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Tougher laws on payday lending may be needed to prevent vulnerable people from getting access to loans they cannot afford, but as a former debt collector and financial counsellor points out, it fails to recognise the driving forces.
Gregory Mowle, an economics lecturer from the University of Canberra, interviewed about 50 people who received payday loans as part of a study on financial literacy on why they needed access to fast money.
The results were varied and complex.
Cultural factors, housing costs weigh heavy on low-income earners
"A lot of these people don't have enough money to survive on," he said.
"Everyone I interviewed had a story about why they borrowed, and it wasn't just about a lack of financial literacy or money for drugs.
"Sometimes it was to pay for things like funeral expenses for a relative in another country or because an unexpected bill arose."
Mr Mowle found those who took out payday loans often struggled with housing affordability and were likely to get caught short.
"I went and interviewed people in western Sydney and some of them were paying 60 to 70 per cent of their income on rental costs. This left them little room for when an unexpected cost — such as a gas bill, urgent repair to their car — arose.
"What's being proposed by these consumer groups makes sense ... but what about the many people who will be left unable to borrow and unable to access a no interest loan? Do these people then become a burden on their family members or friends when they can't borrow from anyone else?"
Mr Mowle referred to a case where a Pacific Islander family sought out payday loans to pay for one-off funeral expense for a relative overseas.
"One family accessed a payday loan to contribute to the costs of the funeral, because in their culture it was seen as important to contribute.
"If you didn't then it was seen as shameful and so this family felt they had no other option but to seek out a payday loan."
Stigma around seeking financial advice from charities
One of the options proposed in place of payday lenders is for clients to use not-for-profit organisations, such as the Salvation Army, to get access to no interest loans (NILS) or help with financial literacy, according to Mr Mowle.
But he said 49 of the 50 people he interviewed did not qualify for these loans and wanted to be able to look after themselves.
This led them to seek out payday loans instead of asking for assistance from charities.
"When I spoke to them about going to a NILS or getting financial crisis, they didn't like that it labelled them as sort of down and out," he said.
"It shows, I think, some of the emotions and thinking that sits behind this debate and makes it much more complicated.
"The other side of the issue is that NILS loans still take two days or more and usually the clients who go to payday lenders are facing a crisis that they feel needs to be acted on immediately."
Clients rate simplicity over higher interest costs
Mr Mowle said in one case study, a man in his late 20s was living on a carers pension while he looked after his sick father.
The man did not have much of a life outside of caring for his father and he often felt judged for wearing old clothes, so he went to a payday lender and borrowed $600 for new clothes.
Since he was on a carers pension, he could not secure a bank loan and instead went to a NILS provider.
"He told me that he didn't like the extra amount of time required to fill out the paperwork and running around, Mr Mowle said.
"He felt the time involved weighed more heavily than the higher interest payment of a payday loan.
"He also felt that the payday lender accepted his decision to use the money to spend it on clothes and he was more comfortable with paying higher fees than having to run around."
Mr Mowle said he knew people would like to bring the issue down to a point where people should be advised to seek no interest loans or not be allowed to borrow.
But he said the reasons behind borrowing were complex and should not be ruled out in policy considerations of how to address concerns over payday lending.
Topics: business-economics-and-finance, government-and-politics, federal-government, community-and-society, charities-and-community-organisations, australia