The Digital Age is a Pay Day Lenders Feast

3.00pm | February 26, 2019


“So now, as an infallible way of making little ease great ease, I began to contract a quantity of debt.”

At one time or another we have all felt as Pip did in Dickens’ Great Expectations. Being a consumer in 2019 we are faced with fast fashion, digital innovation and an ease of consumption like never before.  

Spiralling debt is not uncommon, with stagnating wage growth and increased cost of living forcing Australians to turn to credit providers to service financial needs.

With 2.1 million Australians under severe or high financial stress[1] – the impact of credit has never been more important.

That is why I initiated a Senate Inquiry into credit products targeted at Australians in financial stress.

The rise of financial products that offer quick credit are compounding the pressure to spend. Pay day lenders, and consumer leases offer a quick cash injection.

Not all of these products are new to the market. But they are reaching new audiences via online.  15 years ago, pay day loans were issued in shop fronts or over the telephone. Now 83 percent of loans are accessed via a mobile device or computer.

It’s an effective channel.

In just the last few years, 332,000 householders have taken out payday loans for the first time.

Young men and women who would never have dreamed of visiting their local pawn shop are increasingly taking on pay day loans by another name, attracted by modern marketing and a seamless consumer experience that puts a clean new façade on an old, grubby product.

The growth is most pronounced in women. While men still significantly outnumber women as borrowers, the number of women is growing rapidly. Digital Finance analytics calculates that the number of women using payday loans has increased by 22 percent between 2016 and 2018.[2]

With effective annual interest rates running up to between 112.1% and 407.6%, why are these consumers willing to pay so much?[3]
Consumer psychologists are increasingly highlighting the shortcomings in human reasoning that keep financial products like this moving off the shelf as a result of careful marketing campaigns.

The constant stream of ads, carefully targeted at young consumers, leverages the psychological principle of ‘mere exposure’ – where simply becoming familiar with a brand or product can make it seem more attractive.

In the vision presented in the marketing, pay day lending is no longer for the desperate. It’s in fact perfectly normal part of aspirational living.
The reality is, these products are still being used and often targeted at vulnerable people, who are using the credit to pay for dentist visits, electricity cost and children’s needs.

Consumers are not in a fair fight.

When you’re lying on the couch after work browsing online retail, you’re no match for complex pressure selling techniques and highly sophisticated targeting.

In 2012 ASIC indicated that the regulatory framework overseeing internet advertising will need refreshing. However no changes have been made to date. The Senate inquiry recommended that a review is needed, and it is needed urgently.

In the past, the challenges of time and space slowed things down, and helped consumers. To obtain additional credit, you needed to leave the retail environment, and physically present at a bank. Even if credit was approved, it was likely days before it was available.

These built in protective features of the old bricks and mortar shopping environment have now been superseded, but our consumer protection regimes haven’t caught up.

Further protections are needed to rein in the excessive fees and charges on these products that end up pushing vulnerable consumers into a debt spiral.

The inquiry, which reported on Friday, recommended that legislation be passed to rein providers that offer products unsuitable to many of their consumers. In 2017, Treasury released a draft exposure bill that would tackle these questions. For over a year the Government has failed to take action and introduce legislation.

These providers have gone largely unchecked for too long. Continuing to ignore these issues will only hurt consumers.

Senator Jenny McAllister is the Shadow Assistant Minister for Families and Communities and Acting Chair of the Senate inquiry into credit and financial services targeted at Australians at risk of financial hardship

This opinion piece was published in The Sydney Morning Herald on Monday 25th February 2019.



[1] NAB and the Centre for Social Impact Financial Resilience in Australia 2018 p15.

[3] Consumer Action Law Centre Submission 37, p6.