Small Amount Credit Contract Reforms: Have Transparency and Competition Concerns Been Forgotten?
Gill North, ‘Small Amount Credit Contract Reforms: Have Transparency and Competition Concerns Been Forgotten?’ (2017) 25 Competition & Consumer Law Journal 101
23 Pages Posted: 5 Jan 2018
Date Written: January 1, 2018
The final report of the review of small amount credit contract law in Australia was released in March 2016 and the Coalition Government has indicated that it intends to implement most of the review recommendations. This article supports the agreed reforms that seek to enhance consumer protection but argues that additional transparency and competition concerns need to be addressed for these changes to be effective. While the industry’s aspiration to become a respected and mainstream financial services segment is laudable, for this transition to occur, evidence of the following factors needs to emerge: effective price competition, product innovation, the availability of reliable and regular industry data, and significantly higher levels of industry and consumer transparency, including clear disclosure of loan structures, pricing and terms. The article highlights inherent market failures and competitive barriers that arise in small amount short duration consumer loan markets, including significant information asymmetry, behavioural issues, and impediments to competition. It illustrates these by discussing the findings and recommendations of the investigation of the payday lending industry in the United Kingdom by the Competition and Markets Authority. The article concludes that Australia should enact similar policy measures to those adopted in the United Kingdom. Further, it calls for mandatory disclosure of the annual percentage rate of loans and the establishment of an independent industry data series.
Keywords: payday loans, payday lending, payday reforms
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