Regular readers of Charlie's blog will know that we at CAPE are hardly big fans of Australia's 'Big Four' banks. Their greedy business models and somewhat unsavoury practices leave a lot to be desired, and it's not for no reason that the major banks are in the news for all the wrong reasons.
As vocal advocates of customer-owned banking, and all the benefits that the pure transparency this system can bring, it's not only the big banks that occasionally draw our ire. Payday lenders, which offer short-term loans to those desperate for cash at vastly inflated interest rates, have also attracted their fair share of bad press over the last few years.
Now, one of the most prominent payday lenders, Cash Converters, is on the verge of collapse after another year of heavy losses. But is the controversial lender getting exactly what it deserves?
The firm recently announced announced that in the 12 months leading up to June 2016, it had made a net loss of AU$11.1 million. In addition, it is also under investigation from the Australian Securities and Investments Commission (ASIC), after it was alleged that the company did not comply with responsible lending standards.
The New Daily states that Cash Converters has already had to set aside some $13 million for their fight against ASIC, and the embattled company is facing class actions from other group across the country which are set to cost the firm yet more in huge fines. Cash Converters has not made a profit since 2014, which is perhaps indicative that consumers are finally wising up to their nefarious antics. But why are payday loan lenders so reviled by so many?
Legalised loan sharks?
It's a widely held opinion that lenders such as Cash Converters prey on the vulnerable, such as those on low incomes and others struggling to keep their heads above water, especially when the time comes to pay the rent or bills.
Enormous fees can quickly rack up even on small amounts, leaving you trapped on a slippery slope that's nearly impossible to break.
For example, one of Cash Converters' most popular products, the Cash Advance loan, charges an establishment fee of up to 20 per cent of the loan's original value, as well as a four per cent monthly fee on the opening balance which is charged every month until every dollar is paid back, including the 20 per cent 'application' fee loaded up front. Thus, enormous fees can quickly rack up even on small amounts borrowed, leaving the customer trapped on a slippery slope that's nearly impossible to break out of, leaving them worse off than they were before.
At CAPE, we don't want you to take the risk with payday loan lenders. As a customer-owned bank, we look after the welfare of everyone involved with us, so if you need to borrow money, be sure to check out our options first.