Bust on dodgy lenders may bring cheap mortgages

Published: October 19, 2008 - 09:29 PM

By Lesley Coombes

A $71 million Rudd Government scheme will aim to protect Australians who cannot afford to be forced into debt by 'pushy lenders,' the Herald Sun reported Sunday.

The two-stage initiative was agreed on by Premiers and Chief Ministers at the Council of Australian Governments (COAG) meeting in Perth on October 3rd.

“The Rudd Government will crack down on dodgy mortgage dealers and payday lenders under a $71 million action plan to modernise Australian financial services,” the NSW Labor Blog reported.

This plan will help reassure consumers that they are being taken care of in the current global economic whirlwind.

Prime Minister, Kevin Rudd said at the COAG meeting, “These are difficult times and strong regulation is the best protection for all Australians.”

The Consumer Action Law Centre, “a campaign-focused consumer advocacy, litigation and policy organisation” gives free legal advice and representation to all Victorian consumers ill used by their retailer.

The Centre recently took the lender Car and Home Finance to court for a 'reckless lending loophole'. The lender was accused of taking advantage of consumer, Mr Own Hendricks, by having him sign a declaration stating the loan was for business purposes which meant that the 48% Victorian interest rate cap did not apply.

Solicitor Jill Williams said, “The law gives Australians some protections if they take out a loan. But
you don’t get these protections if the loan is for business or investment purposes.”

“The loan is very uncompetitive and unfair. It has an interest rate of 60% per annum, a set up fee of $990 and default interest of an additional 4% per month, or 108% per annum... The loan term was only 4 months, so our client would have to pay back $5,338 on a loan of just $3,500,” she said.

The first part of the $71 million plan will take responsibility for trustee companies while making the existing key credit regulation and the Uniform Consumer Credit Code federal law. These changes will be dealt with in Federal, State and Territory legislation by June 2009 with two years for affected businesses.

The second part of the plan will seek out and stop unfair lending practices by reviewing credit card limit extension offers and state approaches to interest rate caps. The federal government may also regulate reverse mortgages to protect older Australians who decide to use the equity in their home for access to credit. These changes are likely to become Federal legislation by June 2010.

This new scheme will encourage fairer competition amongst Australian credit providers. This means Australians will have a better chance of not only getting fairer interest rates, but the increased competition will ideally encourage cheaper interest rates. Consequently, consumers could ultimately have access to cheap mortgages. Once the scheme is fully implemented, it will become more difficult for credit providers to cheat the consumer. Under this new legislation, Australian consumers can feel safer to shop around and compare home loans and compare mortgages to find the best lender.

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