Bill's Media Releases

Payday borrowers better protected as bill passes Parliament

Borrowers who use payday loans will be better protected than ever before, following the introduction of Australia’s first national cap on payday loans, with passage through Parliament today of the Consumer Credit Legislation Amendment (Enhancements) Bill 2012 (the Enhancements Bill).

Minister for Financial Services Bill Shorten said these reforms will stop loan sharks from exploiting vulnerable Australians: "These laws will place reasonable limits on what lenders can charge. The cap on costs appropriately balances consumer protection while still allowing lenders a return that is commercial.”

“The Gillard Government has moved to reduce the financial harm caused by lenders who ruthlessly impose excessive fees and charges simply because vulnerable consumers cannot obtain alternative access to credit. These reforms continue the Gillard Government's ongoing commitment to deliver a fair go for all Australians," explained Mr Shorten.

“At the same time these laws ensure an appropriate balance, ensuring that important sources of micro finance, such as pay day loans, can continue to operate as responsible and sustainable businesses.”

The Enhancements Bill introduces a cap for small amount credit contracts where the amount borrowed is $2000 or less, and the term is 1 year or less. For these loans the maximum any lender can charge is an establishment fee of 20 per cent of the amount of credit upfront and 4 per cent for each month of the loan. This provides for maximum charges of $72 on a loan of $300 over 1 month. 

The legislation will also introduce a number of other important reforms including:

  • Applying a cap to other credit contracts based on the 48% cap currently in force in some Australian States. The Commonwealth cap addresses the range of avoidance techniques lenders currently have devised to avoid that cap.

  • Responsible lending obligations to address high risk conduct by small amount lenders.

  • For seniors who use reverse mortgages, greater certainty as to future outcomes when they enter into such contracts that the amount they are required to pay cannot exceed the value of the equity in their home (through a no negative equity guarantee).

  • Simplifying the procedures for borrowers to apply for a variation to their repayments on the grounds of financial hardship, as it is in the best interests of both parties to try and resolve these situations as quickly and simply as possible.


"These reforms build on other consumer protection and credit reforms the Gillard Government has already implemented to make lenders behave more fairly. The cap on costs, responsible lending obligations, credit card reforms, and the ban on mortgage exit fees – all demonstrate this Government's ability to deliver significant reforms that are beneficial to borrowers," Mr Shorten said.

Mr Shorten’s Media Contact: Sam Casey 0421 697 660