*TONY EASTLEY: The Federal Government is promising to crack down on a form of payday lending which involves desperate people signing a contract to buy diamonds which they immediately sell to another party at a dramatically discounted value for cash.
By substituting diamonds for cash the money lenders circumvent state laws which outlaw exorbitant interest rates.
Lexi Metherell reports.
LEXI METHERELL: When some State governments wanted to crack down on exorbitant interest rates they thought a rate cap was the solution.
But they hadn't reckoned on payday lenders' inventiveness.
Rachel Charter found out all about it in 2009 when she went to a lender called Fast Access Finance (Beaudesert) Pty Ltd to get a loan to help her catch up on her rent.**
Her lawyer Bridget Burton from Caxton Legal Centre says without knowing it Ms Charter signed a contract to buy $2,000 worth of diamonds.
BRIDGET BURTON: Instead of a loan contract Ms Charter had received documents that seemed to be a contract for the purchase from Fast Access Finance of eight loose modern brilliant-cut diamonds
LEXI METHERELL: But she'd also signed another contract stating she would immediately sell the diamonds for $1,000.
Ms Charter thought she was walking away with a $1,000 loan.
Bridget Burton says she only realised later there was something strange about the arrangement.
BRIDGET BURTON: The first she had heard of the diamonds was when she read it in the paperwork after she had left the premises.
LEXI METHERELL: What onus is there though on someone who's taking out a loan to be fully across the paperwork that they are signing?
BRIDGET BURTON: There is an interest rate cap of 48 per cent in Queensland so even if she hadn't read the documents Rachel could have expected that the loan would be no more expensive than that cap provides.
LEXI METHERELL: Rachel Charter took the matter to the Queensland Civil and Administrative Tribunal.
There, Fast Access Finance argued the arrangement was a diamond transaction not a loan so it wasn't breaching Queensland's interest rate cap.
But the tribunal focussed on the substance of the transaction as a whole, finding that to characterise the transaction as for the purchase and sale of diamonds was "so highly unlikely, improbable and implausible as to be a complete fiction."
The Tribunal ordered that Ms Charter be repaid.
Fast Access Finance is appealing the decision but its lawyer Robert Legat declined to say on what grounds.
ROBERT LEGAT: It's improper to comment on matters before a judicial review when they have not concluded.
LEXI METHERELL: Is Fast Access Finance using the sale of diamonds to get around Queensland's cap of 48 per cent on interest rates?
ROBERT LEGAT: Uh... once again, no comment.
LEXI METHERELL: The Financial Services Minister Bill Shorten says some payday lenders have shown they can outfox state interest rate caps put in place to stop exploitative interest rates.
BILL SHORTEN: State protections may well be ineffective and manipulated. Again, without commenting on the individual case, I think it shows the importance of the federal reforms which we're currently debating in the Parliament.
TONY EASTLEY: Financial Services Minister Bill Shorten ending that report by Lexi Metherell.
*EDITOR'S NOTE (8/12/2011): The transcript of this story has been amended to clarify the nature of the transactions. **The proceedings were brought against Fast Access Finance (Beaudesert) Pty Ltd and against Diamond Clearing House Pty Ltd – separate companies to Fast Access Finance.
The full story...
Payday lending scheme slammed by tribunal
Lexi Metherell reported this story on Wednesday, November 16, 2011 08:18:00
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