They go by various names - payday lenders, fringe lenders, micro-finance companies and various unflattering epithets. They lend small amounts for short periods, usually to people who can't get money from a conventional lender. And it is a business that has grown fast this decade as large financial institutions have walked away from the costly business of micro-lending.Now the micro-finance industry faces a number of challenges in the form of tighter consumer credit regulations. The extent of proposed changes is such that some in the industry are predicting that it will not survive. The executive officer of the National Financial Services Federation, Philip Smiles, said: "If all the proposed legislative change goes ahead it will bring this industry to an end."Those proposed changes include an amendment to consumer credit rules in Queensland that would put a cap on interest rates. The Queensland move follows similar amendments in New South Wales, Victoria and the Australian Capital Territory. South Australia has rate cap legislation on the drawing board as well.Proposed amendments to the Consumer Credit Code, the so-called fringe lending reforms, would impose tighter disclosure requirements on short-term lenders, make the publication of an annual percentage rate compulsory and prohibit the taking of certain types of security.And since 30 November the provision of bill facilities has been brought under the regulation of the Consumer Credit Code.The National Financial Services Federation represents 130 companies, such as Cash Converters, City Finance, Aussie Cash, Cash Stop and Fast Access Finance. In 2006 the Federation's members loaned a total of $220 million to 150,000 customers.Smiles acknowledged that there were problems in the industry. "There is some legitimacy to consumer group complaints. But there are not many cases. When we ask the various state Offices of Fair Trading to come up with figures they never have much to show. "The industry's average default rate is 4.6 per cent. We are talking about loans completely written off."One of the criticisms of the industry is that some lenders seek out people who are highly likely to default and gouge them with upfront fees and default penalties. Smiles said: "The industry's record is nothing like that. In fact, for this sort of unsecured lending it is not very different from the banks."It is this question of fee gouging that is the most contentious issue in the current regulatory debate. When New South Wales introduced an interest rate cap of 48 per cent on its 2006 amendment it included fees and charges in the calculation of the annual percentage rate. It is an approach that has been followed elsewhere. Smiles said the imposition of an annual interest rate cap was the biggest challenge to the industry. A $1000 unsecured loan, advanced at 48 per cent interest (including fees and charges) and repaid after four weeks would produce income of about $36. That is hardly enough to cover overheads.A spokesperson for the Queensland Office of Fair Trading said short-term lenders had already adapted to rate caps operating in other states and would