Small amount credit contract reforms: have transparency and competition concerns been forgotten?

The final report of the review of small amount credit contract law in Australia was released in March 2016, and in November 2016 the Coalition Government indicated that it intends to implement most of the review recommendations. This article supports the agreed reforms that seek to enhance consumer protection, but argues that additional transparency and competition concerns need to be addressed for these reforms to be effective. It acknowledges the industry’s aspiration to become a respected and mainstream financial services segment. However, it suggests that for this transition to occur, evidence of the following factors needs to emerge: effective price competition, product innovation, the availability of reliable and regular industry data, and significantly higher levels of industry and consumer transparency, including clear disclosure of loan structures, pricing and terms. The article highlights inherent market failures and competitive barriers that arise in small amount short duration consumer loan markets, including significant information asymmetry, behavioural issues, and impediments to competition. It illustrates these by discussing the findings and recommendations of the investigation of the payday lending industry in the United Kingdom by the Competition and Markets Authority. The article concludes that Australia should enact similar policy measures to those adopted in the United Kingdom. It also calls for mandatory disclosure of the annual percentage rate of loans and the establishment of an independent industry data series.