This was published 8 years ago
ASIC prompts Credit Corp to drop short-term lending
By Shaun Drummond
Debt collector Credit Corp is pulling out of short-term lending just two years after it entered the market, blaming the corporate cop for unfairly demonising the whole sector as pay day lenders.
The $430 million company is one of four listed companies that have offered small amount credit contracts (SACC). Legislation defines these SACC loans as amounts under $2,000 for terms up to 12 months. The maximum interest that can be charged is equivalent to 68 per cent a year.
Thomas Beregi CEO of Credit Corp said ASIC is forcing out reputable operators by naming short-term credit contracts pay day loans.Credit: Nic Walker
But it will no longer offer such loans from February. Rivals Money3 and Thorn Group have also pulled out of pay day lending, leaving just Cash Converters and smaller private operators. Cash Converters has said its performance is likely to improve because it will soon have no competition.
Credit Corp chief executive Thomas Beregi said its shareholders and employees no longer want to be tarred as a pay day lender, even though it said it is a responsible lender providing much needed reputable competition in the market. He said its fees are half the allowable caps.
"We don't issue any pay day loans. Our product is very heavily differentiated," he said. "Our average term is six months and the fees and charges are well below the caps."
"It was ASIC's use of the term pay day loan in its report 426 [released on March 17]. Prior to that it was very well established that the definition of a small amount credit contract is 16 days to 12 months in an amount under $2,000. Pay day loan was a subset of that, which applied to loans of no more than 90 days' duration.
"The term pay day loan is quite disparaging. Everywhere around the world it is defined as a much shorter term loan – the repayments are high and rarely affordable, at an average of around $229 a fortnight."
Pay day loan ban
It is understood Credit Corp's payments provider, Visa, advertisers and Google have refused to deal with Credit Corp because they have policies banning working with pay day lenders.
He sees true pay day loans as unsustainable because repayments are too high, forcing borrowers to take out extra loans to pay off the original loan.
Credit Corp loans are for a minimum of four months, with repayments amounting to about 5 per cent of disposable income.
Credit Corp's debt collecting business amounts to about $1 billion in loans. It started offering its own short-term loans after changes to legislation in July 2013 aimed at encouraging more competition in the industry. It now has a SACC loan book of about $13 million out of a total of $100 million in loans. It says pulling out of SACC loans will not be material to its revenue and it will continue to offer loans above $2,000 and longer than 12 months.
The company's share price reached a high of $13.51 on July 28. It has since fallen 31 per cent to about $9.28.
In a submission to the government's review of SACC rules, Credit Corp has suggested pay day loans be clearly defined as loans of less than 90 day terms and should explicitly ban more than one or two such loans.
He said 85 per cent of SACC loans have terms of fewer than 90 days because these are the most profitable. But they have a bad name because they can force borrowers into a "debt spiral".
Mr Beregi hoped the government's acceptance of the Murray inquiry's recommendation that ASIC be required to consider the impact of its decisions on competition would prevent similar decisions in future.
A spokesman for ASIC said Credit Corp's pulling out of payday loans is a commercial decision for them.
He said ASIC uses the term "payday loans" because that is what ordinary consumers call this product. "Small amount credit contract is a defined term within the National Consumer Credit Protection Act 2009 that most consumers would not be familiar with," he said.
He said they had noted that payday lenders use the term payday loans in their Google advertising, including Credit Corp, which he said used it in its ad for Wallet Wizard.
"More broadly, ASIC recognises the role of payday loans - we simply want better standards from lenders so consumers don't come off second-best," he said.