Payday loans, with their sky-high interest rates and almost immediate due dates, are migrating from pawn shops to the internet as younger consumers seek fast credit.
Industry experts say online short-term loans are booming as they attract wealthier customers than those who might visit a shopfront payday lender.
One lender said the online market could be worth more than $300 million. Traditional shopfront operator Cash Converters grew its online loans by 81 per cent last year to $48.7 million.
"It's big and it's growing at a pace which is unusual in consumer finance, and that is one of the reasons it is attracting a lot of attention," said RMIT researcher Dr Marcus Banks, whose 2012 report Caught Short examined the $1 billion payday loans industry.
The rise is perhaps best showcased by online lender Nimble, which offers quick loans of up to $1200 that can be approved through its website within minutes.
Nimble is hoping to distance itself from an industry often criticised for predatory lending practices and says it does not target disadvantaged customers on welfare. The company's chief executive, Sami Malia, said a typical Nimble customer earned $65,000 and was about 34 years old. There were some borrowers who earned more than $100,000.
"I shiver a little bit when I hear people talk about payday lending, because it has quite a negative stigma attached to it," he said.
Despite this, Nimble's product is similar to many other payday lenders. Borrowers seeking quick cash can get loans of up to $1200 in their bank account within minutes. The company's marketing portrays itself as fun and cool, with quirky television ads and a chatty social media presence.
In an effort to rein in high interest rates, the federal government capped the costs of short-term loans last year. The maximum lenders can charge is a 20 per cent establishment fee and 4 per cent monthly fee.
This means a $1200 loan from Nimble
will incur charges of $288 and must be paid back in as little as 17 days, depending on the payment schedule.
Where people can get into trouble is if they struggle to pay the loan back. Nimble tacks on a $35 dishonour fee as well as $7 a day for tardy payers. These fees are not endless - regulations cap total debts at 200 per cent of the initial loan - but can still leave some struggling to pay.
Ascot Vale landscaper Ashley Lord, 24, took out a loan from Nimble for $400, which grew to $800 when he couldn't pay it back. He said he applied for the loan after being "short on cash" and then seeing the company's ads on television. He believed the 24 per cent interest rate should have been clearer.
"They just make it too easy. Within half an hour I had the money in my account," he said.
Mr Malia said the feedback from a vast majority of Nimble's customers was positive and he did not believe its fees and charges were hidden. "When you go through the application process, there is a table that clearly stipulates the fees and scheduling," he said. After 's inquiries, Nimble offered to reduce Mr Lord's interest rate.
Consumer Action Law Centre chief executive Gerard Brody said he had concerns over how online lenders assess risk.
He said the anonymity and speed of online short-term loans also made them attractive for impulse purchases compared with other forms of credit.
"Some online lenders use marketing like, 'Do you need more cash for a night out or a holiday?' I think that is targeting young people," he said.
Mr Malia said Nimble's risk assessment model was thorough, checking everything from credit history to how someone clicks the mouse when filling out the application form.
"We see the way some lenders behave and we're quite appalled by them, lending money to people who can't repay," he said.
Category: Payday loans