The effectiveness of small loan regulation in Australia

Abstract

This article considers the current differences between the regulation of small consumer loans and small enterprise loans, and raises the question as to whether those differences are likely to be justified on the basis that consumer and enterprise borrowers have different dominant personal and personality characteristics, thereby warranting different protections. Consumer loans are regulated in a manner which provides much greater protection for consumers, obligations for disclosure and ultimately a stronger foundation to limit overindebtedness and inappropriate loan applications. On the other hand, enterprise loans, even for very small amounts, are provided with very little regulatory protection. This difference in the regulation of types of loans has the potential to impact the effectiveness of the regulation if the personal characteristics of each cohort of borrowers are actually comparable. This paper explores the different approaches to regulating small consumer and enterprise loans in the Australian context and finds that the regulation overrelies on disclosure for consumer borrowers and that small-size enterprise borrowers are not adequately protected by the regulation