The government has moved to stop payday lenders getting around the cost cap on small-amount loans that was introduced in July last year.
Since the cap was introduced, avoidance practices have included blurring the distinction between small amount and larger loans, operating outside the licensing regime, and using related brokerage to impose charges that are not counted in the cap.
On Friday, the assistant treasurer, Arthur Sinodinos, released draft regulations for public
consultation.
Under the rules, introduced last year, payday lenders must limit their interest rates and charges when a finance contract is worth less than A$2000 and runs for less than two years.
There is a limit of 20 per cent on any upfront charge and a limit of four per cent on monthly charges.
For larger loans, a credit provider is prohibited from entering into a contract where the annual "cost rate" exceeds 48 per cent.
The explanatory memorandum accompanying the draft regulations released on Friday says: "The introduction of the cap on costs for small-amount lending has resulted in an unintended increase in avoidance activity."
The regulations clarify the boundary between small amount and medium amount credit contracts, to ensure that the small amount lending cap applies to contracts where the borrower receives a maximum amount of $2000 in their hands, with fees and charges allowed to be additional.
The explanatory memorandum says: "There are currently different legal opinions as to which cap applies to contracts where the consumer receives $2000 or less but is charged fees so that the total amount of credit exceeds $2000."
The regulations close several loopholes that provided exemption from the National Credit Code for certain types of low-cost credit contracts.
The regulations also address an avoidance practice where credit providers establish a brokerage arm to their business; the broker arranges credit with the credit provider and charges the borrower brokerage fees that are not included in the calculation of the cost cap.
The assistant treasurer has called for submissions by March 7.