Who are the great heroes of our age? Well, if their own ads are to be any guide it's the payday loan companies of course – those operators who lend out small amounts of cash for short periods of time. They are here to fly in and save us from disaster or ride to the rescue at just the right moment.
There is usually an element of truth mixed with the fantastical in the stories we tell ourselves, and while short-term lenders are neither fairies nor superheroes they are servicing a real social need.
In Australia, since the first payday lender opened its doors in 1998 the sector has become the fastest growing component of our financial services industry. More and more people feel they need to access money from payday lenders. As reported in the Consumer Action Legal Centre's Payday loans: Helping hand or quicksand?, the overwhelming majority of people who use payday loans are on low-incomes, generally young (34 and under), single or single parents, and are either in casual/part-time employment or aren't working.
Increasingly we live in isolation – removed from the traditional support networks of family and community – rotating between low wage insecure jobs and a social (in)security system designed to push us back to those same casual or zero-hour jobs. We are kept waiting in the dark until we are needed, used and then disposed of.
Each day we anxiously check our phones to see if we have a message telling us we have that shift we need to pay the bills. Sometimes we don't get it. Sometimes we need a little something extra to get us to the next payday regardless of the long-term consequences.
Despite the whimsical marketing, generally we end up using payday loans to cover the very expected costs of living. According to Payday loans: Helping hand or quicksand?, an overwhelming 75 per cent of payday loans in Australia are taken out to cover our basic costs from car repairs and registration, utility bills, food and groceries, to rent and mortgage repayments. A further 6 per cent of payday loans are used to pay down existing debts.
It is telling that one of the more prominent payday lenders on the Australian market has shifted its advertising focus in only the last few weeks from the "unexpected" to a very expected gas bill.
Many of us are using payday loans to maintain a functional existence within our economy. Payday loans service a real social need.
We live in a world of rising rents and falling wages. As we travel through life in our toll-booth economy, corporate oligopolies in transport, utilities and healthcare demand more and more from us. Meanwhile, the combined efforts of corporate Australia and federal and state governments to push down our wages and our means of fighting back have started to get results. We have now joined the rest of the English-speaking world in experiencing falling real wages. It should come as no surprise then that more of us are breaking down more often. When corporations push us from both ends something has to give. Enter payday loans.
The rise of short-term lending tells us how the market views the very problems it creates. It finds the most profitable opportunity in the problem it created in the first place, regardless of the wider consequences.
In this instance, the corporate squeezing of the Kleenex generation becomes an opportunity to take even more money from us. Payday loan companies make money most expensive for those of us who have the least of it. The annual interest rate on a typical mortgage is about 5 per cent, however, the effective annual interest rate on a reputable payday loan in Australia is about 116 per cent. Sure these loans are marketed as short-term, but many who are stuck in the payday loan cycle find it hard to escape – especially if you used a loan in the first place to cover a basic living expense.
The market doesn't solve our problems, it profits from them. Our very desperation becomes a growth opportunity.
Payday loan companies exist because there is a gap in the market for them to make a profit. Regulating how much payday companies can take advantage of our desperation does make a difference for some, however, the very fact of their existence is the problem.
They exist because there are millions of Australians who don't earn enough to cover their basic expenses. The market won't fix this for us. Only we can.
* Godfrey Moase is an Assistant General Branch Secretary with the National Union of Workers.
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