Money is said to be the root of all evil. It probably has a place somewhere in all forms of crime and yet the world would come to a stop without it. It creates conflicting emotions and we both glorify and vilify those whose business is in the money world.
From the beginning of time respect was bestowed on institutions that provided large sums of money for commercial purposes. In today's world we call them "Banks "! They are the place we go when we want to buy a home and we need the mortgage money to make a purchase, or we want to build a factory that employs people and produces consumer goods.
At the other end of the scale there is what is called "Consumer credit "- and that takes many forms. If we need to buy a new car and the asking price is beyond our ability to pay in cash we have a respectable transaction with a finance company. We usually pay a deposit and repay the loan over a period of time by way of regular monthly repayments. Because the object of the loan is secured by what is termed "collateral " the interest charged on that loan is moderate.
Consumer finance also extends to what are termed "personal loans " - which relate to the credit we are allowed on plastic credit cards. We use these for all sorts of purposes - overseas holidays, dining out and those day by day small purchases. Because they are unsecured the interest is much higher than is charged on home mortgages and collateral loans and to a large extent relies on our credit rating as a reliable bill paying citizen.
Unfortunately there is a level of credit need by those who would fail the credit test for consumer credit. In the dim past they were served by the pawnbroking trade. If they had goods to hock the pawnbroker would advance money and retain the item for security. High interest was charged, but the owner could reclaim the item by repaying both loan and interest by a stipulated time frame. Failure to do so saw the hocked item become the property of the pawnbroker.
In today's society this trade has morphed into what is euphemistically called "Payday Loans ". Moneylenders openly advance cash that is supposed to fill a customers empty wallet for the few days before their next pay packet arrives. It is a totally unsecured loan and the government has legislated the interest rates applicable to exercise a degree of control.
This trade has an unsavoury reputation. Missing repayments are rife and some lenders include unpaid balances in new loans, extending the loan content to unpayable levels. Very high interest charges tend to balance profits on the basis that good loans more than cover losses made on bad loans. Often, violence is threatened - and sometimes used - to recover unpaid money.
The government is getting tough on enforcing the legislation that regulates Pay Day loans. One of the leading national providers has just been levied a $ 1.35 million fine for making 118,000 small loans to customers that failed to meet the criteria required under the relevant act. It also ordered refunds amounting to $ 11 million to reimburse customers whose rights were violated by that omission.
Because people needing these Pay Day loans have a low educational standard and lack of budgetting training the government requires that the lender takes verifiable steps to make reasonable enquiries to check customers income and expenses - to determine that these loans can be paid back affordably.
The Australian Securities and Investment Commission ( ASIC ) found that the lender guessed those figures, using an assumed benchmark that had "no real relationship to the real expenses of the individual consumer ".
ASIC has stepped in to guard vulnerable people from the hazards of their own inability to manage their money !
No comments:
Post a Comment