Payday Lending – Page 2 – Digital Finance Analytics (DFA) Blog

Queenslanders get access to ‘good money’ for the first time

NAB says two new innovative Good Money community finance stores will respond to the increasing need for access to fair and affordable financial services for Queenslanders on low incomes.

The Queensland Government is supporting the Good Money stores which will be in Cairns and on the Gold Coast. The stores are a three-way partnership involving financial inclusion organisation, Good Shepherd Microfinance, the National Australia Bank (NAB) and the Queensland Government.

Adam Mooney, Chief Executive Officer of Good Shepherd Microfinance said that he was excited to see the expansion of Good Money to a third state – building on the existing three stores in Victoria and one in South Australia.

“Good Money provides access to the award-winning No Interest Loan Scheme (NILS) which provides small loans upto $1,200 for essential goods and services such as fridges, washing machines or car repairs,” said Mr Mooney.

“We’ve been experiencing increasing enquiries from Queenslanders for our services and these two new stores will strengthen the footprint of NILS across the state, complementing the work of the Queensland NILS network which has a presence in around 115 locations.

“The financial conversations our microfinance workers have with clients positively builds confidence and focuses on the best options available. More than 90 per cent of clients feel they’re better able to budget after speaking with Good Money, and 50 per cent of clients who had previously used high cost payday loans said they’d avoid them in the future.

“The Queensland Government is showing national leadership in investing in financial inclusion to build community and family resilience. This is a wonderful new initiative as part of the Queensland Government’s commitment to its Financial Inclusion Action Plan, announced on Thursday this week,” he said.

NAB, a key partner in the development of the Good Money model first introduced in 2012, has committed $130 million in loan capital to microfinance programs nationally.

Michaela Healey, Group Executive – Governance and Reputation at NAB said the bank had a long history of contributing skills, expertise and resources to improving financial inclusion in Australia.

“NAB is committed to financial inclusion – but we realise we can do so much more when we work together with others. Good Money is a great example of what can be achieved when a bank, government and community organisation make a long-term commitment and come to the table with an open mind and a willingness to work together,” said Ms Healey.

“Over the past 11 years NAB has provided more than 138,000 products to help more than 421,000 low-income Australians access appropriate and affordable financial services. The extension of Good Money stores into Queensland is an exciting development that will make the stores’ vital products and services readily accessible to Queenslanders for the first time,” she said.

Communities Minister Shannon Fentiman said battling financial distress can take a heavy toll on health and relationships.

“Quite often people seek solutions that land them even deeper in debt,” she said.

“These stores will provide real alternatives to unscrupulous payday lender and rent-to-buy schemes to make sure people don’t spiral into debt – especially women, who are the fastest growing demographic accessing payday loans,” said Minister Fentiman.

The Good Money stores will offer the following services:

No Interest Loan Scheme (NILS) – Loans of between $300 – $1,200 for essential goods and services such as fridges, washing machines or education expenses
StepUP Loans – Low interest loans of between $800 – $3,000 with no fees and affordable repayment periods
AddsUP – A matched savings plan of up to $500 offered to people who have successfully repaid a NILS or StepUP loan
Affordable insurance – Simple car and contents insurance with flexible payment options
Referrals to other services – Such as financial counselling which provides information and support to assist people in financial difficulty

It is envisaged that the stores will open for business in 2017.

Good Shepherd Microfinance’s national NILS program is also offered through local community organisations in 115 sites across Queensland.

Four reasons payday lending will still flourish despite Nimble’s $1.5m penalty

From The Conversation.

The payday lending sector is under scrutiny again after the Australian Securities and Investment Commission’s investigation into Nimble.

After failing to meet responsible lending obligations, Nimble must refund more than 7,000 customers, at a cost of more than A$1.5 million. Aside from the refunds, Nimble must also pay A$50,000 to Financial Counselling Australia. Are these penalties enough to change the practices of Nimble and similar lenders?

It’s very unlikely, given these refunds represent a very small proportion of Nimble’s small loan business – 1.2% of its approximately 600,000 loans over two years (1 July 2013 – 22 July 2015).

The National Consumer Credit Protection Act 2009 and small amount lending provisions play a critical role in protecting vulnerable consumers. Credit licensees, for example, are required to “take reasonable steps to verify the consumer’s financial situation” and the suitability of the credit product. That means a consumer who is unlikely to be able to afford to repay a loan should be deemed “unsuitable”.

The problem is, regulation is just one piece of a complex puzzle in protecting consumers.

It’s going to be difficult for the regulator to keep pace with a booming supply.Nimble ranked 55th in the BRW Fast 100 2014 list with revenue of almost A$37 million and growth of 63%. In just six months in 2014, Cash Converters’ online lending increased by 42% to A$44.6 million. And in February 2016, Money3 reported a A$7 million increase in revenue after purchasing the online lender Cash Train.

Consumers need to have high levels of financial literacy to identify and access appropriate and affordable financial products and services.The National Financial Literacy Strategy, Money Smart and Financial Counselling Australia, among other providers and initiatives, aim to improve the financial literacy of Australians, but as a country we still have significant progress to make. According to the Financial Literacy Around the World report, 36% of adults in Australia are not financially literate.

The demand for small loans is high and yet there are insufficient supply alternatives to payday lending in the market.The payday loan sector dominates supply. Other options, such as the Good Shepherd Microfinance No Interest Loan Scheme (NILS) or StepUP loans, are relatively small in scale. As we’ve noted previously, to seriously challenge the market, realistic alternatives must be available and be accessible, appropriate and affordable.

Demand is not likely to decrease. People who face financial adversity but cannot access other credit alternatives will continue to seek out payday loans.ACOSS’s Poverty in Australia Report 2014 found that 2.5 million Australians live in poverty. Having access to credit alone is not going to help financially vulnerable Australians if they experience an economic shock and need to borrow money, but lack the economic capacity to meet their financial obligations.
Social capital can be an important resource in these situations. For example, having family or friends to reach out to. This can help when an unexpected bill, such as a fridge, washing machine or car repair, is beyond immediate financial means. Yet, according to the Australian Bureau of Statistics General Social Survey, more than one in eight (13.1%) people are unable to raise A$2,000 within a week for something important.

Coupled with regulation, these different puzzle pieces all play an important role in influencing the entire picture: regulators and regulation; the supply of accessible, affordable and appropriate financial products; the financial literacy and capacity of consumers; people’s economic circumstances; and people’s social capital.

Previous responses to financial vulnerability have often focused on financial inclusion (being able to access appropriate and affordable financial products and services), financial literacy (addressing knowledge and behaviour), providing emergency relief, or regulating the credit market. Dealing with these aspects in silos is insufficient to support vulnerable consumers.

A more holistic response is needed: one that puts the individual at the centre and understands and addresses people’s personal, economic and social contexts. At the same time, it must factor in the role of legislation, the market and technology.

The Turnbull government recently committed to “creat[ing] an environment for Australia’s FinTech sector where it can be internationally competitive”.

With more online lenders coming, it’s important we work towards strengthening people’s financial resilience.

Improving the financial resilience of the population, coupled with strong reinforced regulation, will help to protect financially vulnerable Australians from predatory lenders.

Authors: Kristy Muir, Associate Professor of Social Policy / Research Director, Centre for Social Impact, UNSW Australia; Fanny Salignac,
Research Fellow – Centre for Social Impact, UNSW Australia; Rebecca Reeve, Senior Research Fellow, Centre for Social Impact, UNSW Australia

Payday lender Nimble to refund $1.5 million following ASIC probe

Following a significant ASIC investigation, payday lender Nimble Australia Pty Ltd (Nimble) will refund over 7,000 customers more than $1.5 million after ASIC had concerns that Nimble was failing to meet its responsible lending obligations.

ASIC identified significant deficiencies in Nimble’s compliance with the responsible lending laws when providing loans of short duration to consumers.

ASIC’s probe found that:

Nimble had not properly assessed the financial circumstances of many consumers before providing them with loans. Nimble relied on algorithms which did not properly take consumers’ financial information into account.
Nimble failed to consistently recognise where consumers had obtained repeat loans from payday lenders within a short period of time. Even where repeat loans were properly identified, Nimble did not take sufficient or appropriate steps as required by law before providing a loan to the consumer.
Nimble failed to make proper inquiries of consumers’ requirements and objectives, and inquiries that were made were of a general nature and resulted in not enough information for Nimble to fully understand the consumer’s needs.

‘This is a significant outcome for financially vulnerable consumers,’ said ASIC Deputy Chair Peter Kell.

‘This outcome is a further example of ASIC’s strong focus on the payday lending sector. This remains a high priority area for ASIC, and we expect the industry to continue to lift its game.’

As part of its undertaking to ASIC, Nimble is required to:

pay more than 7,000 consumers in excess of $1.5 million through a consumer remediation program overseen by Deloitte Touche Tohmatsu;
make a $50,000 contribution to Financial Counselling Australia; and
engage an independent external compliance consultant to review their current business operations and compliance with the consumer credit regime and report back to ASIC.

Consumers should expect to be contacted shortly as the remediation process must be completed within six months.

ASIC encourages all participants in the consumer credit industry to take note. All credit licensees need to consider the individual situation of each borrower. Further, automated processes need to be rigorously and continually tested to ensure that the licensee who uses them is complying with their responsible lending obligations.

Consumers who believe that they entered into an unsuitable loan with Nimble are encouraged to contact Nimble in the first instance. If they are not satisfied by Nimble’s response, consumers can lodge a complaint with the Credit and Investments Ombudsman. ASIC’s MoneySmart website has useful guidance on how payday loans work and alternative credit options.

ASIC acknowledges that Nimble has made significant changes to their system and processes since the ASIC investigation commenced.

Download the Enforceable Undertaking

Payday lender penalised for overcharging consumers

Following ASIC intervention, Fair Go Finance Pty Ltd has paid $34,000 in infringement notices for overcharging interest and establishment fees on payday loans. Fair Go Finance will also refund approximately 550 consumers around $34,500 for the interest and fees it collected from consumers in excess of the maximum amount allowed under the National Consumer Credit Protection Act 2009 (National Credit Act).

An ASIC investigation into Fair Go Finance’s ‘Flexi Loan’ product identified that the loans were set up in a manner that attempted to avoid the protections offered to consumers under the National Credit Act.

Although the credit contracts stated the loans could be repaid over a three year period, in practice the consumer was required to repay the loan over a substantially shorter period (which could be as short as 19 days). Consumers were also charged a default fee if they failed to meet the shorter repayment terms.

ASIC identified that Fair Go Finance charged establishment fees of more than twice the 20% maximum allowed. Furthermore, in a number of instances the total amount repaid by consumers over the term of the loan exceeded the maximum amount allowed under the National Credit Act.

Following ASIC’s intervention, Fair Go Finance withdrew the Flexi Loan product.

‘Some payday lenders are still attempting to avoid key protections for consumers of small amount loans,’ ASIC Deputy Chair Peter Kell said.

‘ASIC will continue its focus on the payday lending market so that vulnerable consumers are not denied important protections under the law.’

ASIC acknowledges Fair Go Finance’s co-operation in this matter. Fair Go Finance is taking action to repay consumers and ensure its staff are aware of their responsibilities under the National Credit Act. An external compliance consultant has also been engaged to undertake a review of Fair Go Finance’s business operations and to report back to ASIC.

Women are increasingly using payday loans, at growth rates above system

New DFA research shows that women who are most vulnerable and under the most significant financial pressure are most likely to access payday services. Those that do are quite likely to take multiple loans.

DFA, in conjunction with Monash University published a report on households in financial stress last year using data from our household surveys. It was cited by ASIC in their review of debt advice services, published yesterday.

We have now completed an extension to the analysis, commissioned by Good Shepherd Microfinance, looking in particular at how women are using payday loans. This analysis is relevant to the SACC review currently underway. Payday lending is defined as loans of $2,000 or less for terms between 16 days and 12 months, in accordance with the National Consumer Credit Protection Act 2009 definition of a small amount credit contract.

Our analysis reveals that women are increasingly using payday loans, at growth rates above system. This is explained partly by a low initial penetration rate, greater financial need and autonomy, and greater availability and ease of online loans. We expect these growth rates to continue.

Not all women are equally likely to access payday loans. Those in challenging financial situations, with sole charge of children are most likely to use this form of credit, and often do so as a form of emergency cash for household expenses. Solo women without children are less likely to use payday loans, and when they do, it tends to be for a specific purpose such as car repairs. Finally, the behaviour of women in family units is closely aligned to the general population, and the decision to access payday is often either a joint decision or delegated to another family member.

1. Are women increasingly using payday lending in Australia?

The short answer is “yes”; women are using payday lending more. In 2005 about 84,000 women had used payday lending, but this had grown to 177,000 in 2015, a 110% rise compared to growth in the total industry in Australia of 80% over the same period. Transactions initiated by women as the decision maker, whether in a family or other context, comprised about 27% of all payday loans in 2015.

Our analysis segments Australian households into various groups in order to identify those that are financially stressed (with a subset defined as financially distressed).

Financially stressed households are generally coping with their current financial situation (even if using unconventional means), while financially distressed households are not. By coping, we mean for example, short term borrowing from family, friends, or payday loans, as well as juggling multiple credit cards, moving debts from one credit source to another and deliberately making late payments. The distinction between financially stressed and financially distressed households is important, because the spectrum of financially stressed households in Australia using payday lending facilities has broadened significantly since 2005. During the period of analysis (and as shown in our original report) the rise in loans to financially distressed households grew only slightly, but there was a significant rise in the volume of loans made to financially stressed households. These classifications of households are, of course, dynamic, with financially stressed households moving into a position of distress and vice versa.

Across the general population, the average size of an individual payday loan fell between 2005 and 2015 from $776 to $611. Yet if we look at payday loans to women, the average loan made rose significantly from $427 in 2005 to $592 in 2015.

There are a number of reasons that may explain this. First, the proportion of loans to women has increased between 2005 and 2015. Second, more independent women are getting loans. Third, lenders have changed their lending criteria. Fourth, women have greater need of financial assistance and are borrowing more. Further research would be required to determine which of these factors have been most influential.

We conclude that women are more likely to use a payday loan today. They are able to access funds on-line, with lenders using on-line channels to attract households in less severe financial difficulty.

Some women in financial need have limited alternate options. We explore this later.

2. What are the household characteristics of women who use payday lending in Australia?

To answer this question, we have identified three discrete groups within which women may reside. Each has different drivers and needs, and uses payday lending to different degrees. This segmentation is based on analysis from our household surveys and is tailored specifically for this paper.

Using this segmentation, we can now overlay the payday lending data statistics from our surveys.

Of those women using payday lending in 2015, 47% came from the one-parent family segment, a much higher level than the 15% distribution of households with a single female parent across the general population. Conversely, while 64% of the general population falls within the family segment, the percentage of women using payday loans from this segment was only 36%.

3. How are women using payday lending in Australia?

Segmental analysis shows that one-parent women are more likely to have multiple loans over the last twelve months, compared with other female segments and the general population. Conversely, single women without children are most likely to have just one loan (87%), compared with general population (62%).

We find that one-parent women are more likely to have multiple concurrent loans, compared with other female segments and the general population.

On-line origination has become a predominant industry feature, and one-parent women are now the most likely segment to use this channel, thanks to the emergence of easy to use on-line apps.

We found broadly similar patterns of awareness of payday lending across the various segments, although families with a single female parent were far more likely to use a local shop or lender than the average, and were significantly more influenced by friends.

4. What are the motivations and drivers of women using payday lending in Australia?

Our segmental analysis highlights that families with a single female parent are more likely to use payday loans to cover emergency cash for household expenses compared with the general population, or other female segments. Solo women are more likely to use payday loans for car expenses and other one-off items rather than emergency cash scenarios. The family segment mirrors the broader population.

We now turn to the underlying reason why a household is in financial difficulty. A range of drivers is found in the sample. Once again, women in one-parent roles stand out from the general population, as they are more likely to get into difficulty because of a relationship breakdown (25%) and are experiencing a reduction in available government benefits. These women are less impacted by loss of employment than other segments and the general population.

ASIC helps inform payday lending review

ASIC has today put forward a submission to the Independent Review of the Small Amount Credit laws. ASIC’s submission to the review notes that the current rules that apply to small amount loans, also known as payday loans, are a significant improvement over the previous State-based regimes. However, ASIC has identified a number of potential improvements that are worthy of consideration. To inform ASIC’s submission, a voluntary survey was sent to credit licensees who potentially provide small amount loans. Lenders were asked to provide information for the 2014-15 financial year on matters such as the number of applications received and the number of loans approved.

The data received indicates that the industry provided loans of $831 million last financial year, with the average loan size being $568. Over 1.4 million small amount loans were entered into, with the average length of the loan being well short of the 12 months allowed at just 50 days.

total number of contracts = 1,463,331 average length=50 days average loan size = $568

ASIC’s submission also drew on its recent review of industry compliance with the small amount lending provisions with our findings published earlier this year in Report 426 Payday lenders and the small amount lending provisions (REP 426).

Download a copy of ASIC’s submission

How Sheffield City Council is supporting payday loan alternatives

From MoneySavingExpert. Sheffield City Council has recently supported the setup of Sheffield Money, a not-for-profit organisation tackling unfair access to finance. Sally Preece, a support and advice worker for Sheffield Money, explains what’s happening and why.

An emerging trend in the UK today is that an increasing number of people need help with their finances, particularly when faced with unexpected financial challenges.

People are increasingly ignored by mainstream lenders when they need help the most, and as a result are turning to high cost alternatives.

Last year, the debt charity StepChange was contacted by nearly 600,000 people with problem debt. Debt owed on catalogues and home credit is rising, with the second highest level of demand for debt advice coming from Yorkshire.

Sheffield City Council has also identified a need for affordable finance in the city – it found that the following is happening in Sheffield each year:

Around 34,000 people take, on average, two payday loans of £250 for 30 days.
Around 20,000 people borrow, on average, £650 on their doorsteps.
Around 3,000 people borrow, on average, £600 for two years through a weekly payment store.

An innovative alternative to high cost credit

To combat this growing issue, in August this year Sheffield City Council supported the setup of Sheffield Money, a not-for-profit organisation which specifically tackles unfair access to finance.

Sheffield Money offers residents of the city access to competitive loans, Financial Services Compensation Scheme-protected savings accounts, current accounts, lower cost white goods and appliances, as well as money and debt advice.

The organisation doesn’t sell products directly, but instead operates as a broker for existing suppliers with shared objectives such as credit unions, community development finance institutions, and Citizens Advice. These have a similar fair, ethical and flexible approach to finance as well as crucially offering the best rates and incentives for residents of the Sheffield City Region.

There is also a free, specialist money adviser in branch once a week to help people with all things finance, such as budgeting, savings, benefit eligibility, and improving credit scores to ease access to credit in future.

By offering alternatives, Sheffield Money hopes to improve and reduce debt crisis cycles, as well as help customers to start regularly saving in order to create a financial buffer for the future. It also won’t ever recommend a loan to someone who can’t afford it.

Since August, the service has received a great deal of positive attention from local organisations hailing this much-needed alternative to high cost lenders. It has had over 4,000 hits on its website, and almost 600 applications for loans.

Online Access Is Driving Payday Industry to New Heights

DFA has completed detailed analysis of households and their use of small amount credit contracts, a.k.a. payday lending. The analysis, derived from our longstanding household surveys, was undertaken in conjunction with Monash University Centre for Commercial Law and Regulatory Studies (CLARS) and commissioned by Consumer Action Law Centre, Good Shepherd Microfinance, and Financial Rights Legal Centre. The report “The Stressed Finance Landscape” is available here.

We review detailed data from the 2005, 2010 and 2015 surveys as a means to dissect and analyse the longitudinal trends. The data results are averaged across Australia to provide a comprehensive national picture. We segment Australian households in order to provide layered evidence on the financial behaviour of Australians, with a particular focus on the role and impact of payday lending.

We think the overall size of the market is growing, thanks to the rise on online access, and we recently posted our modelling, which we summarise below:

The transference to online channels is linked with a rise in the number of households who, whilst not financially distressed (distressed households are first not meeting their financial commitments as they fall due, and are also exhibiting chronic repeat behaviour, and have limited financial resources available) are financially stressed (struggling to manage their financial affairs, behind with loan repayments, in mortgage stress, etc).

Digital disruption opens the door to new lenders (local and overseas), and makes potential access to this source of credit immediate. The volume of loans is set to increase and more than ever will be originated online. In addition, some digital players offer special member designated areas secured by a password, where special offers and repeat loans could be made away from public sight. Online services are now mainstream, and this presents significant new challenges for customers, policy makers and regulators.

Some of the key points (as summarised by Good Shepherd Microfinance) from the report:

• The total number of households using a payday lending service in the past three years has increased by more than 80 per cent over the past decade (356,097 to 643,087 households).

• All payday borrowers were either ‘financially stressed’ (41 per cent) in that they couldn’t meet their financial commitments or ‘financially distressed’ (59 per cent) because in addition to not meeting their financial commitments, they exhibited chronic repeat behaviour and had limited financial resources.

• 2.69 million households are in ‘financial stress’ which represents 31.8 per cent of all households and is a 42 per cent increase on 2005. Of the households in financial stress, 1.8 million are ‘financially distressed’ (just over 20 per cent of all households) – a 65 per cent increase on 2005.

• The number of people who nominated overspending and poor budget management as causes of financial stress had decreased over the past 10 years (from 57.2 per cent to 44.7 per cent). Unemployment has become a more significant factor with over 15 per cent of households indicating this caused their financial problems.

• In 2005, telephone and local shops were the most common interface to payday lenders. By 2015, more than 68 per cent of households used the internet to access payday lending. Mobile phones and public personal computers (eg libraries) were the most common device used.

• The number of borrowers taking out more than one payday loan in 12 months has grown from 17.2 per cent in 2005 to 38 per cent in 2015 and borrowers with concurrent loans have increased from 9.8 per cent to 29.4 per cent in the same period.

• The top three purposes for a payday loan were: emergency cash for household expenses (35.6 per cent). Emergency cash for household expenses included children’s needs (22.7%), clothing (21.6%), medical bills (15.1%) and food (11.4%). More payday loans are being used to cover the costs of internet services, phone bill and TV subscriptions (7.8 per cent) than in 2005 and 2010.

• Many distressed households (38.7 per cent) were refinancing another debt and 36.8 per cent already had another payday loan when taking out their payday loan. Around half of the households that had used payday lending services indicated they would be willing to take out another payday loan.

• Single men were more likely to use a payday loan (53 per cent) and the average age of the borrower was 41 years old. In the last five years, households in their thirties almost doubled their use of payday loans (16.3 per cent in 2005 to 30.35 per cent in 2015). Only 5.26 per cent of borrowers had a university education. The average annual income of payday borrowers in 2015 was $35,702.

• ‘Financially distressed’ households generally use payday loans either because it is seen as the only option (78 per cent), while ‘financially stressed’ households are attracted by the convenience (60.5 per cent).

How Big Is The Payday Lending Market In Australia?

Given the current Small Amount Credit Contract Laws review is in train, DFA has been looking at the data in our household surveys to try and quantify the potential size, and trends in the market – colloquially known as the payday lending sector. There is no consistent reporting of payday data, unlike other consumer finance statistics, and the industry comprises a number of commercial entities which do not fall within banking regulation or reporting. Whilst the market is small compared with the $40bn credit card industry or the $140bn total consumer credit market, there are signs of growth, especially facilitated by online origination. We won’t rehearse the definitions or pros and cons of these loans, but will present our work on estimating the size of the payday market. This may assist others interested in the sector.

By way of context, there are many and varied estimates as to the size of the market. ASIC in 2013-2014 suggested $400m, and since 2010, ASIC enforcement action has resulted in close to $2 million in refunds to more than 10,000 consumers who have been overcharged when taking out a payday loan. In 2007, an article in the BRW suggested it was $800m, a number offered recently in an article “Making hay from payday loans” by Steve Worthington Adjunct Professor at Swinburne University in 2015.

So to estimate the size, we begin with data from our ongoing household surveys. From this data we can estimate the number and duration of loans being written each year. This is our baseline data and we think about $600m of loans were written in the last full year, to December 2014, a rise from $300m in 2005.

Significantly, if we apply our segmentation analytics on this data, we discover that the type of household accessing payday loans is changing. Whilst we won’t go into detail here, we identify households which are financially stressed, and those who are distressed. The former are primarily being embarrassed by a short term cash crisis, and turn to payday on an occasional basis as a convenient fix often via an online service. Financially distressed households are those with chronic debt problems and were the core constituency of payday lenders a few year back. Of course some households who start out as stressed, slip into distress later.

We have also estimated the future value of new loans by these segments, based on a number of assumptions listed below.

Note this is an indicative model only, and underlying assumptions and therefore outputs, may change. We model future volumetrics based on our baseline household survey data. We gross up the 26,000 per annum reference data to national level, on a statistical representative basis. We assume there will be similar utilisation and debt patterns, at a segment and state level, and overlay expected population and employment growth. We assume population and household growth will maintain current trend levels. In addition, we overlay current online segment profiles, which shapes the mix between both distressed and stressed households, and reflects the rise of online application and fulfillment for Pay Day loans. We project online take up forward, extrapolating from current trends and device usage. We assume the current mix and duration of loans, including multiple loans, continues at current rates. We assume no change in the current payday legislation, and we assume the current levels of availability of other forms of credit, and current lending rules.

We make the following specific assumptions (the DFA model can be flexed using different parameters).

Unemployment at the national level will remain at 6.3% out to 2018 (and current state differentials continue, with rising rates in WA and SA.
Cash interest rates will rise from 2.0% from mid 2016, to reach 3.5% by 2018
GDP will remain at 2.5% to 2018
Core inflation will remain at 2.5% to 2018
Income growth, after inflation will be zero out to 2018

Estimates are rounded up. Based on past performance, we have a confidence level of +/- 1.5% out to December 2016, and +/- 3% beyond to 2018.

Finally though we want to estimate the total market size, so we need to take account of the total stock of loans outstanding, including those refinanced or extended, and those in default. This is significantly harder to estimate accurately. However, we have made an attempt, and we have assumed default rates will continue to run at close to 20% as indicated in our household surveys.

Thus, the baseline market estimate for the current year will be in the region of $670m, and when we include arrears, refinance and other stock adjustments it could be as high as $908m. We think the market will grow to more than $1bn with current regulatory and economic settings, thanks to the significant rise in online origination and the segment shifts. By 2018, we estimate that more than 80% of loans will be taken via online apps and web sites. The chart below summarises all these points.

One final perspective. If we chart the the DFA estimates for payday and the RBA Personal Finance Stock data (d02Hist) from 2005, we see that Pay Day lending growth is accelerating relative to the broader personal finance trends.

Regulation of small amount credit contracts and comparable consumer leases

The Treasury has announced that the small amount credit contract (SACC) laws review panel is seeking views on the effectiveness of the laws relating to SACCs and whether a SACC database should be established. The panel are also calling for submissions on whether the provisions that apply to SACCs should be extended to consumer leases that are comparable to SACCs and, if so, how this would be achieved.

Closing date for submissions: Thursday, 15 October 2015

The review of small amount credit contract (SACC) laws and related provisions in the National Consumer Credit Protection Act 2009 was established on 7 August 2015 to consider the laws applying to SACCs and consumer leases which are comparable to SACCs.

The independent panel is undertaking a period of consultation to seek views on the effectiveness of the laws relating to SACCs and whether a SACC database should be established. The panel are also calling for submissions on whether the provisions that apply to SACCs should be extended to consumer leases that are comparable to SACCs and, if so, how this would be achieved.

The consultation paper can be found here.