George Christensen (Dawson, National Party) Share this | Hansard source

I rise to speak on the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011. I note, firstly, that this bill was introduced on 21 September last year and that it has been before the House for quite some time now. When the bill was first introduced, I had some very serious concerns about what it would mean in the real world and how it would affect people who seek short-term loans. So it is with some relief that I see the government has seen fit to make amendments to its bill, which will go some way towards erasing those concerns.

There is no question that reviews of lending practices are warranted in this country. In the wake of the global financial crisis, we are only too aware of what can happen when lending standards are poor. Thankfully, our banking system was less vulnerable than those in other countries, but there are lessons to be learned. The bill did have admirable intentions. It set out to ensure that customers were better protected in their dealings with credit products and credit providers. The bill sought to achieve that by enhancing access to the hardship provisions in the code, introducing protection against negative equity for holders of reverse mortgages, introducing a cap on costs for small-amount credit contracts and introducing a cap on all loans. The bill is the second phase of legislative changes that result from a Council of Australian Governments meeting in July 2008 and a subsequent meeting in the following October. In the midst of the global financial crisis, Australia was moving toward providing greater protection for credit consumers. In my home city of Mackay there were tough times indeed when the global financial crisis hit. The region had been booming with the resources industry, but families who were not part of the boom were being placed under enormous pressure. Labour was scarce and everything was more expensive—and still is. Rent was astronomical, if you were lucky enough to find a place to live in. Back then, when the retrenchments started in the resources sector, some of the pressure actually eased in terms of housing. But we are again on the same path. The cost of living, as I said, for everyday families in Mackay is quite high. Everything is more expensive in many regional centres around Australia, and in regional centres where there is a mining boom the situation is much worse. The mining boom is there but not everyone is part of that boom.

When this government talks about spreading the wealth of the boom, it is talking about taking the profits that are generated in regional centres through mining and taking them down to capital cities. The government either is completely blind to the cost-of-living difference between an average family in a resource region and an average family in the city or simply does not care. Because of this double-edged sword, there are many families in North Queensland who are doing it very tough. When these families were smacked with a big bill, be it an extraordinarily high electricity bill—and, I have to say, in future it will be via a carbon tax that is going to start in a few days time—a car repair bill or a medical bill, they struggled to find money to pay those bills. When a huge chunk of their income is spent on rent, as it is with the higher prices, there is not much left just for weekly living, let alone to have large bills suddenly appear without warning.

For these people one option has been to seek short-term loans. Concerns about these short-term loans have been raised with me by locals. The George Street Neighbourhood Centre Association's financial counsellor, Natasha Syed Ali, pointed out to me that these so-called payday loans can come with a huge interest rate. She said something that I would like to quote here:

These loans can come with interest rates of over 400 per cent and send people into a spiral of debt. Payday loans are typically very expensive, given to people living off welfare payments and send borrowers further into financial hardship. Lenders often recoup their debts using direct debits—this means the money is taken out of borrowers' accounts before they have a chance to allocate money for necessities like groceries, rent or medicines. They then go back for another loan to help pay for day-to-day expenses and a pattern of repeat borrowing is created.

What she said there reflects quite legitimate concerns about the payday lending industry. Obviously these are the concerns of someone who is dealing with the most vulnerable in our community. But we should not forget that these short-term loans can also be of assistance to some of the most vulnerable people in our community.

When this bill first came before us, there was strong opposition from the industry—from the providers of those products and from their customers. In just a couple of weeks, when this bill was first mooted, I received 93 letters from people opposing this bill who were using short-term loan facilities in Mackay. There are any number of reasons why people use these loans, and I can give you quite a personal example.

As a young university graduate, I went into one of my first full-time jobs as a cadet journalist. It did not pay very much and I wondered why I had spent so long at university to end up with a job with such a small income. I was not born with a silver spoon in my mouth; I paid my own way through university through taking out bank loans. I got a credit card with a very minor credit limit and maxed it out. I knew that all of those bills would have to be paid on getting my first job. Moving into my own place, paying rent and paying all the bills I had to pay—for food, electricity and all the rest of it—money was tight. Then something happened. I cannot remember what it was—the washing machine might have broken, the fridge might have broken or something like that—but I was strapped. I needed money and the only place I could go to on my limited income, on my expenses, was one of the payday loan centres. I took advantage of that. Yes, I knew I was repaying a grossly inordinate amount of interest but I made that decision, looking at the finances, and it helped me through. If it had not, I do not know what I would have done. I probably would have done without the fridge or the washing machine, which would have caused other problems. There are many people who go into situations like that.

I know that short-term loans are also used, in some instances, by young entrepreneurs with no background in business to get them through cash flow difficulties in their start-up phase. So, when we talk about the most vulnerable in our community, we need to consider two distinct groups here. On one hand, we have people who really struggle to make ends meet on a weekly basis. For them, taking on a loan can easily add to their problems and the debt spiral is a very real possibility. The bill is obviously designed to protect those people. On the other hand, we have people who struggle to make ends meet but have an occasional—or even rare—speed bump in their finances, such as expensive car repairs, medical bills or, as I said, a broken fridge or washing machine or whatever. All they need is a helping hand to get over that speed bump. For them, the debt spiral is not such a danger. What is a danger for them is if they cannot afford to pay that urgent bill that needs paying. What happens if they cannot get their car fixed? What happens if they cannot get their fridge or washing machine fixed? What happens if they cannot get medical treatment or medicine? What happens if they cannot pay their electricity bill, their phone bill or their rent? The bill, as it originally was, ran the risk of making these people more vulnerable.

Removing short-term loans from the market can leave these people desperately ill, without a car to go to work or without electricity, a phone or even a roof over their heads. The original bill that the government introduced would have done exactly that. With all good intentions to protect vulnerable people, it would have thrown the baby out with the bathwater, creating a whole new group of vulnerable families and not actually doing anything to help in return. The original bill was sloppy. It was rushed and it was not properly thought through. So much of the policy from Labor and the Greens is like that—a kneejerk reaction that is brought before the parliament without proper consultation with those most affected and without thinking about what impact the bill will actually have in the real world. Once again, the government was forced back to the drawing board when the failures of the original bill were pointed out by all and sundry, including the government's own members.

It took strong, responsible opposition from this side of the House, from the Liberal-National coalition, as well as from industry, and unanimous recommendations of the Parliamentary Joint Committee on Corporations and Financial Services—and, I might also say, those many people who are clients of payday lending services who wrote to their local members saying, 'Do not pass the bill in this form'. The joint committee, which included government members, recommended the government reconsider the bill and go back and consult with the industry.

As a result of actually talking with the industry and considering what the original bill would do, the government proposed amendments that will increase the caps for small amount credit contracts; shorten the term for SACCs from 24 months to 12 months; increase establishment fees from 10 per cent to 20 per cent and interest rates per month from two per cent to four per cent for small amount credit contracts; allow an additional $400 fee to be charged for mid-tier loans between $2,000 and $5,000; remove the 'multiple contract prohibitions on lenders under certain circumstances; and commit to prohibit loans with a term of 15 days or less.

These are considerable amendments and substantially change the original bill. It would have been good to see them included in the original bill but at least the government has been dragged before us now—with the minimal bit of kicking and screaming—and, importantly, these amendments will make the product more viable and will make it easier for the short-term lenders to stay in business, which is important because they do fulfil an important role. It is also important to note that the banking industry does not offer these loans. The banks have long since withdrawn from this section of the market and the banks would be extremely unlikely to fill the gap if short-term lenders were to exit the market.

While the coalition would have opposed the original bill, we are inclined to support the bill with these amendments. As it stood, the original bill would have, as I have explained, made the products unviable. Businesses would have been squeezed out of the industry and there would have been insufficient alternatives, and families in need would no longer have access to the finance that they need to get them through unexpected expenses. From an industry point of view, many of the current providers are small family owned and operated businesses. I know there are quite a few of them in the Mackay region—City Finance, for example, is one that springs to mind.

There are, however, provisions in the original bill that the coalition and industry support, including statutory protections in the provision of reverse mortgages. These would provide a statutory protection against negative equity and more detailed and prescriptive disclosure requirements. Other important measures the government has agreed to introduce via legislation include a 200 per cent total cap on charges for all lending and a range of responsible lending obligations, including a presumption that a refinance is unsuitable where the borrower is already in default, a presumption that a SACC is unsuitable where it is the lender's third or fourth loan in the last three months, a requirement for credit providers to consider a copy of the borrower's bank statements for the last three months before entering into the contract and a prohibition on loans with a term of 15 days or less.

These measures provide a filter, in particular the measures for responsible lending. Regulating the industry so that credit providers are required to lend only to those people who will be helped by the product will prevent the most vulnerable people entering into a debt spiral. This is a process that seeks to isolate that problem without the blanket red tape and regulation that would have destroyed a product—being these short-term loans—that are so useful for many people in the community who find it tough to make its meet.

Overall, this bill, as it is amended, is a useful and necessary bill. It addresses a problem area that we do have with payday loans and, with the amendments, strikes a better balance in fixing the problem without, as I said before, throwing the baby out with the bathwater. Credit should go to the industry and end users who lobbied their MPs and voiced their opposition to the original bill. A better outcome is being achieved here and now today due to their actions, and I commend the bill, as it is amended, to the House.

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