Credit Where Credit Is Due

Nov 03 2016

Credit Where Credit Is Due: NCPA

It is a rare journalist who takes the time to truly understand the Australian small loans industry.and the problems it currently faces.  Christian Edwards, journalist for Australian Banking and Finance, has published today a well researched and constructed article that has not relied upon the use of the derogatory term "payday lending" just to create a sensationalist headline.

Chirstian's article, highlights that, "The National Credit Providers Association (NCPA) is struggling to advocate a fair and true articulation of the cost of taking out a small loan (bolding added) - a credit product used by a million Australians - in the wake of the Government Review of Small Amount Credit Contracts (SACCs). Widely misdiagnosed as the banned and panned “payday loans”, continues Christian, "a SACC is a small loan payable between 16 days to a year - the concept of lending against payday was made illegal in Australia in March 2013."

The article discusses the critical concern of the NCPA at the goverments proposal to impose the use of an Annual Percentage Rate (APR) to supposedly help consumers compare the cost of a loan from one lender against another lender.  CEO Phil Johns, the article notes, "is imploring the government to use “common sense when it comes to a new ruling” regarding the use of the APR as a tool to calculate the cost of a small loan."

“We agree", continues Johns, "that consumers need to understand the cost of credit, but APR is perhaps one of the most confusing ways to communicate it, especially when the life of the product is always less than one year.....Current legislation in Australia bans charging interest on small loans so it makes little sense to introduce a measurement on a product that legally cannot charge interest in the first place."
"According to NCPA", the article notes, "APR’s simply cannot describe the cost of a loan repaid in under 12 months because small amount loans are not designed for long-term use."
The article further provides a list of what NCPA sees as the important information that is needed to understand the true cost of a small loan (SACC).
"NCPA recommendations for SACC consumer communication:
  1. The exact amount that will be needed to repay the loan (i.e. the total of the loan amount and all fees and charges).
  2. The total number of payments, when payment is required, and how much each payment will need to be to repay the loan.
  3. The true cost of the loan, which is the difference between the total expected repayments and the amount borrowed."

 The full article in AB+F can be read here.