SYDNEY, March 17 (Reuters) - Australian markets regulator has warned the country’s micro-loans industry to improve their lending practices or face action after it found that some lenders were engaging in risky conduct.
Australian Securities & Investment Commission said in a statement on Tuesday that a review of payday loans had found some lenders breaching lending obligations, and systemic weaknesses in documentation and record keeping.
A payday loan is typically unsecured with a credit limit of A$2,000 ($1,529) or less, has a term of 16 days to one year and is provided by non-bank financial institutions.
“ASIC will use its powers to reduce the risk of payday lenders providing unsuitable loans and to reduce the risk that financially vulnerable consumers get caught in a debt spiral, where new loans are effectively used to pay back old loans,” ASIC Deputy Chairman Peter Kell said in the statement.
Since 2010, ASIC has forced close to A$2 million in refunds to more than 10,000 consumers who were overcharged when taking out a payday loan. Similar penalties could be imposed for breaches of lending obligations.
The regulator said its review also discovered compliance risks around tests for loan suitability, which must be considered when a consumer has multiple payday loans or is already in default. In addition, ASIC found lenders set longer tenure loans to charge higher fees.
Payday loans written for the year to June 2014 are estimated to be around A$400 million, up 125 percent since 2008. They represent about 0.4 percent of the total consumer credit market in Australia.
In comparison, the payday lending industry in the United Kingdom is estimated to be writing 2.5 billion pounds worth of loans, making up about 1.2 percent of the total consumer credit market, ASIC said.
ASCI’s review covered 288 consumer files for 13 payday lenders who account for over three quarters of the industry. ($1 = 1.3082 Australian dollars) (Reporting by Swati Pandey; Editing by Shri Navaratnam)