New Consumer Protections for Payday Loans in 2025: What Changed and What It Means for Australians

Australia tightened the screws on harmful short term lending in 2025. The year did not rewrite the fee caps for small amount credit contracts, but it did sharpen enforcement, close avoidance paths, and bring related credit products into the same regulatory tent. If you borrow, lend, or advise in this space, the practical effect is clear. Payday lenders have less room to push customers into unsuitable loans or charge non permitted fees. Consumers have clearer avenues for redress. And most adjacent providers now need a licence and proper credit checks.

In this article, I unpack the measures that actually took effect in 2025, explain how they interact with the existing rules, and outline what they mean for borrowers and lenders. I also include a forward view on where policy is heading next.

The Baseline Rules & Regulations of Payday Loans

Before 2025, payday loans in Australia already sat under strict cost limits and conduct rules. A small amount credit contract up to $2,000 can include an establishment fee up to 20% of the amount borrowed and a monthly fee up to 4%. Interest is otherwise prohibited on these loans. Lenders must make reasonable inquiries and verify that the loan will not be unsuitable. Rollovers and rescheduling tricks are restricted. Every lender must hold an Australian credit licence and belong to the external dispute resolution scheme.

2025 did not change the dollar caps. Instead, it changed behaviour through enforcement, court rulings, and an expansion of the licensing perimeter that touches the high cost credit market.

What Changed In 2025

Regulators took three decisive steps that now shape the market.

1. Court judgments confirmed that non permitted fees on payday loans are unlawful. The Federal Court affirmed that charging extra for rescheduling or extending a small amount credit contract breaches the law. The message is unambiguous. If a fee is not expressly allowed in the Credit Code for a small amount credit contract, the lender cannot charge it.

2. ASIC publicly warned lenders about steering borrowers into contracts with fewer protections. The regulator’s review found that some providers tried to move customers from payday loans into medium amount contracts between $2,001 and $5,000. These larger loans have different fee settings and do not carry the same strict cost structure as payday loans. ASIC has put the sector on notice that using product switching to avoid the safeguards is a breach of design and distribution obligations and responsible lending obligations.

3. Low cost credit contracts, including buy now pay later, moved under the credit licensing regime from 10 June 2025. Providers must now hold a credit licence, comply with credit assessment requirements, follow distribution obligations, and give customers access to hardship processes and external dispute resolution. This is not a payday loan reform in a narrow sense, but it removes a major unregulated channel that previously sat beside payday products and often served the same households.

How these measures protect consumers in real terms

The 2025 settings turn legal theory into day to day protection.

• Prohibited fee deterrence. The court rulings eliminate grey area pricing such as extension, rescheduling, or administrative fees that had been used to inflate the total cost. Borrowers who suspect they were charged such fees can now challenge them with strong precedent on their side.

• Tighter suitability enforcement. ASIC’s warning and ongoing investigations push lenders to improve affordability checks and verification of income and expenses. Lenders who rely on templated living expense figures or fail to test capacity for repeat borrowing face a higher risk of penalties.

• Fewer avoidance paths. The perimeter change for low cost credit removes the incentive to funnel borrowers into adjacent products that used to sit outside the Credit Act. Consumers now receive consistent disclosures and access to hardship relief across a wider set of short term credit options.

What lenders must do now

Licensed lenders need to work to a higher bar in 2025 and beyond.

• Review all fee schedules for small amount credit contracts. If a fee is not listed in the Code for these loans, do not charge it. Remove rescheduling and extension fees and audit historical files for remediation exposure.

• Reinforce credit assessment. Verify income and expenses using recent statements, test for existing commitments, and adopt a conservative treatment of variable income. Document how the loan remains suitable if the borrower has taken multiple short term loans within a short period.

• Strengthen design and distribution obligations. Define a target market that reflects the real risk of small amount credit and set clear distribution conditions that prevent churn into medium amount products when suitability is not proven.

• Prepare for AFCA scrutiny. Assume a higher volume of disputes where customers claim non permitted fees or inadequate assessment. Ensure hardship processes are accessible and timely.

Where 2025 sits in the broader reform arc

Australia tightened payday lending with the post 2022 changes that cemented fee caps, protected earnings ratios, and stronger distribution controls. The 2025 actions consolidate those reforms by clarifying illegality of certain charges and extending licensing to adjacent products. The direction is consistent. There is less tolerance for high cost credit that causes hardship, and more expectation that lenders prove suitability rather than rely on consumer choice alone.

Borrower impact and practical guidance

If you are considering a payday loan in 2025, the operating environment gives you more protection than in previous years, but the fundamental risk remains. Payday loans are designed for short duration and come with high relative costs. The new rules protect you from non permitted charges and poor practices, not from the mathematics of short duration fees.

Use this simple approach before you sign any agreement.

1. Confirm the lender is licensed and listed on the ASIC register. Membership of AFCA is mandatory. If either is missing, walk away.

2. Ask for the total repayable amount and the schedule. For small amount credit contracts, you should only see the establishment fee and the monthly fee, plus a capped default fee if you miss a payment.

3. Provide full income and expense information. A proper lender will ask for it. If the process feels too light, that is a red flag. A weak assessment now can become a hardship claim later.

4. Check for any mention of extension or rescheduling fees. These charges are not allowed for payday loans. If they appear in the contract or disclosure, raise the issue or seek another provider.

5. Consider alternatives. Many banks and credit unions offer low cost short term options and utilities can arrange payment plans. Charities can assist with no interest loans for essential goods.

The role of CashPal in the Current Loan Economy

CashPal is a licensed Australian lender that offers personal loans and payday loans. We operate under the Credit Act, hold an Australian credit licence, and are a member of AFCA. Our products comply with the small amount credit contract fee caps and our assessment process follows the responsible lending framework now reinforced through 2025 enforcement.

When we say a loan is suitable, it is because we have verified income and expenses and tested for affordability. If a customer experiences difficulty, we provide hardship support in line with the law. That is the standard customers should expect from any provider in Australia in 2025.

Compliance checklist for lenders and brokers in 2025

• Confirm that fee tables for small amount credit contracts include only the establishment fee and monthly fee, and that any default fee is capped as required.

• Remove any extension or rescheduling fees and remediate historic instances where these were charged.

• Use bank statement analytics or equivalent verification to map income and core expenses rather than relying on static benchmarks alone.

• Record distribution conditions that prevent channel partners from pushing customers into medium amount credit to avoid the payday caps.

• Maintain up to date hardship policies and ensure staff can grant short and medium term variations quickly.

Warning signs for consumers

If you see any of the following, reconsider the loan.

• Claims that a payday loan can be extended indefinitely for a small fee.

• Applications that do not require recent bank statements or proof of expenses.

• Advice to refinance a payday loan into a larger loan without a fresh assessment.

What to do if you think a lender broke the rules

Consumers have a clear path to escalate complaints in 2025.

• Raise the issue in writing with the lender and request a response within a reasonable period.

• If the lender does not resolve it, lodge a complaint with AFCA. This is a free service and the lender must participate.

• Report the conduct to ASIC. The regulator uses trend data to target enforcement and has made payday lending a priority area.

Frequently observed questions about the 2025 changes

Did 2025 change the caps on payday loan fees

No. The 20% establishment fee and 4% monthly fee structure remains. What changed is the enforcement of prohibited fees. Courts confirmed that lenders cannot add extension or rescheduling fees to small amount credit contracts. The net effect is a cleaner and more predictable total cost for borrowers.

Do lenders have to run full credit checks on every borrower now

Yes. Responsible lending obligations require lenders to verify income and expenses and assess suitability. The 2025 focus by regulators has made this a practical necessity. Lenders who do not perform sufficient checks risk penalties and customer remediation. Expect to provide recent bank statements and evidence of your fixed commitments.

Can a lender move me from a payday loan to a larger loan to keep me as a customer

Only if it is suitable and properly assessed. Regulators have warned against product switching that reduces consumer protections. Any move into a medium amount credit contract must be justified by verified affordability and a clear need. Otherwise it risks breaching design and distribution obligations and responsible lending obligations.

What changed for buy now pay later in 2025 and why does that matter for payday borrowers

From 10 June 2025, buy now pay later sits under the Credit Act with licensing, credit checks, hardship rights, and access to AFCA. This matters because many households that use payday loans also use buy now pay later. Bringing these products under the same framework reduces arbitrage and ensures consistent safeguards across short term credit.

How does CashPal approach hardship under the 2025 settings

CashPal provides hardship support that complies with the Credit Act and AFCA guidance. Customers can request a variation when they experience difficulty. We assess these requests quickly and offer realistic arrangements that keep customers on track. This is part of our licence obligations and our commitment as a responsible lender.

A forward view for policy makers and industry

The 2025 measures close gaps and elevate standards, but households still face cost of living pressure. The next phase should focus on data driven affordability checks, better visibility of repeat borrowing across providers, and clearer prompts that show the total cost at the point of decision. Industry should keep investing in verification technology and clearer disclosures that present the total repayable amount and the effective monthly cost across the entire term. Consumer advocates will continue to press for stronger protected earnings ratios and for a tighter approach to repeat lending across multiple brands. Lenders that get ahead of these expectations will be better placed when the next set of reforms arrives.

FAQs

What practical protections did consumers gain in 2025?

Consumers gained stronger protection from non permitted fees, clearer recourse through AFCA, and consistent safeguards across buy now pay later and other low cost credit. Enforcement pressure also raised the quality of affordability checks.

How can I tell if a lender is licensed in Australia?

Search the ASIC register and confirm AFCA membership. A licensed lender must be listed and must display AFCA details. CashPal appears on both registers and provides links for verification on request.

Are payday loans safer now?

They are safer in terms of conduct and disclosure, but they remain high cost relative to the amount and term. The key protections prevent harmful practices. They do not change the underlying fee structure. Borrow only what you can repay within the agreed schedule.

Can CashPal help with alternatives to payday loans?

Yes. CashPal also offers personal loans with structured repayments. For some customers a personal loan may be a better fit than a payday loan if the need and affordability support a longer term at a lower relative cost. Our assessment process will test the best option for your situation.

What should I do if I was charged an extension fee on a payday loan?

Ask the lender to remove it and refund any amount already paid. If the lender refuses, lodge a complaint with AFCA and report the issue to ASIC. Keep copies of your contract, statements, and communications.

Will 2025 changes affect my credit report?

Yes in an indirect way. Better verification means lenders rely more on bank data and bureau data when assessing your application. In addition, buy now pay later checks can appear on your report from June 2025, which gives a fuller picture of your commitments.

Does CashPal guarantee approval?

No. CashPal follows responsible lending rules. Approval depends on verified income, expenses, and suitability. This protects customers from unsuitable debt and aligns with the 2025 enforcement settings.

Where can I get independent help if I am in hardship?

Contact a financial counsellor through the National Debt Helpline. Speak with your utility provider about payment plans. Consider a no interest loan for essential goods through eligible community organisations. AFCA can also assist with disputes against licensed lenders.