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ASIC has updated its guidelines on payday loans

ByOlivia

The Australian Securities and Investments Commission (ASIC) has updated its guidelines in May 2025 to address concerns about payday loans being offered to people receiving Centrelink payments. These changes aim to reduce financial harm, especially in vulnerable communities where short-term borrowing is often the only available option.

The focus is now on ensuring lenders meet stricter responsible lending obligations. This includes properly assessing a borrower’s ability to repay loans without experiencing substantial hardship.

One key development is the shift from using Small Amount Credit Contracts (SACCs) to Medium Amount Credit Contracts (MACCs). SACCs are loans of up to $2,000 repaid over a period of 16 days to one year. MACCs are loans between $2,001 and $5,000 with terms ranging from 16 days to two years. While MACCs have lower fees per dollar borrowed, they may pose new risks if used to avoid SACC regulations.

ASIC has flagged that some lenders might be structuring loans as MACCs to bypass repayment cap rules that apply specifically to SACCs.

Implications for Centrelink Recipients

Centrelink users often turn to payday loans to cover essentials like rent, groceries or utility bills. According to the Consumer Action Law Centre, this group is especially vulnerable to high-cost credit because they rely on fixed income payments.

Under existing laws, lenders must ensure that repayments for SACCs do not exceed 20 percent of a borrower’s gross Centrelink income. The purpose is to stop lenders from taking too large a portion of someone’s limited funds.

  • Lenders cannot simply reclassify SACCs as MACCs to avoid the 20 percent repayment cap
  • All lending must still meet responsible lending criteria, even if caps do not apply
  • Loan assessments must consider the borrower’s full financial position, including rent, bills and other existing debts

These changes are important because people receiving Centrelink payments already face significant financial pressure. Forcing them to repay loans that take too much of their income can lead to missed rent, food insecurity and further borrowing. Lenders may need to reassess their practices to ensure they align with these reinforced guidelines.

Case Study: Swoosh Finance

ASIC has taken legal action against Swoosh Finance, an online lender based in Queensland, for allegedly breaching consumer protection laws. The case highlights concerns about lenders issuing MACCs to Centrelink recipients without proper affordability checks.

Between 2019 and 2023, Swoosh provided over 7,000 MACCs. ASIC believes many of these loans were issued without verifying whether the borrowers could afford repayments. It is alleged that Swoosh:

  • Relied on automated systems rather than manual assessments
  • Did not consider how repayments would affect the borrower’s ability to pay for essentials
  • Failed to meet responsible lending obligations under the National Consumer Credit Protection Act

The matter is currently before the Federal Court. If ASIC’s claims are proven, it could set an important precedent for how online lenders approach compliance. Penalties for breaches of credit law can include fines, compensation orders and bans from providing credit.

Consumer Protection Measures

The Financial Sector Reform (Hayne Royal Commission Response) Act 2020 introduced stronger protections for payday loan borrowers. These reforms gave ASIC greater powers to enforce consumer credit laws and clarified repayment obligations for lenders.

  • SACCs cannot have repayment obligations exceeding 20 percent of a borrower’s gross income from Centrelink
  • Upfront and ongoing fees must not exceed the legislated caps
  • MACCs must still meet general responsible lending criteria, even though they do not fall under the same fee and repayment caps as SACCs

Borrowers can also contact the National Debt Helpline on 1800 007 007 for free, confidential financial advice. The helpline is an important resource for people struggling with payday loan repayments.

ASIC also encourages consumers to visit its Moneysmart website for information on budgeting, loans and avoiding scams.

Expert Opinions and Analysis

ASIC Commissioner Alan Kirkland has stated: “Consumers who access these products are often financially vulnerable. That’s why people who use small amounts of credit contracts are subject to additional protections.”

Consumer advocacy groups, including the Consumer Action Law Centre, support ASIC’s action. They argue that payday lending models often exploit people in hardship rather than helping them. According to their recent reports, more borrowers are missing repayments on MACCs, especially in rural areas like Katherine in the Northern Territory.

Analysts have noted that some lenders might be shifting from SACCs to MACCs to appear compliant while still extracting high repayments. They argue that this tactic undermines the spirit of consumer protection laws. Responsible lenders like Loan Owl must remain transparent in how they structure and assess their payday loans for Centrelink recipients.

Visual Aids

The table below highlights the key differences between SACCs and MACCs. These distinctions are important because they affect the level of protection borrowers receive:

Feature

SACCs

MACCs

Loan amount

Up to $2,000

$2,001 to $5,000

Loan term

16 days to 12 months

16 days to 24 months

Repayment cap (Centrelink)

20% of gross income

Not specified

Typical users

Low-income borrowers

Broader range

Fees

Capped (establishment + monthly)

Capped interest + other fees

Data from ASIC shows that the average payday loan amount is $768 with a 21-week term. For MACCs, the average amount is $2,500 with a 30-week term. While longer terms may appear manageable, larger repayments can still overwhelm Centrelink recipients if not carefully regulated.

Conclusion

ASIC’s crackdown on payday loans issued to Centrelink users sends a clear message. Lenders must comply with both the letter and the spirit of responsible lending laws. Simply changing a loan’s structure does not remove the requirement to assess affordability.

These updated guidelines aim to prevent harm to financially vulnerable people. They also promote fairer lending practices across the industry. Consumers are encouraged to seek help if they’re struggling with repayments and to report any lender who may not be following the rules.

Payday loans Centrelink users rely on can provide short-term relief, but without the right checks in place, they can also deepen long-term financial stress. Platforms such as Loan Owl operate in a regulatory environment that increasingly prioritises consumer safety and financial transparency.

ASIC’s continued oversight is critical in making sure these loans do not become a trap for people already doing it though.