because they have been excluded from the traditional credit market and think these loans are their only option, but many would be eligible for an interest-free or low-interest loan. Mr. Knight said.

Good Shepherd Microfinance Managing Director Adam Mooney said providers like Good Money Dandenong provide a vital service to low-income people.

“Payday loans are the fastest growing part of Australia’s financial services industry, but these products are simply not suitable for low-income people,” he said.

Salvation Army Dandenong Captain Stuart McGifford said his financial advisers have noticed that payday lenders are increasingly being used to deal with unpaid debts, some caused by gambling, which, given of the “outrageous and abusive interest rates” involved, only made the problem worse rather than solved.

Club Money chief operating officer David Thorsby-Ross said his organization only lent money to people who could afford it.

Cash Converters National Marketing Director Glen Donaldson declined to comment.

*Facts:

Cash Converters reported in February that personal loans rose 25.5% to $ 23 million and cash advances rose 7.7% to $ 24.2 million.

In fiscal year 2013-14, Money3’s high interest loans jumped to a total of 33,724

The Australian Securities and Investments Commission (ASIC) estimates that $ 400 million in payday loans were taken out in the 12 months to June 2014, a 125% increase since 2008

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