Westpac spreads confusion on payday issue

Westpac's decision to cut off funding to "payday lenders" without offering the market any explanation for its action has spread confusion among small financial institutions that bank with it.

Credit Corp issued a statement to the Australian Securities Exchange yesterday, saying it was uncertain whether the bank's decision would affect its banking relationship. It has a Westpac facility that runs until July 2017.

Credit Corp has a lending division, Wallet Wizard, which offers personal loans to credit-impaired borrowers.

The company said it was not a payday lender because it did not offer loans with terms under four months and the interest rates and fees it charged were "well below" the caps for payday lenders.

Under provisions introduced in the Consumer Credit Legislation Amendment (Enhancement) Act 2012, a loan will be presumed to be unsuitable if the applicant is in default under another small amount credit contract or has been a debtor under two or more small-amount credit contracts within the last 90 days.

It is this 90-day provision that is taken to mark the payday lending boundary (although there are other definitions around). Hence, Credit Corp's insistence that having no loan terms under four months means it is not a payday lender.

One lender affected by Westpac's decision is Money3, which also offers personal loans to credit-impaired borrowers. On Tuesday it announced that Westpac had given the company notice that it would end their banking relationship.

Money3 acting chief executive Scott Baldwin said it was wrong to call his company a payday lender. The Westpac facility in question was being used to fund a car loan program with terms up to five years.

Baldwin said the minimum term offered by Money3's online business was ten weeks.

When Westpac announced its decision on Tuesday it issued a brief statement, which said: "Westpac can confirm that after careful consideration, we have made the commercial decision to exit customers who provide 'payday' lending products and will no longer support new customers where we are aware that they provide 'payday' lending products.

"We are currently working with our affected customers as they source alternative banking services. We will honour existing contractual obligation as they manage this transition."

It would appear that the only thing Westpac has given careful consideration to is its reputation, with not much thought for its business customers.