Are personal lenders dodgy?



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The personal lending sector has had a chequered history, but the authorities have taken steps in recent years to better protect consumers.

Personal lenders must abide by the National Credit Act, which began on 1 July 2010, and are regulated by the Australian Securities & Investments Commission (ASIC).

Since 1 March 2013, there have also been new laws affecting loans of $2,000 or less.

It is now illegal for personal lenders to ask for loans of $2,000 or less to be repaid within 15 days.

Furthermore, personal lenders can’t charge interest on loans of $2,000 or less and have limits on how much they can collect in fees and charges. That includes:

  • A one-off establishment fee of up to 20 per cent of the loan amount
  • A monthly account-keeping fee of up to 4 per cent of the loan amount
  • A government fee or charge
  • Default fees or charges of up to 200 per cent of the loan amount
  • Enforcement expenses if the borrower has to be chased for the money

 

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Repayment amounts are capped

The new laws that were introduced in March 2013 also affected larger loan amounts.

For loans between $2,001 and $5,000 that have a loan term between 16 days and two years:

  • Fees are limited to a one-off fee of $400
  • Interest rates are limited to 48 per cent (including all other fees and charges)

For loans greater than $5,001 or with loan terms longer than two years:

  • Interest rates are limited to 48 per cent (including all other fees and charges)

Loans must meet the borrower’s requirements

Personal lenders can’t operate unless they’re licensed with ASIC.

The National Credit Act also forbids personal lenders from issuing loans that don’t meet the borrower’s unique requirements or that would put the borrower in a position of hardship.

Before issuing a loan, personal lenders must do three things:

  • Make reasonable inquiries about the borrower’s financial situation
  • Take reasonable steps to verify the borrower’s financial situation
  • Decide whether the credit contract is “not unsuitable” for the borrower
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