Bernie Ripoll (Oxley, Australian Labor Party) Share this | Hansard source

This government has done more in this area of law than perhaps any other government in the past 30 years. This government has done a superb job of reforming our financial markets and our financial services sector; importantly, linking both of those to consumer protection measures as well. This government is determined to give consumers better protection in credit markets, and that is exactly what we have done.

The National Consumer Credit Action Plan, phase 1 came into effect on 1 January and provides for licensing of all credit providers. It sets out new responsible lending requirements and it gives access to external dispute resolutions to all consumers of consumer credit. I think that ought to be the basis, the starting point, for any debate in this particular area because I am very much concerned about the confusion in this debate between a properly regulated operator in a market—people operating within the law and providing a legal product—and those who are basically loan sharks. There is a huge difference, a big gap, there and we ought not to get confused about which of those two types individuals or organisations are.

The changes that we are putting forward undoubtedly are good for consumers, but there is more to be done, particularly in the area of high-cost, short-term loans commonly known as payday loans. Again, I clearly make the distinction that there are those who operate efficiently and legally, are properly regulated and provide what is a desperately needed service. The high-cost, short-term loans are typically small loans of between $200 and $500 for individual people. They are designed to be paid back in a very short period, usually of two to four weeks. They attract a fee—sometimes a high fee—and an interest charge as well. Some of these interest rates can be annualised to equal more than 400 per cent, but annualising does not paint an accurate or even responsible picture of the actual cost compared with any other type of traditional loan—a home loan, a car loan or even a credit card—and what that means in real terms for a consumer.

I draw the attention of the House to the fact that somebody with a credit card debt of $5,000 who only pays off the minimum amount as required by their bank, regardless of the interest rate, will not pay it off for 50 years. Work out the annualised rate over 50 years and how much a person with a credit card would pay compared to someone, regardless of the annualised rate, who borrows $200 and pays it back in two weeks. There is an enormous difference in the impact that has on somebody's life. It is easy enough to get confused and populist in this debate about annualised figures of 400, 500 and 600 per cent but it tells us very little of the need or the type of credit that it actually represents.

It is important to recognise that properly regulated legal loans can be effective in helping individuals. Just like any other form of credit, if it is done properly it can be of great benefit. Nobody who has created wealth in this nation would ever say they did it on their own without a creditor behind them in the first place to give them the capacity to grow their business or to get on the table to start with.

The Consumer Action Law Centre, based in Melbourne, in its very good report Payday loans: helping hand or quicksand?,sets out a number of things. It says:

Many people using these loans are vulnerable.

That is true. Studies have shown that consumers generally have high-cost short-term loans in order to meet basic needs—for example, 21 per cent of them use them to pay bills, for car registration or repairs, for living expenses, including food, or even to pay their rent. But that is exactly the point. That is exactly where a payday loan can actually be of great advantage, because if there is no other means of credit to actually pay those essential bills, what happens? Does the power go off? Do people get tossed out of their home? So there is a place; there is a market. It is recognised by government. We have done more than any other government to properly regulate that area. What I am looking for is efficiency: let us get it properly organised, let us make sure we make a distinction between the loan sharks, the underhanded black market credit—which is actually very damaging to individuals—and those who properly access a market which is obviously recognised by its need in that particular report.

As I said earlier, there is a great distinction to be made by those who understand credit and the financial markets between what is a regulated operator operating within the law—banks and those types of loans—and those who operate outside the law. And they need to recognise that the people who access this type of credit actually have no other source. They cannot get a credit card and are probably better off not getting a credit card because the cycle of debt may be a lifetime cycle. There are a number of very good quality reports out right from decent operators in the market that demonstrate that these people are not turnstile customers. (Time expired)

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