Ombudsman calls for greater clarity on fintech loan terms
Speaking to Mortgage Business, the Australian Small Business and Family Enterprise Ombudsman (ASBFEO), Kate Carnell, stated her concern that fintechs, including Prospa, are making their interest rates “really hard to understand”.
The small business lender, which postponed its public listing this week, reportedly has an average annual interest rate north of 40 per cent. However, while Ms Carnell did not suggest the interest rate was inappropriate, she did question the transparency around the actual rate itself.
“If somebody wants to pay a 40 per cent [annual percentage rate], that’s absolutely fine,” Ms Carnell told Mortgage Business.
“For particular sorts of loans that could have high levels of risk, that’s an absolutely reasonable thing to do.
“The problem is that, currently, the fintech industry — and Prospa, for that matter — don’t like quoting [annual percentage rates]. They want to quote factor rates. [Many] people don’t understand what a factor rate is.”
She continued: “The dilemma with the current way that Prospa and others reflect the cost of loans is not transparent. If people want to pay high interest rates, that’s absolutely their call as long as it’s really clear what the cost of the loan is.”
According to the ASBFEO, there needs to be greater transparency (among all fintech lenders) around establishment fees and direct transfer fees.
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Source: Ombudsman calls for greater clarity on fintech loan terms – Mortgage Business
