Graham Perrett (Moreton, Australian Labor Party) Share this | Hansard source

I rise to support the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011. As the member for Dunkley has stated, there is a very strong case for reform in this area. Unfortunately, to date no-one has been able to find a solution. It is a difficult area to regulate. We are talking about real people's lives, and often there are significant impacts on the lives of children. There are very few jurisdictions across the world that have been able to do it, but I am proud that the Gillard government has been able to step up and attempt to get this right. Obviously, in a perfect world every person who deserved credit would have the appropriate credit history looked at, and they would go along to a bank, a credit union or an appropriately regulated lending institution and receive credit at the appropriate interest rate. We do not live in a perfect world. We live in Australia in 2012, and people have been taking advantage of people who need credit for thousands of years. That is the reality. Whether you go back to the Merchant of Venice or the Bible or the Koran, there are always examples of people taking advantage of others who need to borrow.

Credit is one of the wonderful things in society. It lets us accumulate extra wealth by speculating, and obviously we need proper regulation around it. Sadly, for people who are not able to go through the doors of banks and credit unions and other lending institutions, we need respectable businesses, like Cash Converters in Moorooka in my electorate, or some of the other independent lenders down at Acacia Ridge. There is a market there for people. There is no point saying to someone whose car has broken down and needs it repaired so that they can go to work, 'You need to go to a bank. You will get a much better interest rate.' The reality is: there is no job tomorrow if you do not turn up, so you need to get your car fixed right now. How do you get your car fixed right now? You have got no money. You go down to one of these credit providers.

There is no point saying to a mum when her washing machine has broken, 'You can't wash any of your kids' clothes and they will have to go to school stinking and smelling and be teased. You should go down to a bank.' That is just not the real world. We do know it is a difficult issue in terms of getting this right. In 2001 the shadow finance minister, Mr Hockey, when he was Minister for Financial Services and Regulation, recognised the issue, and he said, 'Payday lending is an insidious practice that targets the less prosperous men and women of our society, the less financially savvy and the people who can least handle spiralling debt.' That was 11 years ago. Unfortunately, he must have had other concerns at the time, but he was not able to do anything about it. Nothing actually happened for the next seven years, when those opposite were in government. I have got the Treasury portfolio minister's media release—with a photo of a slimmer version of Joe Hockey—which has the heading 'Action needed on payday lending'.

Unfortunately, Mr Hockey found reform to be a bridge too far. I understand that; I appreciate his endeavours. At the time, he called on the individual states—I guess there would have been a lot of Labor states then—to address this issue. As a Queensland member of parliament, I was pleased that the former Queensland Attorney-General, the Hon. Paul Lucas, was actually so proactive and enthusiastic about consumer affairs—perhaps from his time as a lawyer—that he displayed his attention to detail when it came to protecting consumers. We saw this when he overhauled the terms and conditions for something as simple as a gift card. Thankfully, Queensland led the way on further protecting vulnerable consumers. I am sure the new Queensland Attorney-General will be as proactive about protecting people and protecting consumers—hopefully.

Unfortunately, many low-income consumers do take out short-term loans as a first port of call rather than using them as a last resort. I have had meetings with two or three different groups of short-term lenders in my electorate and they made the point that they have had clients on their books for 10 years who come back every month for the same amount, something like only $200 or $300. Obviously part of this reform is to make consumers think about other options when they are faced with a temporary financial shortage. I commend the great work that Centrelink do in this area. They are able to provide some options, but obviously they cannot cover the field. Sometimes it may appear easy to take out a short-term loan, but for many, due to the costs involved, they are just delaying the inevitable and making their situation worse down the track. Some people get into that debt spiral, but others are just regular users of these short-term loans.

As part of these reforms, the government is considering ways to inform consumers that they do have other low-cost options to meet their daily and weekly expenses. In fact, most utility providers have hardship arrangements to help people pay off their bills over time at a substantially lower interest rate than for a payday loan. It is preferable that consumers are aware of and use these arrangements which are available to them, rather than rushing down to take out a high-cost loan. I know that sometimes there is a language barrier, where the utility provider does not necessarily have adequate language facilities. Representing a multicultural electorate, I know that sometimes people go to the person who can speak their language or whom they are comfortable with.

On this side of the House, we are committed to protecting the cohort of vulnerable people who are unable or do not want to access credit from the mainstream providers. The introduction of a national interest rate cap will limit the cost of credit for consumers so that they will no longer be charged relatively high costs for this type of credit. There have been cases where people who borrow $300 can be charged over $100 for a seven-day loan and can then only meet the repayment by not paying other bills such as the rent or power, which then gets them into the debt spiral that I talked about earlier. For short-term, small amount contracts of less than $2,000 and 12 months duration, a cap on costs of 20 per cent of the credit provided plus four per cent of the credit provided for each month of the credit contract will apply. I have had representations from people in my electorate who lend out money saying that this will be prohibitive, but I think this is an appropriate compromise. Then, if we go to mid-tier loans of $2,000 to $5,000 and two years duration or less, a cap on costs of $400 for the establishment fee and 48 per cent per annum for interest will apply. For other loans, a cap of 48 per cent per annum on the credit balance similar to the existing caps that are already in operation in Queensland, New South Wales and the ACT will apply.

The bill will also introduce a specific requirement for credit providers to obtain and consider a copy of the borrower's bank statements for the last three months before entering into the contract—if, indeed, they have them. This will supplement responsible lending obligations to ensure the lender obtains and considers the details of payments in the statements. As an aside, in talking to people who make these short-term loans in my electorate, they certainly made it very clear that it is not in their interests to lend to people who are addicted to pokies, have a heroin addiction or something like that. Obviously, it is a business decision they are making which involves minimising the risk so they get a return on their capital. They investigate as much as they can to made sure that the people are responsible and are able to handle the commitment.

The reforms introduced by this side of the House continue the Gillard government's reform agenda to ensure that all Australians can make better and more efficient use of credit products and, importantly, provide additional protections for consumers who take on credit. I see that credit and the ability to then pass on assets to your children is one of the great poverty circuit breakers in society. It is hardly a new theory; it has been around for 5,000 or 6,000 years. You can give your children some opportunity by holding assets and then giving them to your children—they may be tangible assets like the family home—which Australia has done very well compared to the rest of the world. If you look at mortgage default rates, Australia is head and shoulders above the rest of the world. From memory, we are looking at about 0.5 per cent of the mortgage market. If you look at other parts of the world, especially some states in the US, it is a phenomenal story of letting the market rip and deregulation and some shonky practices. Looking after credit for all is a very good thing and something to be proud of as a Labor government.

Regarding how this legislation will affect the industry, some lenders will of course be impacted more than others, depending on the extent of their current practices and costs and how they will comply with the proposed new national law, but I am sure that has all come out in the consultation process, which has been wide and extensive. Despite the representations of the member for Dunkley, I am assured that the consultation has been long and hard. The reality is that there are some business models that intersect here and we cannot necessarily make everybody happy, but nor do we want to close down this section of the industry.

This bill sends a very clear message to predatory lenders who charge consumers excessive amounts that this will not be tolerated. Predatory lenders will need to either change their approach or exit the industry. These reforms will strike an appropriate balance between a sustainable and a responsible industry and will go a long way to increasing consumer protection and confidence. The government has undertaken extensive community consultation, including through two parliamentary committees, not mentioned by the member for Dunkley in his speech, and, most importantly, has directly consulted with payday lenders and consumer groups—I am receiving assurance from the advisers box—and has changed provisions in the enhancements bill in response to issues raised by both. For example, the prohibitions on refinancing a payday loan have been replaced with responsible lending requirements that give greater flexibility to lenders.

Unfortunately, the shadowy world referred to by the member for Dunkley—the bikie gangs and the like—will always exist. There will always be people basically extorting money out of people. The best regulation in the world will not change that. That is a job for law enforcement. For the rest of society, the best approach is to have the carrot for responsible lenders and the stick of law enforcement to counter that shadowy world occupied by the standover merchants and loan sharks and the like, which will always exist. We know that when people rush to embrace those services children suffer and adults suffer and people make bad decisions and get into more and more trouble. We have heard about situations where they have then gone on to undertake criminal activities because they are in debt to some standover merchant. Obviously, in a perfect world no one would ever choose to take these high-interest loans, but these short-term loans are the reality of the world we live in. The government has taken some sensible measures and combined them with our endeavours in Centrelink to make sure we offer support wherever possible. I am very comfortable with this legislation. It is a considered bill and I am proud to be on this side of the House supporting it, because I know it will help out people for many years to come. I commend the bill to the House.

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