Most Australians who access payday loans are pushed further into financial hardship, a leading financial counselling group says.
But an organisation representing some payday lenders has denied the highly-regulated industry has a problem playing by the rules, pointing instead to unregulated credit providers.
A Senate inquiry is examining payday loans and other financial services targeted at Australians at risk of financial hardship, which were not covered by the banking royal commission.
Financial Counselling Australia chief executive Fiona Guthrie says laws passed in 2013 to protect payday loan recipients have not prevented "widespread irresponsible lending".
"The industry may say that's been addressed, but that's not our experience," she told senators in Melbourne on Wednesday.
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"And that's not the experience of the regulator, who continues to have to take regulatory action against payday lenders and rent-to-buy companies."
Ms Guthrie's organisation is calling for greater funding for financial counselling services to help prevent the need for people to turn to such loans.
Those funds could come in part through a new industry levy, she said.
"We could really coordinate and have a strategic approach to fixing some of these problems if we had additional resources."
National Credit Providers Association chair Robert Bryant said his heavily-regulated industry, which providers payday loans known formally as small amount credit contracts, is not the problem.
Many of the examples of irresponsible lending highlighted by Financial Counselling Australia pertain instead to unregulated credit providers, he said, with his industry often misrepresented.
"This misrepresentation of our well-regulated industry is seen in every bad consumer lease story," he said.
Mr Bryant said regulations are front-of-mind for lenders subjected to them and the same rules should be extended to unregulated providers.
He also rejected the suggestion his industry has a compliance problem.
The discussion comes after now-Nationals leader Michael McCormack introduced legislation to federal parliament in 2017 aimed at ramping up payday loans protections.
The draft laws involved capping total payments on consumer leases and requiring all small amount credit contracts to have equal repayments and payment intervals, but it has not progressed.
Ms Guthrie said Financial Counselling Australia has been waiting since October 2017 to hear more about the legislation.
"It's just stuck, which is a real shame," she said.
The legislation followed a review into the loans, the recommendations of which were mostly accepted by the coalition.
