Wrapped in debt: Australians urged to watch debt sharks during Christmas, study

Need an urgent loan to stock up on Christmas gifts for friends and family? New research by Monash University reveals social media users should be wary of payday lenders using cunning tricks online to prey on cash-strapped Australians.

Studies conducted by Dr Vivien Chen at Monash Business School’s Department of Business Law and Taxation, shows the rise of digital platforms has significantly increased consumer access to payday loans – and not in a good way.

Dr Chen said payday lenders are blending the “sell” with advice on good budgeting through blogs and expert commentary, blurring the risks and consequences of these loans, particularly for young people.

While ASIC warns against this practice, Dr Chen said it continues unabated and without any real penalties for lenders who engage in this activity.

“On Facebook, for example, payday lenders have many followers and fun social media profiles. Their posts include finance tips, cute pictures and they engage in socially-responsible activities. Yet among these posts, the lenders promote their loans,” Dr Chen said.

“It is likely that some consumers are more emotionally susceptible to payday lenders’ advertising when they are viewing their friends’ social media posts, which might include images of recent travel, family gatherings or personal achievement.

“At times like this, the offer of a payday loan to fund a holiday might seem very attractive – particularly when the lender appears to be helpful, friendly and responsible.”

Payday loans, or small amount credit contracts, are offered to consumers for amounts of up to $2000. The term of the contract can be from three months up to two years, in some cases. But, the credit provider is not an authorised deposit-taking institution, such as a bank.

In Australia, online payday lenders often promise money in your bank within an hour of approval – generally with no credit or background checks.

Last year, the average Australian spent $573 just on gifts for their family, friends and workmates, and total of $1350 when factoring in Christmas food, drinks and travel.

A short-term loan of $1400, repaid over six months could cost consumers more than $2000 by the end of the financing term, including account fees and annual percentage rates set by the lenders.

Despite the dangers associated with payday loans, more than 1.77 million Australian households took out 4.7 million individual loans between April 2016 and July 2019 worth an approximate $3.09 billion, according to a report by the ‘Stop the Debt Trap Alliance’ – a coalition of more than 20 consumer advocate bodies.

A decade ago, just 5.6 per cent of payday loans originated online; by the end of this year, that figure is expected to jump to 86 per cent.

“The image of payday lenders as ‘trusted friends’ when you’re in need is at odds with observations of the recent Senate inquiry of predatory conduct towards vulnerable consumers,” Dr Chen said.

Dr Chen said payday lenders needed to be held accountable for where and how they place consumer risk warnings on their websites, as existing laws do not require risk warnings on social media sites. As a result, the risks associated with payday loans could be more effectively communicated to young adults.

“Warning hyperlinks are obscure, typically located in the midst of other links to miscellaneous information at the bottom of payday lenders’ homepages. As people scroll to the bottom of the homepage, they are presented with significantly more eye-catching, visually appealing advertising before the warning hyperlink becomes visible,” Dr Chen said.

“Millennials are often thought to be visual and experiential learners. The use of videos to explain the risks visually – how debt spirals happen, the consequences of having a poor credit rating, and hearing borrowers recount their experiences – may be more effective than the written warnings required at present.”

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