Mark Dreyfus (Isaacs, Australian Labor Party, Shadow Attorney General) Share this | Link to this | Hansard source

Labor supports the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018 which provides further regulation of the industry administering debt agreements. The bill amends the Bankruptcy Act 1966 by limiting the class of persons who can offer services as registered debt agreement administrators, trustees or official trustees. Limiting who can be a debt agreement administrator by reference to skills and capabilities will provide an additional safeguard against sharp practice, which disproportionately affects disadvantaged, marginalised and vulnerable people who are at higher risk of being damaged if exposed to unscrupulous or iniquitous practices. The nascent debt agreement administration industry as well as any individuals who are administering their own agreement are given six months following the royal assent to this bill to gain the necessary skills and effect transitional requirements. This provides creditors and debtors with the certainty they require to transition any existing arrangements.

Labor support, subject to any necessary amendments arising as recommendations from the ongoing Senate inquiry, the insertion of a provision which requires debt agreement administrators to specify expressly in any debt agreement the expenses which may be charged by the administrator. The repayment of debt, often by disadvantaged people with limited financial literacy, should not be an exercise in profit gouging by debt agreement administrators. We support giving access to both debtors and creditors to the debt agreement administrator's proposed expenses so they can assess the reasonableness of the expenses and, if necessary, seek independent financial or legal advice.

Labor supports the setting of a cap on the percentage of a debtor's after-tax income that can be agreed to be repaid in the repayment schedule of the debt agreement. However, Labor is concerned that the bill, as it currently stands, leaves the setting of the percentage to ministerial discretion. Labor would prefer for the percentage to be given a statutory footing to ensure that debtors are easily able to ascertain the maximum amount that can be set out in the debt repayment schedule. We will await the recommendations of the Senate inquiry in respect of the proper setting of the percentage cap.

Similarly, the bill has inserted a new provision that requires the debt agreement repayment schedule to be time limited to three years. This is a significant issue and Labor reserves its right to seek an amendment in the Senate. The policy basis, as asserted in the explanatory memorandum, is that the provision of three years enables the responsible minister to set a capped percentage rate which will be uniform across all debt agreements. There is no substantive issue with the policy of setting a percentage rate which operates in parallel to an agreed time frame. However, the nominated time of three years may place undue and unnecessary pressure on vulnerable people who are already struggling to get out from underneath debts which have led them to into a debt agreement. Extending the possible repayment time frame to, for example, five years does not unduly burden the rights of creditors to repayment, particularly in circumstances where the great majority of creditors are large credit providers. It does, however, appropriately balance the rights of creditors with those of debtors who should not be placed under undue strain to repay debt. Moreover, it achieves the stated policy aim of giving a temporal framework against which the calculation of the percentage cap can be made.

Labor welcomes the measures in schedule 1 that seek to limit the possibility of conflicts of interest and increase transparency of the corporate arrangements of companies and persons who offer services as registered debt agreement administrators, including the disclosure requirements for related entities. Labor supports, in principle, the amendment set out in schedule 2 of the bill. But, consistent with my comments on the need to provide for a longer time for repayment in debt agreements, Labor will await the Senate inquiry recommendations before considering whether or not to seek an amendment providing for an extension of the repayment schedule time frame. This would allow for vulnerable debtors who enter into overambitious debt repayment schedules to seek a variation of their debt agreement to provide more time for repayment.

Labor supports the measures in schedule 3 of the bill which provide for more rigorous registration requirements, including that the Inspector-General interview applicants after processing their paper applications and that the trustee or registered debt agreement administrator has taken out professional indemnity and fidelity insurance. Labor also supports the further measures in schedule 3 which empower the Inspector-General to obtain information from banks and financial institutions confirming whether or not a separate bank account is being maintained for the purpose of managing the debtor's repayments under the debt agreement. Labor will always support measures that require the proper discharge of statutory duties and safeguard vulnerable people. This is a good measure. It is aimed at preventing the misuse or misappropriation of money held on trust to pay down the debt by registered debt agreement administrators or official trustees. I commend the bill to the House.

Tim Hammond (Perth, Australian Labor Party, Shadow Minister for Consumer Affairs) Share this | Link to this | Hansard source

Like the member for Isaacs, the most excellent shadow Attorney-General, I rise to support the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018. In relation to the Bankruptcy Act, as we know, these amendments reform the Commonwealth debt agreement system. The debt agreement system is a good thing in that it provides an alternative to bankruptcy, and it is increasingly being used in that way. The bill contains a number of measures that the government claims will improve the existing debt agreement system.

The reason why this is very important at this point in time is the unprecedented level of financial stress that we see in Australian communities and families today. Further analysis released as recently as earlier this month confirmed what we hear and see in our electorates every day—that many households' financial situation is getting worse, with the culprit being living expenses. Forty per cent reported this as a key reason their situation is worsening. It is cited that almost 46 per cent of households surveyed also claimed the cost of necessities, such as fuel, utilities and groceries, is their biggest worry in relation to financial stress.

The reason why these reforms are clearly required as an alternative to bankruptcy is apparent when we see the increased level of bankruptcies prevalent in our community. More than 32,000 Australians went bankrupt in 2017, which is a 6.1 per cent year-on-year increase, according to an analysis of bankruptcy figures by illion, who were recently recognised as the Dun & Bradstreet credit reporting agency. Now that has increased in itself, with a 4.7 per cent year-on-year hike recorded in 2016. When we look at the causes for that it is very apposite to hear illion's Chief Executive Simon Bligh saying:

Consumer debt levels are rising steadily in Australia as a result of record mortgages and a surge in everyday essentials such as utilities, petrol and healthcare.

As we know, those factors, combined with the very poor wage growth that we are seeing under this government, are putting pressure on the wallets of Australians.

There is no coincidence here that the illion credit reporting agency is also seeing strong growth in the payday loans sector, which Mr Bligh says is often an early indicator of people getting in trouble in terms of paying their utility bills. That assessment is certainly confirmed when one reviews the data from the Credit and Investments Ombudsman. They released information to confirm systemic problems in the consumer leases and payday loans sectors. The CIOs recent annual report on operations reported that small- and medium-amount lenders accounted for 12.2 per cent of total complaints—the second highest, following debt collectors. Most of the complaints around small- and medium-amount lenders related to inappropriate finance, including irresponsible lending which made up over 56 per cent of those complaints.

Just in case one is thinking that these are isolated incidents—and they are certainly not—according to the industry data released by the payday loans sector itself, in 2015-16 there were over 619,000 new payday loans, with a book of over $476 million advanced. Just in case you need any further evidence as to whether these credit arrangements are being taken up by those most vulnerable in society, let's look at those who are applying for small-amount credit contract loans. We know that two in five of those who entered a SACC loan in this period were unemployed, that one in four—26 per cent—of these loans were given to people receiving more than 50 per cent of their income from Centrelink and that one in six of these loans were entered into with a customer with an existing loan.

In the second quarter of 2015, 75 per cent of lenders admitted to providing small amount credit contract loans to customers who have had two or more small amount credit contract loans in the previous 90 days. We also know that most people apply for these loans online—over 78 per cent in the second quarter of 2016. What it means is that these loans are quicker and easier to get than ever before. The average amount of a payday loan was $770. What we see is an effective interest rate on these loans of over 170 per cent on average. There are outlying cases that are truly horrendous in terms of the total repayment rates that are required. But if we average it all out we see an interest rate of over 190 per cent.

This is in a landscape of unprecedented levels of financial stress. There are over 8.47 million households that are financially stressed—those with mortgage stress, behind in lower-end payments, declined some form of credit or constantly borrowing to repay existing loans. There is an extraordinary number of financially distressed households that have gone even further in relation to financial stress—those who are repeat borrowers with limited options and unable to find $2,000 in an emergency within seven days. We are dealing with 1.8 million households—over 20 per cent of all households are financially distressed.

It means that reform in this area is absolutely imperative. But it also means that reform before vulnerable consumers get to this point in time is even more imperative. That is why it has been the Labor Party who has taken the steps that this government will not take to introduce reforms into this place by way of a private member's bill in the small amount credit contract space. The tailored bipartisanship, which is increasingly difficult to find under this government, started in a positive manner in relation to payday loans and the rent-to-buy arena. The mandated review, the small amount credit contract review, was undertaken and concluded in March 2016. To the credit of the Minister for Finance at that time, the review was considered very carefully. There is no criticism whatsoever of that process.

In November 2016, the government did the right thing and published its response to the small amount credit contract review. The response was effectively an unconditional approval of the recommendations on the payday loan and rent-to-buy space—again, a positive step. That was in November 2016. Again, the reforms do not seek to shut down this industry and will not mean that financially vulnerable consumers do not have recourse. Parents with already stretched budgets, managing every dollar, faced with the fact that a washing machine has blown up and having five kids to get to school, need ready recourse to small amounts of funding in a circumstance where they can't otherwise obtain it. But it has to be on a playing field that is level and fair. And that is all these reforms sought to do.

Again, to the government's credit, it took them 12 months but they went so far as actually committing these reforms to proposed legislation which simply seeks to do two substantive things in addition to providing regulatory safety in this area. Firstly, quite reasonably, they will look at insuring that the amount that can be borrowed to be repaid is ring-fenced at 10 per cent of a consumer's net income. That was agreed to by the government. Tick. Secondly, they seek to ring-fence the time it takes to repay the loan and the way in which one applies interest over that time period. Again, that was ticked off by the government. Tick. Despite some bumps along the road in the form of inaccuracies from the Minister for Finance as to how far down the legislative path these reforms were actually being pursued, the minister for consumer affairs, as he then was—now the Deputy Prime Minister—published in October last year that legislation which had been approved by cabinet—tick.

That press release made it very clear that two things were going to occur. The first was that the legislation would only be out in the wild for consultation for two weeks—quite right, because none of this was new and it all had bipartisan support. The second promise by the now Deputy Prime Minister—who, again, to his credit has demonstrated a track record of keeping his word—was that the legislation would be introduced last year, in 2017, after a long, long wait for vulnerable consumers, who shouldn't have to wait any longer. The legislation, again, was substantively endorsed by the peak body representing vulnerable consumers, which is again understandable because it represented a reasonable compromise in relation to the regulatory protections. But then it sank like a stone. In circumstances where the community is crying out for a demonstration of bipartisanship in this place, we got so close and this government squibbed it. They shirked it at the last moment. Having gone so far down the road, having got the tick-off from cabinet, nothing more was heard.

We have a change of ministerial responsibilities, and we know the payday lending sector is on the march. We know that there is a furious level of activity going on behind the scenes from this government, convening the now famous, or infamous, parliamentary friends of payday lending, to try to bury what was otherwise a sensible piece of legislation. It won't do. It is something which should be stopped, which should be discouraged and which we are surely all better than in this place.

This government, instead of pushing off responsible legislation to the long grass, now has a choice, because the legislation is in this place. It has been introduced as a private member's bill by the Labor Party, which has not a single sentence, comma or full stop changed from the government's legislation that went through their cabinet process. It's now here, whether they like it or not. If the government were really interested and substantively concerned about protecting vulnerable consumers, as they purport to be with the introduction of this legislation, they would actually do the right thing here. They would actually be honest and say that the small-amount credit contract legislation is the right thing to put into place for the protection of all of those millions of households facing crippling financial distress.

So the government have a choice. If they want to be responsible, grown up and honest, they can actually do what they always said they were going to do, which is back their own legislation, which is now in this place and which should not wait for its implementation in order to ensure that the increasing number of financially stressed and vulnerable consumers in this country have at least some level of protection to ensure that they are not in a situation where they stare down the barrel of another debt agreement arrangement as an alternative to bankruptcy in the way that this legislation otherwise provides.

Christian Porter (Pearce, Liberal Party, Attorney-General) Share this | Link to this | Hansard source

I would like to thank all the honourable members for their contributions. I thank the shadow Attorney-General for his contribution on this bill and the member for Perth for his contribution on a bill completely unrelated to this bill. In any event, this is the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018. The debt agreement system is an important part of Australia's consumer finance framework. It provides debtors with an opportunity to avoid bankruptcy and manage their personal debts while giving creditors a return on what they are owed.

With respect to consumer protection safeguards, it is notable that statistics from the Australian Financial Security Authority confirm that debt agreements are on the rise. As debt agreements continue to grow in popularity, it's obviously important to ensure that the system works as it was intended. Debt agreements should not be used to exploit vulnerable people or to short-change creditors. Instances of misuse can disproportionately impact the integrity of the system and undermine the positive function it serves. This bill ensures that necessary consumer protection safeguards are in place so that the debt agreement system provides a fair and effective outcome for debtors and creditors.

There has been a concerning trend in recent years of debt agreements lasting significantly longer than five years. That trend, it was observed, threatens to prevent those in financial difficulty from getting back on their feet. This bill will prevent people spending an excessive amount of time in a debt agreement and will ensure that debtors can only propose a debt agreement of a three-year period or less. In reducing the length of a debt agreement proposal, the Turnbull government is making sure that debt agreements are an avenue for debtors to achieve a fresh start.

Debt agreement administrators play a crucial role in the effective operation of the debt agreement system, and administrators must possess the skills and knowledge to properly perform their functions. Administrators must also have the character and integrity to gain the confidence of creditors and financial counsellors. This bill raises the required standards of administrators to ensure that the industry is capable and professional.

By way of conclusion, it should be noted that this is the first comprehensive overhaul of Australia's debt agreement system in more than a decade, and these reforms will ensure that debt agreements are administered by only those persons with the appropriate skill set and knowledge base. Following the reforms, new debt agreement proposals will only be able to be three years in duration, enabling people to get back on their financial feet sooner. The reforms are designed to ensure that the integrity of the industry is improved overall.

With the number of new debt agreements almost doubling in the last decade, debt agreements are proving to be an important, effective and popular alternative to bankruptcy for many individuals who are facing financial difficulties. These reforms will introduce necessary safeguards, bolster community confidence in the industry and ensure that the system allows people to achieve a fresh start. I commend the bill to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.