Tuesday, July 11, 2006

Welcome to Queensland, Australia: A loan shark's paradise.

That's what columnist Patrick Lion of the Courier-Mail calls the Australian province, where one can pay $16,000 in fees over the course of a year for $1,000 payday loans.

The most astonishing fact about this example is not the crippling way the monthly interest rate compounds to a 1,600 percent annual rate.

It is that the State Government, through the Office of Fair Trading, has done nothing to stop thousands of Queenslanders from being ripped off by these rates since the fast payday loan industry exploded in 1998.

According to Lion's op-ed piece, the Courier-Mail contacted Fair Trading Minister Margaret Keech's office last month for a story on the industry. She said she was in the process of reviewing whether to introduce a cap similar to New South Wales and Victoria, where rates are limited to about 48 percent.

Incredibly, Queensland has no cap and the highest known rate offered is 1,600 percent. Yet the promise of a review is likely to be just another example of the considering, investigating and stalling that the Fair Trading office has become known for over an eight-year span in which Queensland has become a hotbed for faxless payday loans.

Even Keech admits she has been looking at the issue since taking office in February, 2004. According to newspaper archives, former ministers Judy Spence and Merri Rose promised reviews as far back as July 1998. Moreover, a report in August 2000 projected a tenfold growth in the burgeoning industry in upcoming years.

So why has nothing been done in eight years, especially as other states have introduced rate cap protection? Excuses have been plentiful, action has been little.

Keech argues that before her term in 2001, Rose brought Queensland lenders under the national Uniform Consumer Credit Code, forcing them to give all borrowers written loan details. But another pile of paperwork for consumers to wade through is not real help when crippling rates, fees and charges are still ever-present.

• As financial planners tell people trying to save their money, you don't know the incredible magic of compound interest until you start investing.
• Just ask a loan shark who has lent someone $1,000 and, if repaid over the course of a year, would receive a $15,000 profit.

Keech argues her review has taken almost two and a half years for a number of reasons, including not wanting to move on the issue so quickly as to force the industry into a black market. Keech also says she is considering the needs of both lenders and consumers because the lenders have to still be viable to offer these ridiculous personal loans.

These excuses cannot hold water for much longer. The Office's primary focus should be to protect the consumer, and in eight years that hasn't happened.

This entry was posted on Tuesday, July 11th, 2006 at 9:27 am and is filed under International.