The politics of payday lending regulation in Australia

Abstract

The regulation of payday lending in Australia has recently been reformed. The reforms followed a highly charged and polarised debate between the confl icting interests of consumer and welfare advocates — who argued for increased protection for payday loan borrowers — and the payday loan industry. The debate followed research fi ndings of the adverse consequences of payday lending for low income and fi nancially vulnerable borrowers. We analyse the political dynamic that unfolded and show how the protections proposed to be afforded to payday loan borrowers were reduced in several key respects. Our research highlights several concerns. First, key changes to the original proposals do not take account of the recommendations of consumer and welfare advocates and are more consistent with the views of the payday loan industry. Second, the increased complexity of the fi nal form of the regulation of payday lending creates potential for regulatory avoidance and poses problems for enforcement. Third, policies to reduce reliance on payday loans have not been implemented. The result is new regulation of payday loans that may not achieve the key aim of protecting the most vulnerable borrowers from the harm that can result from these loans.