Harmful Financial Products Project

Overview

Harmful financial products pose a significant threat to the wellbeing of Australian consumers. In recent years, Australia has witnessed the emergence and proliferation of non-mainstream, or ‘fringe’ financial products.  According to consumer advocates, providers of some of these products generate substantial profits by taking advantage of their customers, charging above-market prices, high interest rates and unconventional, ad hoc fees. There is evidence that such products serve to entrench the disadvantage of consumers who are already marginalised.

Grant information

Type of grant: Australian Research Council Linkage Grant

Researchers

Associate Professor Paul Ali (Chief Investigator)
Paul Ali is an Associate Professor at the Melbourne Law School. For further information, please refer to Paul's profile on Our Staff webpage.

Professor Ian Ramsay (Chief Investigator)
Ian Ramsay is the Harold Ford Professor of Commercial Law at the Melbourne Law School, where he is also Director of the Centre for Corporate Law. For further information, please refer to Ian's profile on Our Staff webpage.

Lucinda O'Brien (Research Fellow)
Lucinda O'Brien is a Research Fellow at the Melbourne Law School. For further information, please refer to Lucinda's profile on Our Staff webpage.

Partner Organisations

Consumer Action Law Centre

Financial Counselling Australia Incorporated

Good Shepherd Australia New Zealand

Mallee Family Care

WEstjustice

Aims and objectives

This research will fill a significant gap in Australian scholars’ and policymakers’ knowledge of harmful financial products, their impact on the lives of Australian consumers and their role in perpetuating financial exclusion.  It will combine a comprehensive legal analysis with a rigorous empirical study of these products and their impact.

To achieve these aims, the project will:

  • Investigate, document and analyse the impact of harmful financial products, with a focus on demographic groups that experience above-average rates of financial exclusion (such as women and young people) and particularly marginalised and disadvantaged populations (including newly arrived migrants and rural and remote indigenous communities);
  • Conduct surveys, interviews and focus groups involving consumers, providers of fringe financial products, consumer solicitors, financial counsellors, social workers, youth workers and other advocates. These surveys, interviews and focus groups will examine the design and marketing of harmful financial products and explore their financial, social and other impacts upon consumers;
  • Consider the extent to which these products work in combination to create or perpetuate financial exclusion;
  • Analyse the ways in which these products are regulated and the ways in which they adapt to law reform; evaluate the effectiveness of current laws in managing the risks associated with these products; and, if appropriate, develop law reform proposals to address deficiencies in these laws;
  • Publish the research findings and any resulting law reform proposals in scholarly journals and freely available online research papers; and
  • Promote public awareness of these products and the risks they represent through engagement with the media, a series of public seminars and the production of accessible educational materials.

Status of the project

The project commenced in 2018.  In 2018, the research team carried out a detailed literature review and consulted with the partner organisations regarding the project’s scope, methodology and key focus areas.

In 2019, the research team designed a major online survey exploring consumers’ experiences with three financial products: payday loans (including online loans), buy-now-pay-later services (such as Afterpay) and pawn loans.  The research team obtained ethics approval for the survey and launched it in late 2019.

Over the course of 2019, the research team has conducted a further, more detailed literature review focussing on debt collection.

In 2020, the research team will conduct focus groups with consumer solicitors, financial counsellors and other consumer advocates.  These focus groups will explore the impact of fringe financial products on consumers, with some addressing specific groups such as recent migrants and people in rural and remote areas.  Informed by these focus groups, the research team may conduct further online surveys, to acquire a deeper insight into consumers’ experiences using these products.

Publications

Vivien Chen, ‘Payday Lenders: Trusted Friends or Debt Traps?’ Monash Impact (online), 15 October 2019

Paul Ali, Steve Kourabas, Cosima McRae and Ian Ramsay, ‘Consumer Leases and Indigenous Consumers’ (2017) 20.1 Australian Indigenous Law Review 154-177.

Submissions

Ian Ramsay, Paul Ali and Lucinda O’Brien, Submission to the Senate Standing Committee on Economics Inquiry Into Credit and Financial Services Targeted at Australians at Risk of Financial Hardship, 9 November 2018

Other references

Paul Ali, Cosima McRae, Ian Ramsay and TJ Saw, ‘Consumer Leases and Consumer Protection: Regulatory Arbitrage and Consumer Harm’ (2013) 41.5 Australian Business Law Review 240

Australian Securities and Investments Commission, Report No 465: Paying to Get Out of Debt: The Promise of Debt Management Firms (21 January 2016)

Stephanie Chalmers and Michael Janda, ‘Banking Royal Commission Hears Funeral Plan Targeted Aboriginal Customers’, ABC News (online), 4 July 2018

David Chau, ‘Afterpay: Consumer advocates fear “instant approvals” will cause serious financial hardship’, ABC News (online), 27 September 2017

Kavita Datta, Migrants and Their Money: Surviving Financial Exclusion (Policy, 2012)

Financial Conduct Authority (UK), Understanding the Financial Lives of UK Adults: Findings from the FCA’s Financial Lives Survey 2017 (October 2017)

Good Shepherd Microfinance and Digital Finance Analytics, Women and Payday Lending: An Update (2018)

Nicola Howell and Therese Wilson, ‘Access to Consumer Credit: The Problem of Financial Exclusion in Australia and the Current Regulatory Framework’ (2005) 5 Macquarie Law Journal 125

Howard Karger, Shortchanged: Life and Debt in the Fringe Economy (Berrett-Koehler, 2005)

Contact

For more information about the project, please contact Lucinda O’Brien on (03) 8344 7096 or by email.