Australians are facing financial ruin, even homelessness, after being granted unaffordable credit at the “click of a finger” by payday lenders, a Senate committee has heard.

Financial counsellor Lyndall Millburn told senators on Friday that one of her clients – who was scheduled to appear before the public hearing but pulled out – was pushed into a financial crisis by payday lenders.

Ms Millburn detailed how the Wiradjuri woman and mother-of-two was handed seven short-term loans for her children to visit doctors, one of whom has special needs, and to pay for repairing the family’s car.

The sixth loan, for $250, came with a total cost of $463, and was approved by lenders just four days after the family had borrowed $500.

At one point, the mother had just $150 a fortnight to live on after paying the loans, the high interest bills, and rent. Lenders, meanwhile, were threatening to raid the family’s bank account for missed payments.

“She was facing eviction from public housing and she often struggles to put food on the table,” Ms Milburn said.

Another Australian mentioned at the hearings who leased a laptop from a lender ended up being charged $15,000 for a computer worth $3000, Consumer Action Law Centre policy director Tania Clarke told senators.

“Due to the excessively high fees and irresponsible lending practices that we witness, these products commonly breed financial exclusion and almost always leave people we assist worse off,” Ms Clarke said.

“Payday loans can attract fees equating to an annual interest rate of over 200 per cent, and there’s currently no limit on what can be charged under a consumer lease.”

Government crackdown looms

Advocates were asked to share consumer stories with the Senate on Friday as the Albanese government prepares to press ahead with a crackdown on payday lenders and companies that lease out their goods.

Reforms before parliament would cap short-term loan repayments at 10 per cent of household income and set limits on what lessors can charge.

The previous cap was 20 per cent, and it only applied to those receiving social security assistance.

Ms Millburn said the key issue the federal government must address is that it’s “too easy” for people to obtain high-interest credit, with lenders granting financially vulnerable people loans at the “click of a finger”.

However, she said loans should still be accessible because many people need access to funds in emergencies, but they must be made affordable.

“Even though [repayments] can’t be taken out of Centrelink, they are direct debited out of people’s accounts as soon as their pay hits it,” Ms Milburn said.

“[Lenders] get their money first and they [customers] get whatever’s left over.”

The financial counsellor also lamented how lenders market products to financially vulnerable people, saying lenders jump at the opportunity to bring in new customers, even if they’ve been rejected by other lenders.

“Somebody applied for a loan with one payday lender, was knocked back because it was unaffordable, but within 24 hours had other offers,” Ms Milburn said.

“If it’s unaffordable for one, how can it be affordable for another? That’s just appalling, these people are very financially vulnerable.”

Many miss out in compo scheme

The new short-term credit protections are being considered as part of a wide-ranging package of financial reforms that enact the recommendations from 2019 by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.

Also being legislated is a compensation scheme of last resort, which will force big banks and other financial advisors to foot the bill for those who have lost money because of dodgy advisors that have gone broke.

Consumer advocates have long argued for the scheme, but warn that the government’s current proposal doesn’t go far enough because it will cap compo payouts at $150,000 and exclude some parts of the industry.

Those fears were heightened on Friday after Australian Financial Complaints Authority (AFCA) officials revealed more than half of the $676 million in losses reported by those claiming they received dodgy advice may not be covered.

Officials said they believed only $357 million in claimed financial losses from insolvent advisors fell within the scope of the proposed scheme.

These cases have yet to be formally investigated by AFCA because they were “paused” ahead of the compensation scheme coming before parliament, meaning about 1880 people have been waiting years to have their cases heard by the complaints authority.