Payday lenders Cash Converters, Money3 hit as Westpac cuts off finance

A sign outside a Cash Converters store

By AM business editor Peter Ryan Updated Ср 5 авг 2015, 4:23 PM AEST

Cash Converters is one of the payday lenders affected by Westpac's decision.

Giulio Saggin, file photo: ABC News

Westpac has become the last of Australia's major banks to cut ties with the controversial payday lending sector.

The decision by Westpac comes after a lengthy internal review into doing business with payday lenders, which often charge exorbitant interest rates, frequently to vulnerable people.

Payday lenders Cash Converters and Money3 have been told by Westpac they will need to source their funding from other finance providers.

In a statement, Westpac confirmed it was a "commercial decision to exit customers who provide payday lending products".

"[We] will no longer support new customers where we are aware that they provide 'payday' lending products," the bank said.

"We are currently working with our affected customers as they source alternative banking services. We will honour existing contractual obligations as they manage this transition."

Shares in Money3 dived 7.5 per cent while Cash Converters shares plunged 8.6 per cent when Westpac's decision to dump payday lenders hit late yesterday.

Money3 had fallen more than 7 per cent again this morning, while Cash Converters had placed itself in a trading halt.

Money3 confirmed it had received notice from Westpac of the decision to end the relationship "with certain small amount consumer credit providers, including Money3".

"Westpac have committed they will honour all existing contractual agreements with Money3. The existing facility has a 12-month run off period after December 2015," the company added.

While Westpac said the decision to dump payday lenders was pragmatic, it is also protecting its reputation given the bank's policies on corporate social responsibility and increased scrutiny of the payday sector from

the corporate regulator ASIC.

Payday loan providers have been criticised for targeting unemployed and also people in jobs who cannot make ends meet.

Loans that are rolled over, or not paid back on schedule, can sometimes carry annual interest rates that can be in excess of 300 per cent.

Goodshepherd Microfinance offers an alternative to payday lenders, providing low or no interest loans sourced through $130 million in capital provided by the National Australia Bank on a no interest basis.

Chief executive Adam Mooney, a former ANZ banker, welcomed Westpac's decision to dump their relationship with payday lenders.

External Link Peter Ryan speaks with Goodshepherd's Adam Mooney

"We hear daily stories of people who have been caught in endless cycles of debt through very expensive forms of finance. It has an impact at a human level and an economic level," Mr Mooney told the ABC.

"This cycle of debt leads to additional anxiety, resources are held back within the family from food, education and health. At an economic level, it does lead to entrenched poverty."

Mr Mooney said payday clients helped by Goodshepherd had often been caught in a cycle of exorbitant interest rates.

"Prima facie it seems like they're reasonable rates, but when you keep cycling and keep taking that 20 per cent upfront establishment fee on a $2,000 loan, over a year you can end up paying 350 per cent as an effective cost of finance."

Money3 and Cash Converters might now need to seek finance from overseas lenders or international debt markets to fund their payday businesses.

The move by Westpac follows moves by the other major banks including ANZ, the Commonwealth and NAB to cut all exposure to payday lenders.

Posted Ср 5 авг 2015, 10:29 AM AEST


Category: Payday loans

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