ASIC cracks down on payday loans to prevent debt spiral Targeting businesses that try to circumvent the interest-rate cap laws: ASIC deputy chairman Peter Kell. The corporate regulator is moving against rogue operators in the contentious payday lending sector, warning it will take action to prevent the exploitation of vulnerable people. The Australian Securities and Investments Commission has already banned 20 people for operating without a licence or engaging in irresponsible lending. It has also launched court actions - most recently against a company allegedly using a bogus diamond trading scheme to bypass credit laws. While the mainstream lenders in the short-term finance industry are coming to grips with new laws designed to protect consumers, one in five operators remains unlicensed, according to estimates by the National Financial Services Federation. The federation has also warned that overseas operators are bombarding the local market on the internet, using Australian domain names. It is urging tougher control, including restricting the purchase of Australian domain names. "You have these overseas entities that just create website after website after website," said Philip Johns, the federation's chief executive. It's nigh on impossible for the regulator to stop that at the moment. The payday lending model involves short-term loans of relatively small amounts, often taken out by people with low incomes or reliant on welfare. Repayments are made via direct debits on bank accounts on pay days, or pension days. Without controls, there is the risk of excessive interest, penalties because of missed payments and a debt spiral because of continuing loans. Australian lenders must be licensed and lend responsibly under new reforms, while fees are capped at 20 per cent upfront and 4 per cent on monthly interest rates. Loans must be for at least 16 days. ASIC is determined to enforce the new regime. "Businesses that set themselves up deliberately to get around the laws relating to interest-rate caps and other consumer protections ... It is an area we are targeting," ASIC deputy chairman Peter Kell said. The Salvation Army argues that there is a link between homelessness and the debt spiral caused by payday loans. But the payday loans industry argues that the vast majority of its customers are satisfied. Mr Kell acknowledged it was a difficult area to regulate and "there are some real issues for disadvantaged consumers in this sector." "We are devoting significant resources to improving standards and making sure the new laws work," he said.