The Australian government's plan to tighten regulation of the short-term lending industry ran into trouble on Friday when a parliamentary committee handed down a review critical of the proposed consumer credit amendments.The Parliamentary Joint Committee on Corporations and Financial Services, which was inquiring into the changes, found that proposed short-term lending reforms did not strike the right balance between consumer protection and industry viability.The draft bill caps the costs that will apply to finance contracts of up to $2000 that run for less than two years.Lenders will be limited to charging an upfront fee of 10 per cent of the total amount borrowed and two per cent each month for the life of the loan. Apart from fees payable in the event of default, the lender cannot apply any other charges.For larger loans, a credit provider is prohibited from entering into a contract where the annual "cost rate" exceeds 48 per cent.Lenders will not be allowed to refinance small amount contracts. The aim is to stop debt rolling over and compounding.The lender will be required to inform consumers of other options, such as Centrelink advances, no-interest and low-interest loan schemes run by community organisations, and the availability of hardship programs run by credit providers and utilities.The committee report said: "The very nature of a small amount short-term loan indicates that the loans are being sought to address financial difficulty. In entering into a payday loan contract, consumers exchange what appear to be substantial fees for a rapid injection of cash."For consumers in financial hardship, or those not understanding the financial implications, this may be a perilous path. The committee considers that the short-term loan market is a complex market in which a proportion of consumers are not fully informed."Additional measures are required to complement, not duplicate, the responsible lending obligations. The committee supports the introduction of minimum standards for the short-term lending industry."However, the proposed reforms do not strike the right balance between consumer protection and industry viability."The committee said the evidence presented did not support the proposed fee and rate caps. It recommended that the Government "revisit" the measures and undertake further consultation with stakeholders.The short-term lending industry ran an effective campaign on the issue, arguing that the Government should get a measure of the impact of responsible lending rules and other aspects of the national consumer credit regime before imposing more restrictions on its activities.The submissions drew heavily on a Queensland University of Technology Faculty of Law report that said there was insufficient evidence to say whether there is market failure in the payday lending industry that needs to be corrected by regulation.