Melissa Parke (Fremantle, Australian Labor Party, Shadow Assistant Minister for Health) Share this | Link to this | Hansard source

I move:

That this House:

(1) notes that:

(a) there is considerable evidence that payday lending and consumer leases are not properly regulated and that both financial practices are causing serious harm to low income Australians;

(b) irresponsible and immoral lending is endemic in the payday lending industry, which is growing rapidly and developing new online opportunities to encourage people to borrow with insufficient consideration of their capacity to bear the exorbitant and poorly regulated interest costs that payday lending involves;

(c) the Australian Securities and Investment Commission review of payday lending found that 24 per cent of loans were taken out by Centrelink customers and 54 per cent were taken out by customers who had two or more payday loans in the previous 90 days, a clear indication that they are caught in a cycle of repeat borrowing;

(d) consumer leases can involve an effective annualised interest rate of 240 per cent, and generally mean that vulnerable consumers pay three or four times the value of basic household items like refrigerators or washing machines;

(e) consumer leases operate with lower consumer protection standards under the National Credit Code, though such agreements are not materially different in effect from credit contracts;

(f) in 2013-14 nearly half of Radio Rentals’ $197 million revenue was received through the Centrepay system which allows payments to be directly debited from a consumer’s Centrelink account; and

(g) Senator Cameron has brought a Private Senators’ Bill that seeks to remove consumer leases from access to the Centrepay system; and

(2) calls on the Government to:

(a) ensure that the recently announced review into the 2013 reforms to payday lending focuses on securing the wellbeing and protection of low income Australians irrespective of the effect this has on the profits of companies that practice this kind of often predatory lending;

(b) act quickly to stop consumer leases being used to prey on vulnerable and low income Australian households by ensuring that consumer leases are subject to the same standards and controls as credit contracts, and by introducing stricter controls on the currently outrageous and indefensible costs involved in such arrangements, including the requirement to prominently disclose the total cost of all contracts; and

(c) support Senator Cameron’s initiative in removing access to Centrepay for consumer lease companies and amend section 123TC of the Social Security (Administration) Act 1999 to include a definition of consumer leases for this purpose.

I am very pleased to bring this motion forward for debate, and I want to start by acknowledging the work that has been done by my colleague and friend Senator Doug Cameron to lead the consideration of this issue and to push for change.

The essence of this motion is simple: no responsible government should allow, let alone enable, practices by companies that seek to prey on those who are financially vulnerable. There is ample evidence to show that payday lending and consumer leases are forms of credit that are targeted irresponsibly at people who are experiencing financial hardship in order to extract a cynical and unfair profit from those who are least able to suffer that kind of gouging. As the motion makes clear, the review by the Australian Securities and Investment Commission found that 24 per cent of payday loans were taken out by Centrelink clients and 54 per cent were taken out by people who had had two or more such loans in the course of the previous 90 days. In other words, payday loans are not being used by people who are in relatively stable financial circumstances to bridge an out-of-the-ordinary shortage of cash; they are being used by desperate people who are caught in a cycle of repeated borrowing, who are punished with borrowing costs that will inevitably deepen their already difficult circumstances.

This deeply immoral practice is expanding as a result of the ability to provide credit through online portals. That will only lessen the already insufficient care with which this kind of credit is extended, with exorbitant costs for people who do not have the capacity to meet them. In the case of so-called consumer leases, people who are at the very bottom of the income scale are being encouraged to acquire the use of household goods through a financing arrangement that involves an effective annual interest rate of up to 240 per cent. While the emphasis in the marketing material is on the weekly rental of, say, a television or a refrigerator, the truth is that desperate people are paying three or four times as much as it would cost to actually buy such household goods. It is, frankly, scandalous that the companies that operate in this sector are able to co-opt the Centrepay system to secure their profits in this vulture-like way.

Nearly half of Radio Rentals's 2013-14 revenue of $197 million was received through the Centrepay facility. It is bad enough that proper regulation does not prevent this kind of usurious practice, but it is outrageous that a social welfare framework like Centrepay, which is designed to ensure that essential costs like rent and power bills can be prioritised within a tight budget, can be misused to enable the exploitation of people who are reliant on welfare assistance. We can be sure that the additional costs that arise when consumer leases push a family or individual who is already struggling over the edge are ultimately met by other parts of the publicly funded safety net, while the consumer lease companies laugh all the way to the bank.

I note that the Western Australian government recently made the bizarre, counterproductive decision to strip funding from financial counselling services that support people who are on the brink of financial disaster. The Western Australian Council of Social Service made the point that every dollar invested in those services saves a cost of $5 that would otherwise be incurred. In the case of consumer leases, not only are welfare payments being siphoned away through arrangements that cruelly prey on people who have very little money, who are under very great stress and who are often at a clear disadvantage in terms of their financial literacy, but the impact of this practice, in aggravating or pushing over the edge a person's susceptibility to total financial collapse, then results in further costs to government.

I applaud Senator Cameron for his work to highlight the importance of this issue and to craft a sensible legislative fix to a regulatory blind spot that should never have been allowed to develop in the first place. I also want to thank those who prepared and supported the motion to better regulate payday lending that was passed at the WA Labor conference earlier this year. I acknowledge the very helpful input from Gerard Brody, CEO at the Consumer Action Law Centre. Gerard, his colleagues and all the people who work in the community legal and financial counselling sector know firsthand just how pernicious and damaging payday lending and consumer leases can be.

In parliamentary life and public administration, there are many vexed issues that can be difficult to balance or navigate. This is not one of them. It can be hard sometimes to properly define the problem before working out an appropriately effective solution. That is not the case here. These financial practices have nothing to recommend them and they are promoted through the use of misleading material to people who need financial help, not financial trickery. They deliberately cover up the outrageous scale of the impost they levy on vulnerable people and they make improper use of Australia's welfare framework in order to do so. They should be subject to urgent and sharply restrictive regulatory change in the best interests of people dealing with serious disadvantage and for the effective and proper functioning of Australia's social safety net.

Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

Is the motion seconded?

Laurie Ferguson (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

I second the motion and reserve the right to speak

Sarah Henderson (Corangamite, Liberal Party) Share this | Link to this | Hansard source

I rise to address the issues raised by the member for Fremantle. I want to begin by saying that the government is committed to ensuring that vulnerable Australians have access to tools to effectively manage their money. However, I think, in this private member's bill put forward by Senator Cameron, he has really missed the mark.

This goes back to Labor's so-called reform in 2011 and 2012. I think it is important that it is well understood that when the federal Minister for Financial Services and Superannuation, the Hon. Bill Shorten, in 2011 passed amendments to the consumer credit and corporations amendment bill—and there were some further amendments—these amendments regulating payday lending were simply not good enough. I am looking at an esteemed academic, Ian Ramsay, in the Monash University Law Review. He says the amendments made by Labor:

… reduced protections for payday loan borrowers, indicates that the campaign undertaken by the payday loan industry was influential in shaping the final version of the Enhancements Bill.

We have seen some real failures from Labor in relation to regulating payday lending, and there is no doubt that some of these rip-offs are an absolute disgrace. I take great pride and reflect on the time when I was a consumer advocate working for the ABC's TheInvestigators program and it makes my blood boil when you see these lenders charging people who are desperate to buy household goods up to 240 per cent in interest rates.

So while we must tackle the problem—a problem that was not fixed by Labor, and that has been well recognised—Labor's proposal is not tackling the problem. That is the issue. The Centrepay system does give some credit access to those who are most vulnerable on welfare benefits. If they do not have access to Centrepay, they do not have access to any credit at all, because most welfare recipients may have trouble accessing a credit card. So Senator Cameron has faltered in the solution.

The Assistant Treasurer announced on 7 August that there will be a review of the small amount credit contract laws which will consider whether those laws should be extended to apply to regulated consumer leases. So the government is very alive to the issues and to Labor's failures in this area. It is sensible to consider options for further changes, including possible caps on and disclosure of effective interest rates. I ask the question: if these rip-offs are occurring, which they are and it is an absolute disgrace, why isn't Labor tackling the core of the problem? Why isn't Labor looking at the rip-offs and forcing these lenders to disclose how much they are ripping off Australians? That is what we are interested in.

We say that the government does not support Labor's bill. It is not the right solution. We are very open to helping to fix this issue, but the way in which Senator Cameron has proposed this is, as I say, not going to stop the rip-offs and that is fundamental.

On 1 July this year, there were a number of changes to Centrepay which will help protect the most vulnerable Centrelink customers. These changes will mean that Centrepay no longer supports consumer leases that are not regulated by the National Consumer Credit Protection Act, and that is very important. I understand some of those providers now excluded from Centrepay are now arranging to obtain an Australian credit licence and, by enhancing regulation, of course they will be subject to review by ASIC as the regulator.

ASIC has raised a number of issues in relation to the standards of conduct in the payday industry, and the department is currently seeking assurances from lessors involved in Centrepay that their consumer leasing practices comply with the responsible lending obligations set by ASIC. So there is now no doubt that we need greater standards. There is no doubt that we need greater regulation and that we are actively reviewing these issues: however, the proposal put forward by Labor, unfortunately, does not resolve the problem.

As I mentioned, the Assistant Treasurer announced a review of the small amount credit contract laws and the government, as I say, is very open to those solutions. Thank you very much.

Laurie Ferguson (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

I certainly do not wish to go into partisan polemics about the exploitation of some of the most desperate people in this country; however, I thought that was a pretty confused performance. The speaker decried Labor's failure to fully rectify the problem when in 2013 it moved to rein in the worst excesses by capping interest and establishment fees. Then it went on to say how horrendous the exploitation of these people was and how shocked the member for Corangamite was et cetera. On a number of other occasions she said that Labor had failed to do anything and that the government was having a review.

Quite frankly, I think this issue is one in which both sides—we could equally go back to 2013 and see whether the then opposition was more intent upon criticising Labor's legislative initiatives from the view of defending these people or was it actually calling for further reforms. I doubt it was. As I say, I think people on both sides of this House really should look at the way in which these companies are exploiting people.

Senator Cameron first came across this development in the Penrith shopping centre. People were out there in the street actually trying to recruit single parents on low incomes, disabled people et cetera and persuade them to take out loans that they should not. This argument by the industry and others that, quite frankly, they are helping people with no other options in life has to be answered. If they were so interested in these people, they would not have a situation where people are paying 1,900 per cent in compound interest on some occasions. They should be counselling people as to whether they can afford within their long-term financial interest to undertake these loans.

It is not as though there are not other options out there. I agree that these people should be given far more finance by the banks and governments in this country, such as they are by NILS, established by the Presentation Sisters. It has operated in my own region of Sydney for 10 years. I have been at every national conference of NILS. For people living in the electorate for six months or more, it helps them with whitegoods, furniture, medical equipment et cetera. This is the kind of priority we should have, as well as clamping down very severely on what we have been talking about.

It is wrong that Centrepay access is given to exploitationist characters. No-one is saying for a moment that Centrepay should not operate for legitimate purposes so that the right kind of companies out there doing things for people can have access. But to argue that because of the need to have Centrepay we have to have these characters as part of it is really worrying.

In 2015 the Federal Court handed down a fine of $18.975 million against Cash Store, a failed payday vendor. Their role just typifies the problem out there. They operated until September 2013. They had 80 stores and wrote up 10,000 short-term loans of up to $2,200 a month. The court examined 281 randomly selected consumer credit insurance contracts arranged by that company up to 2012 but found only four of the 281 contracts did not involve some contravention of Australian legal requirements. Based on this, ASIC argued that 300,000 of the total 325,726 contracts arranged by the Cash Store were likely to have breached responsible lending laws.

A 2012 consumer action survey on the subject found that the demographics of those who took out these loans have remained stable since 2002. They are low-income borrowers in their 20s and 30s, slightly under half of which have a young dependent child or children and 45 per cent of whom are in full-time employment. Between 20 per cent and 30 per cent of borrowers are likely to receive some form of Centrelink benefit. Back in 2008, 28 per cent of borrowers were in part-time or casual employment, 22 per cent were unemployed and five per cent were full-time students. Seventy-three per cent of those in employment had below-average income earnings, with 23 per cent reporting incomes of less than $20,000.

This is so important to this country. It is so important to people who are struggling to make ends meet and being manipulated into these kinds of contracts where they often are not advised on the interest they will pay and are not told how in the long term it will absolutely destroy their already meagre lifestyle just for the benefit of these unscrupulous operators, many of whom then fly from the Australian legal system, close themselves down and move into another sector. I congratulate Senator Cameron for initiating this in this way. I would hope the way through is found by both sides of politics to rectify the problem rather than engaging in meaningless partisan politics.

Ewen Jones (Herbert, Liberal Party) Share this | Link to this | Hansard source

I am pretty much in direct concurrence with the member for Werriwa on these things, because I think there is a real issue here. It will be a great day when we all have enough money to pay our bills and buy the things we need for our families. But, until that day comes, there is a need for people to be able to access credit under sensible guidelines. I think we may be coming at these things from an ideologically different perspective, but we all want the same things. We want people to be able to move in this space with clear guidelines, understanding what is going to happen.

In the hands of the right people at the right time these facilities are an absolute lifesaver. Credit is a fantastic thing if you use it correctly. When I was a child, there was only a certain type of person who would avail themselves of hire-purchase. Your parents would look down the end of their noses at people who would turn up and take things on terms. You paid cash for things. The advent of Bankcard in 1974 changed all that—the way we access our funds, the way we move our funds and the way we do these things. That means that consumer credit is now part of our lives. When the member for Werriwa and I were kids, the saying, 'Look after your pennies and the pounds will take care of themselves,' was a creed by which everyone lived. Now we find that people tend to save by paying something off. They will borrow and then they will pay something off.

I spent 10 years collecting debt on consumer credit on Bankcard, MasterCard and those sorts of things for one of the major banks. This was from 1981 to 1990. It was painfully obvious to me that people did not understand what they were getting into. We still lack that basic education. We see the way we run our housing market. For people in Sydney, there is a rising housing market. If you have a housing market that is on fire, everyone jumps in and wants to buy. We do not do that with shares. We do not do it with anything else. We just do it with housing. So it comes down to that basic education.

The key to everything here is that if there was no market for a product there would be no product. For some people this is a vital way of doing things. Like the member for Werriwa said, this has been around for a while. In the previous parliament, in the six years of the Labor government, there were always politics at play. That is what the situation is here. But Centrepay and those consumer leases have been around since 1998. Where you have a system with a set of rules that are open to interpretation it is open to abuse.

Having been in consumer finance where you sell finance for motor cars and things like that, I know there is a certain type of person out there who is not particularly worried about the terms and conditions. They just want the loan to get the car, fridge or whatever it is they need because they are desperate. You will find that their eyes will roll back in their heads and they will just keep on nodding. The saying goes in the sales industry and the finance industry: 'If they are nodding, you are selling.'

But you still have to get it through, and you will find that your big four banks will preclude people because it is not possible for them to qualify for a loan, which opens them up to second-tier and third-tier lenders where access is easy but interest is very high. Used correctly, if you are repaying it over a month, high annual interest is not a big deal, because you are not talking about a substantially large amount of money. The member for Werriwa was incredibly correct when he talked about the establishment of loans and what happens when the people start to consolidate loans and roll them into other loans. You find that one loan may have been going for six months, and you have paid the interest and you are just rolling the principal over to start again. Those are the issues we have to deal with.

There is a sensible solution here. What we have to do in this space is understand that not all credit is bad, that not all operators are bad, that not all interest rates are bad. There is lending for risk, and if you are in there you have to make sure that you are available for that. But if we spend a little bit more time explaining to kids when they get to school and in their final six weeks of high school in year 12 what responsible service of alcohol is, what responsible lending, what a credit card can actually do to you, what consumer credit can do to you and how it can affect your life forever, you would not find nearly as many people getting into trouble with being bankrupted or having defaults against them for telephone bills and all that sort of thing. Consumer credit is a massive part of our lives, and there is a massive amount of work that we have to do.

Debate adjourned.