Financial authorities in Australia are stepping up their control as concerns over payday affordability lead to a renewed examination of short-term lending practices. Payday lenders have been alerted by the Australian Securities and Investments Commission (ASIC) to possible violations of consumer protection legislation in light of data that suggests certain providers could not be fulfilling affordability assessment parameters.
22% of struggling Australians rely on payday loans, and 68% are unable to save for emergencies, according to The Salvation Army’s most recent study, which ASIC noted in its March 2025 report as concerning trends amid escalating financial hardship. New rules enacted on June 10, 2025, mandate that bankers do more thorough affordability inspections of the $1.3 billion small and medium credit market in the country, which is currently being closely examined.
The Financial Hardship Crisis Behind Regulatory ReformRising Economic Pressures Create Vulnerable Borrowers
The Salvation Army’s 2025 Financial Hardship Report presents worrying trends in Australian household finances. Sixty-four percent of respondents reported deteriorating circumstances compared to the previous year. More than half pawned possessions to address cash shortages. The organisation distributed over $18.1 million in assistance and helped more than 100,000 people struggling to cover basic living costs.
Multiple factors are driving household hardship. Living expenses continue rising faster than income growth. Housing instability worsens as landlords impose steep rent increases. Employment challenges include underemployment and reduced working hours. Healthcare costs for physical and mental health conditions keep mounting. These compounding pressures push vulnerable Australians toward expensive credit products despite associated risks.
Record Complaint Volumes Signal Systemic Issues
The Australian Financial Complaints Authority (AFCA) received unprecedented complaint volumes exceeding 100,000 during the 2024-25 financial year. As of June 2025, AFCA maintained 29,117 open complaints. Emerging patterns around inadequate hardship support and unsuitable lending decisions became increasingly prominent.
Between June and August 2025, AFCA received 393 complaints specifically about Buy Now Pay Later services. Many involved issues with hardship arrangements and account suspensions following assistance requests. This data suggests broader systemic problems with how credit providers assess borrower capacity and respond to financial stress. Financial counselling services report increasing cases of borrowers trapped in debt cycles due to insufficient assessments at the loan origination stage.
ASIC Identifies Lender Strategies to Avoid Affordability RulesThe Medium Loan Migration Pattern
ASIC’s regulatory review identified a concerning industry trend. Lenders are systematically moving borrowers who previously accessed smaller amounts ($700 to $2,000) into medium-sized loans ($2,000 to $5,000). This product restructuring allows them to avoid stricter affordability protections mandated for small amount credit contracts (SACCs).
Small amount credit contracts include specific safeguards. Borrowers can only access two loans within any 90-day period. A 20% income cap applies for borrowers receiving more than half their income from Centrelink. Lenders cannot refer customers to other providers. Enhanced suitability assessments are mandatory. Medium amount credit contracts operate outside these restrictions and create opportunities for regulatory avoidance.
Defining Unsuitable Lending Under Current Law
Under the National Consumer Credit Protection Act, a loan becomes unsuitable when it fails to meet borrower requirements and objectives. A loan also qualifies as unsuitable when complying with the contract would cause substantial hardship. Responsible lending obligations require lenders to make reasonable inquiries about a borrower’s financial situation and verify this information before approval.
Specific circumstances typically indicate unsuitable lending. These include situations where more than half of income derives from Centrelink and repayments exceed 20% of that income. Warning signs also appear when borrowers already held two or more payday loans in the preceding 90 days. Additional red flags include borrowers being in default on existing loans at application time or when loan repayments would exceed 10% of after-tax income.
Expanded Affordability Assessment Framework Takes EffectNew Legislative Requirements for Credit Providers
The Treasury Laws Amendment (Responsible Buy Now Pay Later and Other Measures) Act 2024 introduced comprehensive reforms commencing on June 10, 2025. These regulations bring low-cost credit contracts (LCCCs) under a modified affordability framework designed to strengthen borrower protections while maintaining credit access for appropriate circumstances.
Core requirements include mandatory unsuitability assessment policies that lenders must prepare and follow. Extended verification periods now require lenders to assess financial circumstances over the previous 120 days rather than shorter timeframes. Fee caps limit annual charges to maintain LCCC classification. Enhanced hardship assistance obligations now apply. Borrowers can lodge hardship complaints through AFCA for independent oversight of lender responses to financial difficulty.
Practical Implications of Modified Affordability Obligations
Lenders must now make reasonable inquiries and take reasonable steps to verify borrower financial situations over extended timeframes. For loans exceeding $2,000, additional information collection becomes mandatory. The regulations introduce a rebuttable presumption that LCCCs with credit limits of $2,000 or less will be considered unsuitable for meeting consumer requirements. However, this doesn’t eliminate fundamental responsible lending obligations.
Credit providers can elect to comply with these modified obligations or maintain adherence to standard responsible lending requirements under the National Consumer Credit Protection Act. Either pathway requires genuine assessment of whether borrowers can meet repayments without experiencing substantial hardship. Lenders including CashLend and other licensed providers must adapt their assessment processes to meet these enhanced standards.
Consumer Rights and Recourse OptionsIdentifying and Challenging Unsuitable Loans
Borrowers who suspect they received unsuitable loans have specific rights under Australian consumer credit law. Payday affordability requirements mandate that lenders ensure borrowers can repay loans without substantial financial hardship. When lenders fail this obligation, borrowers may seek remedies including refund of fees and charges.
The challenge process begins with documentation gathering. Borrowers should collect loan contracts and bank statements showing income and expenses. Communication records with the lender are also essential. Initial complaints should be directed to the lender’s internal dispute resolution process. Lenders must respond to complaints within prescribed timeframes of typically 30 days for standard matters.
If internal resolution proves unsatisfactory, escalation to AFCA provides free and independent dispute resolution. AFCA considers complaints about irresponsible lending decisions including whether loans were affordable or suitable for borrower circumstances. Determinations issued by AFCA are binding on financial firms. Complainants retain the option to reject outcomes and pursue alternative remedies.
Navigating the AFCA Complaint Framework
The AFCA complaint process follows a structured pathway designed to achieve fair outcomes. Complainants submit details through online portals or phone contact. AFCA then contacts the credit provider for their response. The complainant reviews and addresses this response. If early resolution doesn’t occur, formal investigation proceeds with AFCA gathering evidence and making determinations based on applicable law and industry codes.
Financial counselling services provide free assistance throughout this process. The National Debt Helpline (1800 007 007) operates weekdays from 9:30am to 4:30pm and offers confidential support to borrowers navigating complaint procedures or seeking hardship assistance. These services operate independently from credit providers and prioritise consumer interests.
Alternative Credit Solutions and Support ResourcesLower-Cost Borrowing Options
Before considering payday loans, Australians should explore alternative credit products with more favourable terms. Personal loans from licensed lenders often feature lower interest rates and longer repayment periods compared to payday products. Options from providers like CashLend may offer competitive rates. Credit unions and community banks typically provide accessible rates for borrowers across various credit profiles.
The No Interest Loan Scheme (NILS) provides up to $1,500 for essential items like appliances or medical equipment without interest charges or fees. Centrelink Advance Payments offer interest-free cash advances for eligible recipients and provide immediate relief without expensive credit costs. Some creditors will negotiate payment plans directly and allow extended timeframes without additional lending.
Emergency Financial Support Services
Government and community organisations provide emergency relief options that can prevent the need for high-cost credit entirely. Services include emergency relief grants for urgent bills and food vouchers for essential purchases. Utility assistance programs through energy retailers and temporary accommodation support during housing crises are also available.
The Salvation Army and St Vincent de Paul Society maintain emergency relief programs across Australia. Local community organisations also offer support. These services operate on confidential principles and can provide immediate assistance during financial crises.
Regulatory Outlook and Industry Accountability
The evolving regulatory framework reflects government commitment to protecting vulnerable borrowers from predatory lending practices. ASIC’s March 2025 warning signals increased enforcement activity ahead with potential penalties for lenders who systematically provide unsuitable credit or manipulate product structures to avoid payday affordability requirements.
The shift from product-specific regulations toward comprehensive affordability standards aims to close loopholes that enabled regulatory avoidance. However, effective consumer protection requires ongoing monitoring and enforcement. ASIC has indicated continued focus on products that provide small credit amounts to consumers with potential for harm including emerging products like wage advance services.
