Andrew Leigh (Fenner, Australian Labor Party, Assistant Minister for Competition, Charities and Treasury) Share this | Hansard source

Scott Futcher lives outside Newcastle and recalls that eight years ago, when he needed help paying his electricity bill, he turned to payday loans. Scott ended up with multiple small loans that, according to an article by Emma Brancatisano on SBS, amounted to a $10,000 debt he was unable to repay. Scott said initially he was:

… too proud to ask for help. I knew I was the one who did it. I put myself in there, I should get myself out. In the back of your mind, you're shaming yourself.

Scott's experience saw a small loan steadily snowball into a bigger one. He was a part-time worker, receiving Centrelink payments and unable to get a bank loan. He was initially lent $500, but he started accessing more money on that loan through top-up loans. He said:

More bills are coming in, you think, 'I'll have to get another loan to pay that'. You kind of have to get another loan to pay the other loan off as well, just to keep afloat.

Ultimately he ended up with multiple loans, including seven loans through a single lender. He said that ultimately he had to reach out for help. He reached out to the Salvation Army's Moneycare service and said:

That was the first day of getting my life back. It has taken a couple of years now. But I actually see the light at the end of the tunnel.

Ultimately he was able to work through the financial counselling service, which went to the national financial ombudsman on Scott's behalf over a complaint that a creditor had provided unsuitable loans. An agreement was reached to collect only the remaining amount of the loan, without interest and late fees. Scott made his final repayment this year. He said:

No more loans. I feel great. I just felt like I wanted to cry again.

We recognise that there is a place for a well-regulated credit market, but this bill seeks to address the practice that has emerged of firms seeking to get around product intervention orders. A joint submission to the Treasury consultation from five organisations—the Consumer Action Law Centre, the Financial Rights Legal Centre, the Indigenous Consumer Assistance Network, Financial Counselling Australia and WEstjustice—focused on the firm Cigno Pty Ltd. Cigno, they said, had consistently changed its model in order to stay one step ahead of ASIC's product intervention orders. According to the submission:

A standard credit facility arranged by Cigno will generally involve a small loan (under $1000), repayable within a few weeks, but with fees that amount to roughly the same as the principal borrowed.

That's right: over just a few weeks you're taking out a thousand-dollar loan and you're paying a thousand dollars in fees.

Cigno, the submitters said, would charge administrative fees, late fees and other fees that didn't reasonably correlate to the cost of providing the principal amount. They said they'd regularly heard from clients where Cigno had claimed they were owed multiple times the amount that had been borrowed, within months of the loan being taken out. But, in response to three product intervention orders made by ASIC aiming to ban the models used by Cigno and their partners, Cigno continued to offer loans on terms that had been advertised identically to Cigno customers, but with slight changes to the contracts underpinning their model.

This bill aims to put in place anti-avoidance provisions which will ensure a safe, well-regulated credit market. The Albanese government is putting these provisions in place because we stand firmly on the side of consumers. The reforms put in place last year by the Assistant Treasurer, Stephen Jones, regulated payday lending and consumer leases through the Financial Sector Reform Act 2022, which implemented the government's response to the 2016 Review of Small Amount Credit Contracts. That included a recommendation to address avoidance behaviour, and the anti-avoidance provisions in today's bill are aimed at doing just that. They're aimed at reducing the risk of harm to consumers from predatory lenders who modify their business models to avoid the application of the consumer protections in the Credit Act and other financial services legislation.

As the Consumer Action Law Centre and other submitters have put it, there's no downside to the introduction of anti-avoidance provisions. They're effectively a fallback to a situation in which drafting complexity has inadvertently left loopholes which can be exploited by unethical businesses. The provisions in this bill go to the problem where ASIC has identified credit products that it says cause significant detriment and harm to vulnerable consumers and issued product intervention orders to address this harm. The harm in this case is to some of the most vulnerable people in our community—people who find themselves down on their luck, reach out for support but are unable to get it, and end up going to a payday lender.

You don't go to a payday lender if you have a good amount of credit and you're able to get a credit card. You don't go to a payday lender if friends and family can help you out. Payday loans are not the most common form of short-term credit; they're the third most common form of short-term credit after credit cards, family and friends. But they create a significant risk of harm to consumers.

That is why the Albanese government has taken the side of consumers. We've recognised that payday lenders can sometimes get out of control. There are situations in which payday lenders have caused considerable harm. I'd urge those who are listening to this broadcast and considering a payday loan to first reach out to an organisation such as the Salvation Army's Moneycare in order to see whether there are other options. We know there's some short-term relief that is provided through other sources. Almost invariably, that will be offered under better terms than payday loans. I commend the bill to the House. I commend the important work of the Assistant Treasurer, Stephen Jones, in these vital reforms in standing up for consumers, particularly the most vulnerable consumers in Australia.

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