Mike Symon (Deakin, Australian Labor Party) Share this | Hansard source

Last sitting week in the adjournment debate I spoke about the scourge of payday lending affecting low-income Australians. I spoke about the huge profits generated and the massive payments made to fat cat executives of a company called Cash Converters. It is very clear to me that the only conversion of cash where this company is concerned is conversion of its clients' Centrelink benefits to its executives' pay packets. I referred in particular to the operation of this payday lender trading as Cash Converters, which charges an effective annual interest rate of 420 per cent per annum plus fees and charges. I also referred in particular to the chief executive, Mr Peter Cummins, who received a total package of $1,703,631 for the company's 2011 year—an amount that was triple what he received in the 2010 year. It is very surprising to me that this company has not changed its name to Cash Cow.

This multinational company, Cash Converters, has run half-page advertisements in my local papers attacking the Gillard government's Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 that will regulate rogue operators that offer payday loans. These ads, which cost thousands of dollars, also attacked me for not considering the issue. But they have certainly draw my attention to the issue, of which I had some knowledge before and have far greater knowledge now. Indeed, as each day passes and I find out more about payday lenders, I have become increasingly outraged that operators such as Cash Converters have been able to rip off vulnerable customers for years, with virtually no Commonwealth action and only patchy state attempts to stop these rorts.

The payday lenders certainly do not like the 48 per cent cap on loans over $2,000 proposed in the bill. They do not think that charging nearly seven times the average household mortgage rate is enough. And they do not like the 24 per cent cap plus fees on loans of less than $2,000, as proposed in the bill. But I suppose with an executive remuneration bill in 2011 of $4.149 million, Cash Converters may well have to look at cutting their expenses—just like their customers have to do in order to repay the massive fees and charges that come with a Cash Converters loan. As reported in the Australian Financial Review, Cash Converters charge $35 for every $100 lent per month.

It is well worth quoting some of the responses to this issue as collected by the Consumer Action Law Centre from community and welfare agencies. The first one is from Eastern Access Community Health, which is in my electorate of Deakin. Jackie Bramwell, the financial counselling and problem gambling manager, had this to say about their experience of dealing with clients who had been to payday lenders:

Eastern Access Community Health financial counselling has been an indignant witness to the harm caused by payday lending. Payday lending has historically left clients with a bigger monetary shortfall than they originally began with, creating a downwards debt spiral.

Many loans have been inappropriately issued by payday lenders. A common example of this is inappropriate loans for utility bills. With suitable information from a payday lender, many loans could be avoided by using alternative and less unsettling borrowing options.

For people with identify problem gambling, payday lending has contributed to enabling gambling and worsening the downward debt spiral.

Simon Schrapel, the Chief Executive Officer of Uniting Care Wesley Adelaide, wrote:

Our financial counsellors and staff working with homeless persons and in other programs regularly assist people in financial difficulties and on low incomes who are struggling with payday or small contracts loans. People who are desperate for money see these loans as a quick and easy solution. However, they are only a short-term fix.

The people we see are on low incomes, generally Centrelink-only income, and cannot repay these high cost loans as well as their normal living expenses. Often they will have taken out another loan to pay out the first, which leads to a cycle of repeat or roll-over loans.

These loans are not only ineffective in resolving clients issues with day-to-day living expenses or other financial issues, but actually exacerbate or directly cause financial hardship and financial problems.

The small amount lending inquiry of 2008 undertaken by Victorian MP Robin Scott at the request of the then Victorian Minister for Consumer Affairs, the Hon. Tony Robinson, is well worth a read. This report examined payday lending in other jurisdictions right across the world—in the US, Canada, the UK and Ireland—as well as in Australia. I found its report on the situation in the US particularly interesting. Although the report found that payday lending is legal and regulated in 37 US states, it is illegal or unviable in 13 states due to the imposition of interest rate caps or legislation. Common features of payday lending in the US states that do allow payday lending are: loans are limited to $500 or less, loans can only be renewed once, borrowers can rescind a loan within one day, lenders cannot use threats of criminal prosecution as a lending tool, lenders must obtain a licence to operate, and fees are capped at 20 per cent of the first $300 loaned and 7.5 per cent for funds over $300.

Although that is a fair distance away—it is across the ocean, of course—there is a much closer and, from a Victorian perspective, very real example in the very stark difference between what happens on one side of the Murray and on the other. In New South Wales and the ACT there is a legislated cap of 48 per cent that includes all fees and charges which has applied since 1 March 2006, and in Queensland a similar provision has applied since 31 July 2008. Victoria, however, lost its 48 per cent cap on pawnbrokers' interest rates in the mid-1990s. That leads me to the findings of the report titled Mission incomplete by the Consumer Law Action Centre. This report illustrates the experience of 12 clients who have used high-cost short-term loans since July 2010. The cases are very much about the impact of using high-cost short-term loans on the individual. The cases highlighted the following issues for high-cost short-term loan users. Excessively high loan costs are being charged in states and territories where there is no comprehensive interest rate cap. The total amounts to be repaid and short-term repayment schedules themselves are still causing hardship as consumers struggle to repay loans. Loans are still being provided to fund recurrent day-to-day living expenses. Consumers are obtaining loans where their financial issues are not short term or minor and they should be referred to utility hardship programs and free financial counselling services. Repeat borrowing continues to cause problems, with loans being given for the purpose of paying off other payday loans. Self-exclusion requests are being ignored. Lenders are providing loans despite the provision of evidence such as bank statements showing multiple existing loans, clearly indicating financial stress. And this is just the tip of the iceberg.

Users of these loans are often vulnerable and disadvantaged and, in some cases, may not be able to understand the consequences of using these loans. Whilst payday lenders such as Cash Converters hold themselves out as offering a community service, the reality is that this is only a huge money-making operation heaped upon the people who can least afford to pay such massive fees and enormous interest rates. The interim report written by Marcus Banks titled Caught short found that 78 per cent of the survey participants who use payday lenders were receiving a Centrelink payment or pension—the very people who cannot afford to pay back anything like these outrageous imposts.

There is, of course, more than one company involved in payday lending. In fact, I have an example of unsolicited mail deposited in my letterbox last week from a company called the Cash Store. It offers me $400 and I am qualified for express approval, apparently, for the amount indicated on this certificate. It has a picture of a Christmas present and a couple of other things. It says it is quick and easy and no hassle. In other words, you can just get the money by turning up. This is one of the very sad things about this situation: people who need the money most and see something like this coming through their letterbox are quite likely to take up the offer. If they need money in a hurry and they need that amount, their chances of paying it back and getting ahead are very slim.

We keep hearing about more and more of these cases, and I impatiently await the arrival of this bill back into the House from the committee. I certainly think something needs to happen and happen soon. In the meantime, I suggest that anyone who is thinking of using a payday lender should check out the many other low- and no-cost options that are available through Centrelink and various community services to save themselves a lot of money and a lot of time. (Time expired)

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