Consumer advocates are concerned that loopholes in lending laws could open the floodgates to predatory lending for millions of vulnerable Australians.

The focus is on payday lenders, who offer short-term loans to help customers pay bills before their next paycheck.

Cairns resident Rachel Black, 58, used a payday lender to increase her salary every month.

Rachel Black says payday lenders would contact again after the first loan.(Supplied: Rachel Black)

“You start by borrowing a small amount and then you think okay, you know that’s okay, I can handle that.

“I’ll just add $50 if you give it to me. I’ll just add $100.”

She says getting credit was easy, and if she couldn’t make the payments, she would borrow from another lender.

“It hurts more when you borrow an amount that carries a lot of interest,” says Ms. Black.

“And you’re paying back almost half of what you’ve borrowed, you know? It takes a long time when you’ve borrowed too much.”

Financial advisor Kylie Holford says that Ms. Black’s experience is common, and in her experience, people seek payday loans when they are already in financial trouble.

“Or a lot of people say that I actually understood, but I was in such a vulnerable place that I just needed the money,” she says.

“But what they also don’t understand is that they may have a little idea about some of the fees, but then they don’t understand what happens if they don’t make the payments and what are the repercussions of missed payments. “

How do payday lenders get around the credit laws?

Consumer advocates are well aware that some payday lenders charge large fees.

Tom Abourizk, policy officer at the Consumer Action Law Center, says it’s also legal, under existing Credit Law.

He says payday lenders can avoid being subject to the Credit Act, and thus charging large fees, by saying they only hire borrowers for very short periods of time.

This is also the case if they engage clients with two separate contracts: one for the loan and the other for the financial services provided.

“The first one is called a short-term credit waiver, which is a credit law waiver that basically says you can charge if you can charge a small fee if your loans are being paid off — I think it’s a maximum of 5 percent on the loan that is provided may then be within an exemption.

“They use a second contract that is tied to the contract that meets that exemption, and the one where they charge their exorbitant fees.

“Essentially, they split [the bill] in two.

“So you get a service where, if you went with any other lender, it would all be done in one contract.

“But essentially, they split everything into two contracts.”

Advocates call on ASIC for swift action

The regulator, the Australian Securities and Investments Commission, or ASIC, is aware of short-term credit providers charging large fees to customers.

But Abourizk says the regulatory wheels aren’t turning fast enough.

“It’s a really obvious example of the serious harm being done to vulnerable people across Australia and it has taken too long to act,” he says.

So what about the loopholes in the Credit Law that allow companies to work together and provide separate contracts for a single loan service?

The ABC reached out to the Attorney General’s office, the Treasury, the Minister for Financial Services and Deputy Treasurer Michael Sukkar for a response.

No one provided a comment.

Meanwhile, those vulnerable to taking out loans they cannot repay remain under pressure to take on more debt.

“Once you’ve got a loan, they come back to you and say, ‘You know you can get more,’ and they’ll contact you via email, SMS. You know you’re pre-approved,” Ms. Black said. she says.