30th March, 2015

Short of cash? Can't get a credit card? Can't get a bank loan? If you believe the ads from a new breed of short-term lenders you simply head for your local pawnshop, or even the internet, borrow the cash and move on.

That at least is the boast, but a growing number of people are finding, to their cost, they really don't know what they are signing up for - or the massive rates of interest being charged.

This week Four Corners reporter Stephen Long exposes the highly questionable business practices of so called 'payday' lenders.

Payday lending is now a major business with some companies listed on the stock exchange. The industry defends itself, claiming it provides a service the banks aren't interested in delivering.

"There are 10 million Australians that don't have access to a credit card. Where are they going to get credit?" - Payday Lending Company CEO

But as Long tests this claim he uncovers a trail of misery, meeting people like Anna. A hard working mother of three, she took a short-term loan from a payday lender to buy her daughter's school computer. Borrowing the money was easy, too easy, and before long she borrowed more money, sinking ever deeper into debt.

Anna had discovered what thousands of other short-term borrowers already knew; the system encourages dependency and the windfall profits come not from any one loan but by sucking people into multiple loans, sometimes with effective interest rates of more than 300 percent.

"The whole business model relies on trapping people in debt. You get the first loan and you get the second loan and you get the third loan to pay off the second loan." - Financial Advisor.

The questionable practices don't end there. Reporter Stephen Long spoke to industry insiders who confirmed that lenders provided credit to heroin addicts, doling out loans at one end of the shop after the addicted person had pawned goods at the front desk.

In another case, a man suffering a brain injury was signed up to multiple loans even though he didn't understand the documents he was signing.

In 2013 the Federal Government tried to rein in the worst excesses of the industry with new legislation. After an intensive industry lobbying campaign the laws were watered down but still capped interest and establishment fees.

Despite this, a recent survey by the Australian Securities and Investments Commission reveals that two thirds of payday lenders were highly likely to breach credit laws relating to responsible lending. Some gave loans to people already in default while more than half issued loans to customers who already had multiple loans.

All the evidence suggests the industry is now expanding massively online. Will the authorities and Government act to control the industry mavericks?

GAME OF LOANS, reported by Stephen Long and presented by Kerry O'Brien, goes to air on Monday 30th March at 8.30pm on ABC. The program is replayed on Tuesday 31st March at 10.00 am and Wednesday 1st April at midnight. It can also be seen on ABC News 24 at 8.00 pm on Saturday, ABC iview and at abc.net.au/4corners.

Transcript

(excerpt from Nimble advertisement)

MAN: We can't afford this phone bill!

KERRY O'BRIEN, PRESENTER: Millions of Australians can't get a credit card, so they turn to short-term lenders.

MAN IN RABBIT SUIT: When you need money fast, just Nimble it and move on.

(excerpt ends)

KERRY O'BRIEN: Small loans are now big business.

ANNA: I'd been turned down for so many loans that I thought, "Oh, what the heck. I'll just put in an application." It's very easy.

KERRY O'BRIEN: But the sharks are always circling.

ADAM MOONEY, CEO, GOOD SHEPHERD MICROFINANCE: Predatory, exploitative, ah, preying on, on vulnerable customers.

PETER KELL, DEPUTY CHAIR, ASIC: We're talking about vulnerable consumers on very low incomes. That's not good enough.

KERRY O'BRIEN: The not-so-fine line between ethical short-term lending and loansharks: welcome to Four Corners.

In a country of just 23 million people, carrying household debt close to $2 trillion, it's obvious most people have little trouble getting loans relatively cheaply.

But there's a significant number, some of them far from poor, who need temporary loans to ease their cash flow problems but can't access bank credit.

Millions of Australians in casual jobs or on welfare fit the profile. And, in trouble, they often turn to high-cost, short-term lenders.

The payday lending industry, where repayments are taken direct from bank accounts on payday, is worth more than $400 million. And although the law in theory caps the fees and the interest they charge, many loans come with unconscionably ruinous interest rates - loansharking by another name.

An investigation by the corporate watchdog ASIC suggests two-thirds of such loans are highly likely to breach laws on responsible lending.

Predatory conduct is commonplace. Loans are quick and easy, available online within minutes.

Behind the industry's claims that it lends ethically and responsibly lies a well of misery for far too many of its customers, who've been exploited beyond belief and trapped in a vicious cycle of crippling debt.

For the exploiters it can be a very lucrative game.

This report from Stephen Long:

STEPHEN LONG, REPORTER: At home at Geelong in Victoria, a working mother is busy in the kitchen.

ANNA: Ah, it's got coconut powder in it.

STEPHEN LONG: She's preparing a farewell party for her oldest daughter, dux of the school last year and now off to university in Sydney.

Outwardly, Anna's life is a success: a 45-year-old professional with a good job and three daughters.

ANNA: You know, I'm a, an educated person. I dress normally, I look normal. Yet there's a lot of chaos in my life underlying that. And while my closest friends know that - although not the degree of that, some of them - I haven't told anybody about the financial troubles I was in last year.

STEPHEN LONG: How many loans did you end up with?

ANNA: Payday loans: I had 27 between the middle of March and middle of December last year.

STEPHEN LONG: Twenty-seven payday loans between March and December?

ANNA: Yep.

STEPHEN LONG: Anna was desperate. And for the desperate, payday loans provide fast cash.

It's high-cost finance but the demand is huge.

ANNOUNCER (Cash Converters ad): We keep short-term loans simple. And you'll know what you owe up-front. Because this isn't a bank.

STEPHEN LONG: The pawnbroker Cash Converters, the biggest payday lender in the country, is listed on the stock exchange and bankrolled by Westpac.

(excerpt from Nimble ad)

MAN: We can't afford this phone bill! You're posting too many selfies.

WOMAN: Surely I'm not posting that many.

STEPHEN LONG: And there's upstarts like Nimble: no shopfronts, just online and aiming to get 'em while they're young.

MAN IN RABBIT SUIT: I get it. I post a lot of selfies too.

WOMAN: How do I pay my phone bill?

MAN IN RABBIT SUIT: Well, if you need money fast, just Nimble it and move on.

Celebration selfie!

(excerpt ends)

STEPHEN LONG: The industry reckons it's helping people the banks won't.

PETER CUMINS, MANAGING DIR., CASH CONVERTERS: There are 10 million Australians that don't have access to a credit card. So where are those people going to go to get credit?

ADAM MOONEY, CEO, GOOD SHEPHERD MICROFINANCE: Predatory, exploitative, ah, preying on, ah, on vulnerable customers, people that, ah, in many cases have had other disadvantage through either some sort of disability, a relationship breakdown, ah, or just unable to make ends meet.

STEPHEN LONG: So what made this middle-class, educated woman turn to payday loans?

ANNA: The kids have to have computers at school. But when my daughter enrolled in high school at the beginning of last year there was no longer a payment plan: you had buy it up-front. Um, so it was a $1,200 computer that I hadn't (laughs) budgeted for and I had to buy up-front.

STEPHEN LONG: Anna's story shows how easily people can fall into a payday lending debt spiral. Over the years, her finances have suffered through bouts of ill health and a marriage breakdown that left her raising three kids on her own.

ANNA: After my marriage ended, my youngest child was one. So I had a one-year-old, a four-year-old and a five-year-old. Um, and at that stage I wasn't working. I had resigned when I was pregnant with my youngest child.

STEPHEN LONG: Anna moved to Geelong in regional Victoria five years ago to escape the high cost of living in Sydney and hoping to buy a home.

ANNA: I think the kids worked out they'd lived in nine or ten different houses. I'm not sure exactly. Um, so we-we have moved every year to two years since the kids have been little, because we're in the rental market.

STEPHEN LONG: She managed to buy a modest house to provide stability for her family, but it was a stretch. Unexpected bills - from the school, the doctor - pushed her into the red.

With the credit card maxed out and no bank loan available Anna, tired and fraught, made a fateful decision.

ANNA: At the time that I looked at my finances or anything critical to my life was when I got into bed at 11:30 at night. I researched other options available to take out small loans and that's when payday lenders popped up.

I guess when I first saw it I thought they were probably illegal. But then when I had a look at it I realised they were a legitimate industry that was regulated. Um, and I'd been turned down for so many loans that I thought, "Oh, what the heck. I'll just put in an application." It's very easy to do, sitting on your computer at 11:30 at night. Takes five or ten minutes and, to my surprise, I was approved.

STEPHEN LONG: After she paid back the first loan to Nimble, the offers kept coming.

ANNA: As soon as a loan is paid off from any of those lenders, they send you an email saying, "The loan's been repaid. You're eligible for another one. Click here."

STEPHEN LONG: Why did you keep taking the loans?

ANNA: I didn't really have much choice once I got into it. Um, that may sound like a cop-out. But once you take out the first one and then the repayment for that comes out of your next fortnightly pay, you're then short for your other bills. Um, so the obvious solution, especially when they send you a message saying, (laughs) "Please take out another one," is to click on that and do it all over again.

(on phone) Oh, hello, Kelly. My name's Anna. I've been given your number by someone at Money3.

STEPHEN LONG: Anna was in a payday lending catch-22.

As the name implies, the repayments are taken out of your bank account by direct debit as soon as your pay goes in.

ANNA: Well, it meant that the short-term loans were always paid off on time. Um, it meant that other things fell down, though.

(on phone) Um, it's in relation to a number of loans and a complaint that I've made with the Credit Ombudsman.

STEPHEN LONG: Anna borrowed just over $20,000 from payday lenders over nine months, all in little loans of a few hundred dollars each.

It cost her nearly $6,000 in fees and charges - at an effective annual interest rate of more than 325 per cent.

(to Anna) That's a huge whack?

ANNA: Yeah, it is a huge whack.

FIONA GUTHRIE, EXEC. DIR., FINANCIAL COUNSELLING AUST.: The whole business model relies on trapping people in debt. You get the first loan and you get the second loan and you get the third loan to pay off the second loan.

STEPHEN LONG: About 1,000 kilometres north of Geelong, amid the tenements of Waterloo in Sydney, lives Robert Grant Porter. He's a typical target of the short-term money lenders: a disability pensioner living in public housing.

But it could have been so different. He'd just finished his apprenticeship when tragedy struck.

ROBERT PORTER: In 1983 I had a car accident up in Armidale. I was in a coma for 23 days or something: had a brain stem injury, a frontal lobe head injury and broken bones left, right and centre, punctured lungs.

STEPHEN LONG: Brain trauma from the accident left Robert permanently disabled. He had to learn to walk again. Later on happier times arrived, but they came at a cost.

ROBERT PORTER: Well, we needed a bit more money, ah, when we were getting married back in 2005. City Finance were advertising they'd lend you money and on the bottom was "pensioners welcome". And I thought, "Well, we're on the pension. We'll go for it."

STEPHEN LONG: All up, it took less than two hours to borrow $1,000 for the wedding. The money paid for the booze and the band.

ROBERT PORTER: Well, it was raining, then it stopped raining as soon as we got married. It was an outdoor wedding. Just as the preacher started saying the vows, the sun came out. Beautiful.

STEPHEN LONG: And the marriage didn't last but the debts did?

ROBERT PORTER (laughs): Yeah, that's true. Yeah, it did, that's right - and continues.

(excerpt from City Finance advertisement)

CITY FINANCE AD JINGLE (sings): Up to two grand today / Too easy.

STEPHEN LONG: "Too easy" is the City Finance slogan and, in Robert's case, it was.

CITY FINANCE AD JINGLE (sings): Up to two grand today / Too easy.

(excerpt ends)

STEPHEN LONG: He received multiple loans over a period of years, with little genuine inquiry by the lender into his financial circumstances.

(to Robert Porter) Did you ever have any trouble getting finance from payday lenders?

ROBERT PORTER: No, wasn't, no, no, no, no. Never. No. I'd go in at a particular time: just walk in, sign the forms, walk out with the cheque.

STEPHEN LONG: That easy?

ROBERT PORTER: That easy. Yeah. All he used to say: "Is everything still the same?" Yep. "Same address?" Yep. "Same phone number?" Yep. "OK, no worries. Come in at 3 o'clock."

STEPHEN LONG: Loan repayments ate up about a third of his meagre income and the money came out of his bank account as soon as his pension went in, leaving Robert without enough for living expenses.

ROBERT PORTER: Smokes, beer, entertainment, clothes, food: everything, really. You just didn't think about it.

STEPHEN LONG: So your beer and your smokes but also the basics of life - food and clothing - were difficult to afford once that money had gone out on the payday loans?

ROBERT PORTER: Oh, absolutely. Yeah, yeah, yeah, yeah. But you, that's, um... As I said, you don't think about it. You just want the money.

STEPHEN LONG: The man who founded the City Finance franchise, Bill Brownlee-Smith, lived life at the other end of the spectrum.

At the time Robert Porter was taking out his first loan with City Finance, Brownlee-Smith called this mansion on the Gold Coast "home". His luxury yacht, Inspiration, cost nearly $2 million.

The Brownlee-Smiths maintain City Finance has always been a responsible lender.

STEPHEN LONG: Were you aware that, while you were taking out these payday loans, the man behind this company was leading a lavish life with multi-million dollar Gold Coast property?

ROBERT PORTER: Nah. Is that right? That little prick.

STEPHEN LONG: Robert's local is The Abbotts Hotel, down the way from the Housing Commission towers of Redfern and Waterloo. It was a chance conversation at the pub that finally helped Robert to escape the debt spiral.

FRIEND: What's next on the agenda?

STEPHEN LONG: Over a quiet ale, Robert's mate Keith gave him some good advice.

ROBERT PORTER: He said, "You're paying too much money." He said, "Go up the Redfern Legal Centre and they'll be able to give you some advice." And I said, "Look, no." I said, "Piss off, how are they going to be able to bloody help me?"

STEPHEN LONG: But Robert did go and the lawyers were dismayed by what they found. With fees and charges, he'd paid nearly double what he'd borrowed.

But the DVDs were the doozy.

WILL DWYER, LAWYER, REDFERN LEGAL SERVICE: What was really concerning in Robert's case was, as a side, they'd required him to buy three money management DVDs as a condition of the loan. That was the only way he would be able to obtain the loan: he'd have to pay $350-odd for DVDs to teach him how to manage his money, which...

STEPHEN LONG: I-I imagine the company would say that was altruistic; that they were actually trying to help him with his financial literacy?

WILL DWYER: Well, I think that's a load of rubbish, personally. I think that, really, it's another way to get around the requirements of the law in terms of the types of fees and charges that they can tack onto these loans. And really, it's a complete con.

STEPHEN LONG: With the Legal Centre behind him, Robert went back to City Finance. It waived the money he still owed and gave him a cheque for $70: something - but a fraction what he'd paid.

(to Will Dyer): How do you feel about the way Robert was treated?

WILL DWYER: I think it's basically exploitation.

STEPHEN LONG (to Robert Porter): What do you think your capacity was to understand the loans that you were entering?

ROBERT PORTER: Um, not totally: put it that way. More or less no comprehension whatsoever. Is that the right word? I don't know.

BILL SHORTEN, FMR FINANCIAL SERVICES MINISTER (September 2011): I move that this bill now be read a second time. Today I introduce the Consumer Credit and Corporations Legislation Amendments Enhancement Bill 2011.

STEPHEN LONG: Concerns that payday lenders were exploiting the vulnerable led the Federal Labor government to introduce a bill, three-and-half years ago, to regulate the industry.

But the laws that finally took force in 2013 bear little resemblance to the initial plan.

IAN RAMSAY, PROF., MELBOURNE UNI. LAW SCHOOL: When the draft legislation was first presented to Parliament, what it contained was certainly very strong protections for consumers, for those who would take out these payday loans.

PETER CUMINS: We were led to believe by Treasury that the rate cap that was going to be put in place was one that would allow us to continue in the business. Unfortunately, when the cap came out at a 10 per cent establishment fee and a two per cent monthly fee, that was effectively prohibition for us. We couldn't continue under those rates.

We think that we have, um, a good outlook...

STEPHEN LONG: Peter Cumins is the managing director of Cash Converters. It led a ferocious campaign against the bill.

Lobbyists from firms with deep Labor and Coalition connections stalked the corridors of power for payday lenders. MPs considering the bill were targeted with hostile advertising.

(excerpt from Cash Converters lobbying campaign advertisement)

INTERVIEWER: How often do you use Cash Converters?

CUSTOMER: Ah, probably at least once every couple of months.

CUSTOMER 2: Not all the time. I don't actually need it all the time.

STEPHEN LONG: Cash Converters mobilised thousands of customers against laws designed to reduce the cost of their loans.

CUSTOMER 3: Very small.

CUSTOMER 4: Sometimes you get caught out after paying your bills.

(excerpt ends)

PETER CUMINS: We took a photograph with them holding various placards saying things like, ah, "My credit, my choice." Bill Shorten was the minister at the time so it would say, "Don't shorten my credit, Bill."

STEPHEN LONG: So when people came in to get a loan, you asked them would they hold up one of these placards?

PETER CUMINS: Yes, we did.

STEPHEN LONG: The final legislation, when it took force in mid-2013, let payday lenders levy double the fees and charges initially planned.

PETER CUMINS: From our point of view, we think it's a very good piece of legislation.

STEPHEN LONG: It was, in fact, what you'd proposed?

PETER CUMINS: As it happens, it's what we proposed. I can only ag- um, ah, commend the Government on recognising that that was the right level.

STEPHEN LONG (to Ian Ramsay): Who won in the lobbying efforts on this Bill?

IAN RAMSAY: I think the answer to that is clear. At the end of the day, after intense lobbying, the payday loan association by and large got what they wanted out of the legislation as it was enacted by Parliament.

STEPHEN LONG: One of the big changes in the law was about giving multiple loans.

The first bill would have banned multiple loans outright, so that payday lending was genuinely one-off emergency finance. You couldn't get loan after loan and spiral into debt.

But the final Bill is a lot looser. It says that if you've had two loans or more in 90 days - or you're already in default - then you generally shouldn't get another loan. But there's scope for the lender to override this.

Now, the intent is clear: multiple loans should be the exception. But that's not what's happening.

(footage of financial counsellors' meeting)

FIONA GUTHRIE: Thank you very much for coming along on this beautiful Melbourne day to talk a, about payday lenders and to help us in our advocacy.

STEPHEN LONG: At Cranbourne, on the south-east fringe of Melbourne, financial counsellors meet to talk about how the new laws are working.

They're still seeing multiple lending that pushes people into a debt trap.

FIONA GUTHRIE: What's the experience of this room? Are you seeing clients where the payday lenders appear to have given people loans when they've already got existing loans, or certainly had more than two in the last 90 days?

FINANCIAL COUNSELLOR 1: Um, I've got a client that's presented who has a relatively good wage, um, and presented with 11 payday loans.

FINANCIAL COUNSELLOR 2: Look, I had a client two weeks ago and she's got four. And she hasn't paid a cent back on the last one she got, ah, four weeks ago.

FINANCIAL COUNSELLOR 3: I had a client that had, ah, three loans with this lender. Um, they basically assessed their ability to pay, um, by leaving an amount of 15 per cent of their income to live on. Now, this person was on a very low income. It was a wage, but it was a very low income. And 15% is impossible to live on, on that sort of income.

STEPHEN LONG: Cash Converters' default position is to allow 15 per cent of income for basic living expenses after housing. Most of its customers have incomes of less than $38,000 a year.

PETER CUMINS: Ah, 15 per cent for living expenses. The amount that's left over: we then take 10 percent of that off for discretionary spending and that balance is what can be used towards a loan repayment.

STEPHEN LONG: Fifteen percent for living expenses doesn't sound like much. Don't you think that's unrealistic?

PETER CUMINS: No.

FIONA GUTHRIE: Now, that would have to cover your food, your electricity, your gas, your transport including car repairs and car registration, your medi- medical expenses and anything else that came up that was unforeseen in that week.

That's impossible. But they've still got this fiction that people's living expenses are 15 per cent as a benchmark. It is just outrageous.

STEPHEN LONG: Fiona Guthrie has waged a long battle with the payday loan sector.

FIONA GUTHRIE (phone conversation): Hi, Phil. How are you going?

STEPHEN LONG: During the course of our research for this program, she received a hostile call from its industry association.

FIONA GUTHRIE (phone conversation): ...might be more in your court than in ours, I tend to think.

FIONA GUTHRIE: I had a phone call from the CEO of the payday lenders' peak body last week and he was interested to know about the Four Corners program.

What he said to me in that phone call was this: the first thing was that they had noted that our funding contract with the Federal Government was very uncertain at the moment, which is true. He also said that our involvement with the program could "twist back" on financial counsellors and there could be unintended consequences.

STEPHEN LONG: What did you take that to mean?

FIONA GUTHRIE: Oh, look, I thought that was pretty clear. I took that to mean a very direct threat that they would lobby against the continuation of our funding to provide the support services that we provide to the front-line financial counselling services all around Australia: that they were be going through the corridors of Canberra saying, "Do not fund this organisation."

STEPHEN LONG: Phil Johns is CEO of the National Credit Providers Association, which represents payday lenders. He said it would not suggest to anyone that Financial Counselling Australia's funding be withdrawn.

Payday lenders accuse financial counsellors of unfairly sullying the industry's name.

(to Peter Cumins) Why does the payday lending business have such a bad reputation?

PETER CUMINS: In my view, it's because consumer activists take the very worst examples and promulgate those as though- as though that's what happens in every case.

STEPHEN LONG: But some of the concerns of financial counsellors are backed by a new ASIC report.

It looked at 288 files from lenders covering three-quarters of the market. Nearly two-thirds were very likely to breach responsible lending laws. More than half gave loans to people who already had multiple loans. Eight per cent gave a new loan to someone in default.

Yet only one lender had evidence to justify why they'd approved the loans.

PETER KELL, DEPUTY CHAIR, ASIC: We're not getting a clear message as to why they think, in many circumstances, it's the right thing to do to provide further credit. And when we're talking about vulnerable consumers on very low incomes, that's not good enough.

STEPHEN LONG: At Odyssey House in Melbourne, financial counsellor Garry Rothman helps recovering drug addicts get back on track.

GARRY ROTHMAN, FINANCIAL COUNSELLOR, ODYSSEY HOUSE: We've got a couple of debts waived...

STEPHEN LONG: Today he's meeting a young man who we'll call "Max."

GARRY ROTHMAN: So, Max, the, the debt that you had with Nimble has been referred to a debt collector and I've written to them.

MAX: So if they have defaulted my...

STEPHEN LONG: Max is a recovering heroin addict who also suffers bi-polar disorder. Now healthy, free of drugs and going to university, he's still plagued by payday loan debts from when he was using, in 2013.

MAX: I was really quite sick at that point in my life with, um, addiction and mental health issues. And... and, um, I started resorting to payday lenders to, to fund my addiction.

My lowest in 2013: I was homeless. I was, ah, either sleeping in my car or li- living in boarding houses and, um, I felt that life was so miserable that - and, and hopeless and I didn't see a way out - that it was, it was a daily sort of mission or struggle to just black myself out each day.

And I was spending… about $200 a day on heroin. Yeah. So I'd get a payday loan and it would be gone.

STEPHEN LONG: What did the money go on?

MAX: Drugs, really.

STEPHEN LONG: Nothing else?

MAX: Nah. Nothing else.

STEPHEN LONG: In active addiction, Max ran up thousands of dollars on payday loans and pawnbroker loans.

MAX: I went to, um, Cash Converters and I hocked a lot of my items for, for money. So clearly I was struggling financially and- and desperate. And then I went to another counter, sort of towards the front of the shop, and I got a payday loan from them as well. And, um...

STEPHEN LONG: So they took your goods. They knew you were absolutely desperate for money. And you just walked up to another counter and they gave you a payday loan?

MAX: Yep. That's right.

STEPHEN LONG (to Peter Cumins): It doesn't look very good when someone who's addicted to heroin and in financial distress is pawning their goods at one counter and getting a payday loan at another.

PETER CUMINS: I agree. But you've also got to bear in mind that a staff member can't be expected to know whether somebody is a heroin addict or not. They don't generally come in and declare that to the staff member.

GARRY ROTHMAN: Max's situation is one that we see time and time again. Ah, our experience is that maybe 80 per cent of people who are living a life like him would have payday loans.

GOOD2GO WEBSITE PROMOTIONAL VIDEO (voiceover): She needs cash now.

STEPHEN LONG: Good2Go Loans is a breakaway from City Finance and it apparently sees drug addiction as no barrier to getting a loan.

Four Corners met with a whistleblower from Good2Go Loans who revealed the practices of this payday lender.

To protect the whistleblower, we've used an actor to voice her concerns.

GOOD2GO WHISTLEBLOWER (actor): Look, someone would come in and you can see that they're visibly affected by drugs. I mean, you can see it in their eyes. And it's the way they stand and they slur their speech.

But they would bring in all the proper documentation. It's ready for you to go. So they've got their ID and they've got their bank statements with them.

So I would approach my supervisor and I would say, "The loan stacks up, but my concern is that this person is affected by drugs." And I would be told: "Don't worry about it. As long as the loan stacks up, then write it up."

I-I did have someone come in and they had multiple payday loans with other lenders and it's clear that they're, they have a gambling issue because there are online gambling payments on their bank statements. Still, they get a loan.

I've had people come in who are illiterate: where I've had to show them the letters to type in to write, "I accept." Illiterate. And yep, I still wrote the loan.

GOOD2GO LOANS EMPLOYEE (dramatisation): Hi, this is Tracy calling from Good2Go Loans. How are you?

STEPHEN LONG: In a disturbing revelation, insiders told Four Corners that Good2Go routinely changes contracts after they've been signed - and we've seen evidence of this.

It's a bait-and-switch: Good2Go signs people up to two-year loan deals that aren't regulated by the Federal laws, thus sidestepping caps on fees. Then it sends the customer a text message, outlining a new payment plan.

SMS MESSAGE (caption): Dear Andrew Acceptance [sic] received. Funds will be settled within the next 24hrs. Your payments are $72 fortnightly with first payment 03/02/2015. Any questions please call G2G Loans.

GOOD2GO WHISTLEBLOWER (actor): Well, the loan contract will say that the loan's for 104 weeks. Ah, but then 99 per cent of the time that doesn't happen. So once they email back saying, "I accept," we change it on them. So we send them an SMS saying their new loan repayment amount. And, you know, they're hoodwinked.

So they might've signed a contract saying that they were going to repay $7 or $10 a fortnight: we change it to $72 a fortnight. They weren't expecting that kind of repayment, so they might miss payments, payments might bounce and then come a whole range of dishonour fees.

STEPHEN LONG: The multiple fees include a $7 charge for sending a client a text message; a $7 charge per phone call, whether you answer or not; $27.50 to send a letter to the client; and a $3.50 direct debit fee just for taking money from your account.

We raised our concerns with ASIC's deputy chairman.

(to Peter Kell) I'd like to show you a contract from a company called Good2Go Loans. You can see there: it's a $500 loan. They've charged $250 as an establishment fee - that's 50 per cent of the cost of the loan.

Now, they are purporting that this loan is over 104 weeks, but we've been told by insiders that in virtually all cases the loan is written as being 104 weeks and immediately the repayments are changed, so it's a short-term loan. What do you think of that?

PETER KELL: Look, we'd be very happy to look at this because we certainly don't want to see people attempting to game the rules, either by manipulating the length of the loan or by manipulating the sorts of fees and charges that, um, ah, that people have to pay, including the establishment fee.

STEPHEN LONG (to Peter Cumins): Are there dodgy players in the industry?

PETER CUMINS: I think there have been over the past, yes.

STEPHEN LONG: Are there still dodgy players in the industry?

PETER CUMINS: I don't believe so. No.

STEPHEN LONG: The CEO of Good2Go Loans, Jason Bousfield, is on the board of the National Credit Providers' Association, the peak body for payday lenders. We tried to speak to Mr Bousfield, but he said he was "not prepared to comment at this stage."

After been alerted by Four Corners, ASIC is investigating Good2Go Loans.

At ASIC's headquarters in Sydney, there's a whole team cracking down on payday lenders - but it's like a game of regulatory whack-a-mole. As soon as it knocks down one scam, another pops up.

PETER KELL: The history of the payday lending industry is, unfortunately, a history of lenders who have tried by whatever means possible to get around the consumer protections that have been in place; to get around the caps on fees where they have existed, ah, so that they can charge a higher price to some of the most vulnerable members of our community.

STEPHEN LONG: People like Julie Gray.

She's a pensioner who lives near Penrith in far western Sydney. Julie's got three kids and a tribe of doting grandchildren.

(Julie's family visits her)

GRANDCHILD: Gran!

JULIE GRAY: Hello! What have you got?

STEPHEN LONG: She's also the lead plaintiff in class action litigation against Cash Converters.

JULIE GRAY (kissing grandchild): Mmm, I love you.

STEPHEN LONG: If it succeeds, the payday lending giant could be forced to compensate more than 50,000 people like her.

GRANDCHILD: And I made information about snakes.

JULIE GRAY: Oh. Snakes.

JULIE GRAY: Well, I'm doing it not only for myself but there is a lot of people out there, I suppose, that are in the same situation as I am; that got caught up in the whole spiral thing, having to go and get loan after loan.

STEPHEN LONG: Julie battles ill health. She spends up a big chunk of a small income on medicine and medical bills.

JULIE GRAY: I've got a hip specialist that I go to. Um, I went last week, actually, to a spine specialist which cost $230 to see the specialist and I think I got $72 back, which, I think, um, after my rent and, um, electricity and bills and that are paid, I think I'm left with $320.

STEPHEN LONG: A fortnight?

JULIE GRAY: A fortnight.

STEPHEN LONG: Julie Gray can't remember what first took her to Cash Converters at Penrith: food, medicine, a broken-down fridge or to help the kids.

But she was soon a regular customer.

BEN SLADE, LAWYER, MAURICE BLACKBURN: When Julie Gray went into the Penrith Cash Converters store to borrow $100, that was perhaps her intention: to only get one lot of $100.

But it's very soon after that that the instalments that she makes out of her bank account leave her with nothing. So she needs to go back in and get another $100 and then a personal loan for $600. And it's very soon after that she needs to go back in and get another $100 cash loan and another personal loan.

And then again and again and again and again and, until she's found herself in an impossible situation.

STEPHEN LONG: At the time, the maximum payday lenders could charge customers in New South Wales was 48 per cent a year, including all fees and charges.

What Julie didn't understand was that she was effectively paying Cash Converters more than 13 times that limit.

BEN SLADE: Between 2010 and 2013, there was a 48 per cent maximum annual percentage rate cap in NSW.

We've got two class actions that we're running that allege that Cash Converters avoided that cap by a mechanism that was, we say, trickery.

STEPHEN LONG (to Julie Gray): Julie, this is one of your loan documents from Cash Converters...

STEPHEN LONG: A mechanism similar to the loan switch Good2Go now employs: sign customers up to a two-year loan, then get them to sign another form cutting the loan term, increasing the instalments and imposing a deferred establishment fee that pushes the costs sky-high.

(to Julie Gray) In it, they say the objectives...

BEN SLADE: For cash loans, if they had included it, it was 633 per cent per annum and for personal loans it was 145 per cent per annum.

STEPHEN LONG: What's your view on the class action being taken against Cash Converters in NSW?

PETER CUMINS: I personally don't think their claim has merit. Ah and that's my personal opinion.

DAVID FAWCETT, SENATOR, CHAIR, PARLIAMENTARY JOINT COMMITTEE ON CORPORATIONS AND FINANCIAL SERVICES (Oct. 2011): Ah, Peter Cumins, managing director of Cash Converters International Limited.

STEPHEN LONG: But in a submission to a Parliamentary committee considering the federal legislation, Cash Converters admitted to avoiding the 48 per cent interest rate cap in NSW.

It wrote:

CASH CONVERTERS SUBMISSION (voiceover): The reality is that all short-term lenders have in place mechanisms to ensure that they receive a return greater than the 48 per cent annualised cap imposes on them.

STEPHEN LONG (to Julie Gray): This is a contract for a cash advance...

STEPHEN LONG: Those "mechanisms" pushed Julie Gray into a spiral of debt and depression.

JULIE GRAY: With the depression, I just felt like... I wasn't worth... anything, I suppose. Um, as a parent I was letting my kids down. Ashamed. So, I don't know. Really, when I started...

STEPHEN LONG: How do you feel about the conduct of Cash Converters?

JULIE GRAY: I'm disgusted, to be truthful. To think that they can take advantage of people like me, 'cause there would be a lot of people out there that would be in the same boat as what I am.

PETER CUMINS: What you've got to bear in mind, I guess, is that lending at, at this level is a, um, is a symptom, not a cause. So working in the industry, if you look at somebody's, um, bank statement and their spending patterns, it would suggest that a lot of people spend everything that they earn. Now, I'm so old, I grew up in the days when you saved up to buy something.

STEPHEN LONG: For many who turn to payday lending, earning enough to save is a distant dream.

Research shows that most payday loan customers use the money to pay for basic needs, such as food and rent. It's a world of poverty-level welfare, where people shuffle in and out of insecure jobs.

In many ways, payday lending is a product of decisions society has made about how to deal with those in financial hardship.

FIONA GUTHRIE: The reason that we're seeing so many people desperate for payday loans, particularly low-income people, is that our social security safety net is so low. And if you don't have enough money, week to week to week, and you have an unexpected expense such as children going back to school, where do you go?

CHRIS FOUNTAIN: Hi.

GOOD SHEPHERD CUSTOMER SERVICE WORKER: Hi, Chris. How are you?

CHRIS FOUNTAIN: I'm good. How are you?

GOOD SHEPHERD CUSTOMER SERVICE WORKER: Good.

CHRIS FOUNTAIN: That's the way.

GOOD SHEPHERD CUSTOMER SERVICE WORKER: You're here for your interview for a step-up loan?

CHRIS FOUNTAIN: Yeah. Yeah. No worries.

GOOD SHEPHERD CUSTOMER SERVICE WORKER: All right, would you...

STEPHEN LONG: There are alternatives to the high-cost payday loans.

GOOD SHEPHERD CUSTOMER SERVICE WORKER: Take a seat.

CHRIS FOUNTAIN: Yep. No problem.

STEPHEN LONG: Six hundred and fifty services nationwide offer no- or low- interest loans through Good Shepherd Microfinance.

TY, CUSTOMER SERVICE CALLER: Hi, Kerin. It's Ty from the Good Money Store here in Geelong.

STEPHEN LONG: The not-for-profit even runs its own Good Money shopfronts.

CUSTOMER SERVICE CALLER 2: Yeah, yeah. Perfect. Perfect.

STEPHEN LONG: It give gives loans for essential goods like furniture or fridges and services like dental bills and education.

GOOD SHEPHERD CUSTOMER SERVICE WORKER: I think you're a previous step-up customer?

CHRIS FOUNTAIN: Yeah. I have, yeah. And that was very helpful with that, too.

GOOD SHEPHERD CUSTOMER SERVICE WORKER: Yes. And you've paid that loan off?

CHRIS FOUNTAIN: Yep. It was for two cars...

STEPHEN LONG: Chris Fountain wants to replace his car, which was stolen.

CHRIS FOUNTAIN: I got a little bit crook the Friday and I spent the weekend in bed. What happened after that: Monday morning, car gone. And now I'm in here today to get a loan to do whatever I do in my art life or my personal life, whatever I want to do. Yeah.

ADAM MOONEY: Our no-interest loans programme has, has been very successful. We've reached 155,000 people over the last 10 years and we know through evidence that four out of five of our clients are realising economic mobility. So moving away from financial crisis and hardship to stability, to income generation and longer-term resilience.

STEPHEN LONG: The scheme grew out a tiny program begun by Catholic nuns and is now backed by State and Federal Government and a major bank.

ADAM MOONEY (to employees): I hear that the providers are really enjoying talking with us and talking to you guys and...

ADAM MOONEY: NAB offers $130 million worth of capital, interest free, to us to do this lending. And they've committed to reach a million people over the next five years with us, and they've - NAB has made a conscious decision not to bank the payday lending sector.

STEPHEN LONG: Unlike Westpac. It's providing debt facilities in the hundreds of millions of dollars to payday lenders.

ADAM MOONEY: They are the bankers, the very lucrative, ah, bankers to Cash Converters and Money3 - by far the two biggest providers.

GOOD SHEPHERD CUSTOMER SERVICE WORKER: Do you have any other personal loans at the moment?

CHRIS FOUNTAIN: No.

STEPHEN LONG: The loan scheme provides valuable help to the poor, but it's limited. It's only available to people on very low incomes. It doesn't give cash loans and, so far, it's a drop in the ocean with just six per cent of the market.

Wage earners like Anna, battling financial hardship and struggling to make ends meet, wouldn't qualify.

On a rainy day in Geelong, Anna hits the phone to confront a payday lender:

ANNA (phone conversation): Well, over 2014 I had 27 payday loans.

STEPHEN LONG: Money3, which owns Cash Train, one of four lenders she dealt with.

ANNA (phone conversation): They're all paid but, um, I complained because of the excessive fees and the fact that you shouldn't have loaned them to me in the first place, 'cause I just couldn't afford them.

ANNA: When I went back and looked at it, the four loans that they gave me were all given at times when I had a number of other payday loans at the same time, and I also wasn't in a position to make any of the repayments without taking out a further payday loan.

(using smart phone) So basically this is the, the screen that they give you. They ask you how much you want to borrow...

STEPHEN LONG: Anna took out all of her 27 loans online. It's the rapidly expanding frontier of payday lending.

(excerpt from Nimble advertisement)

MAN IN RABBIT SUIT: Whoa, what happened to the tunes? I was about to hit the bouncy castle hard.

WOMAN: We had to pay the DJ. What are we going to do?

STEPHEN LONG: As companies like Nimble invite people to live beyond their means and fill the gap with high-cost finance.

MAN IN RABBIT SUIT (voiceover): Little loans from $100 to $1,200. Once approved, have the money within the hour.

(excerpt ends)

STEPHEN LONG: For Anna, payday lending was less about living life large; more a case of trying to keep her head above water.

The federal laws are up for review mid-year. Anna doesn't see an easy answer or an easy way out.

ANNA: I'm under no great illusion that even if this is more tightly regulated, outlawed, there will still be unscrupulous companies out there that are out to take advantage of people who are in a vulnerable situation.

STEPHEN LONG: But is it good enough that growing numbers of people in Australia who are stretched and on the margins are considered fair game?

ANNA: The biggest thing, as I've said before, that I've felt about doing this is shame and isolation. And I think there are a lot of other people out there in that, that sort of situation.

Um, it just takes some financial misfortune, whatever that might be - and for different people it'll be different things. Um, it's very hard to recover from.

KERRY O'BRIEN: Westpac has told Four Corners it is reviewing its due diligence in relation to payday lending companies, in light of ASIC's critical report. And we should note that the National Credit Providers' Association, which represents the payday lending industry, refused repeated requests to be interviewed for the program.

I should also clarify that Good2Go Loans, which featured in the story, is not linked in any way to a program called Good2GoNow, which is co-ordinated by Good Shepherd Microfinance and The Good Guys whitegoods retailer.

Next week on Four Corners: India's daughter, the documentary a billion Indians have not been allowed to watch. It tells the shocking story of the savage rape and murder of medical student Jyoti Singh and a male culture that still devalues women.

Until then, good night.

Background Information

RESPONSES

Westpac's response to "Game of Loans"

Australian Securities and Investments Commission (ASIC) response

DOCUMENTS AND REPORTS

Payday lenders and the new small amount lending provisions | ASIC | March, 2015

Review of language, tone and comments contained in ASIC media releases in relation to ASIC licensed non-ADI providers | National Fincnial Services Federation | 1 July, 2014

Review of micro lenders' responsible lending conduct and disclosure obligations | ASIC | November, 2011

Cash Converters submission to the Parliamentary Committee on Corporation and Financial Services | Cash Converters | 14 October, 2011

The Politics of Payday Lending Regulation in Australia | Monash University Law Review | 25 June, 2014

MEDIA AND MEDIA RELEASES

Payday lender Good2Go Loans under ASIC microscope accused of lending to drug addicts, gamblers | ABC News | 30 March, 2015

Protections from payday lenders for low-income Australians are overdue | The Age | 29 March, 2015

Payday lenders need to lift game | Herald Sun | 26 March, 2015

Fears around growth of payday loans | The Sydney Morning Herald | 24 March, 2015

ASIC: Poor records make depth of payday loans crisis a riddle | Herald Sun | 17 March, 2015

Payday lenders on notice that ASIC ready to take action | The Sydney Morning Herald | 17 March, 2015

Payday lenders under fire | Sky News | 17 March, 2015

A loan shark in the bush got rough justice, but payday loans get legal blessing | The Brisbane Times | 13 March, 2015

Cash Converters breaks lending record | Sky News | 16 February, 2015

ASIC crackdown stops another payday lender from overcharging consumers | 19 December, 2014

Payday lenders face UK wipeout | Financial Times | 3 October, 2014

Federal Court ruling paves way for class action against Cash Converters over personal loans | ABC News | 2 September, 2014

Life after debt with payday lending | The Saturday Paper | 26 July, 2014

Payday lenders taken to court over interest rates 'of up to 160pc' | ABC News | 4 July, 2014

ASIC takes action against payday lending businesses | ASIC | 3 July, 2014

Alarm over Melbourne sex shop king's payday loans | The Age | 13 June, 2014

Westpac's risky dealings with payday lender Cash Converters | The Sydney Morning Herald | 9 November, 2013

Media release: Cash Converters sued for breaching its responsible lending obligations | Consumer Action | 31 October, 2013

Cash Converters faces $40m suit | The Sydney Morning Herald | 10 October, 2013

ASIC commences legal action against Fast Access Finance | ASIC | 7 August, 2013

New payday lending protections welcome, but lenders get a back door to charge more fees | Consumer Action | 2 July, 2013

Canberra Is Protecting Loan Sharks. Yes, You Read Right | The Global Mail | 2 August, 2012

ASIC seeks consistency in micro lenders' responsible lending practices | ASIC | 22 November, 2011

RELATED WEBSITES

Australian Securities and Investments Commission (ASIC)

Good Shepherd Microfinance

National Credit Providers Association

Financial Counselling Australia

Consumers' Federation of Australia

PAST FOUR CORNERS

Debtland | 31 March, 2008