Lenders swap diamonds for cash to circumvent laws

The Federal Government is promising to crack down on a form of payday lending that involves people signing a contract to buy diamonds.

The borrowers are later forced to sell the diamonds back to the money lenders at substantially lower rates.

By substituting diamonds for cash, the money lenders circumvent state laws which outlaw exorbitant interest rates.

One borrower, Rachel Charter, learned about the scheme in 2009 when she went to a lender called Fast Access Finance to get a loan to help her catch up on her rent.

Her lawyer, Bridget Burton from Brisbane's Caxton Legal Centre, says Ms Charter unknowingly signed a contract to buy $2,000 worth of diamonds.

"Instead of a loan contract, Ms Charter had received documents that seemed to be a contract for the purchase from Fast Access Finance of eight loose modern brilliant-cut diamonds," Ms Burton said.

But Ms Charter had also signed another contract stating she would immediately sell the diamonds for $1,000.

She thought she was walking away with a $1,000 loan.

Ms Burton says she only realised later there was something strange about the arrangement.

"The first she heard of the diamonds was when she read it in the paperwork after she had left the premises," Ms Burton said.

"There is an interest rate cap of 48 per cent in Queensland. So even if she hadn't read the documents, Rachel could have expected that the loan would be no more expensive than that cap provides.

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