Matt Thistlethwaite (NSW, Australian Labor Party) Share this | Hansard source

I am pleased to speak in support of this bill. In doing so, I think it outlines a fine example of the COAG process working well to offer better regulation for Australian consumers and businesses as well as, importantly, protection for the most vulnerable consumers in our society. The Consumer Credit Legislation Amendment (Enhancements) Bill is part of a second tranche of legislation that is being introduced by the government to reform our consumer credit laws to make them fairer and more accessible while protecting the most vulnerable in our society.

The background to the bill is that in July 2008 the Council of Australian Governments agreed that the Commonwealth would take over responsibility for the regulation of trustee companies, mortgage broking, margin lending and non-deposit-lending institutions, as well as certain areas of consumer credit laws. From the COAG meeting, the rationale for the decision was the need to ensure 'consumers were better protected in their dealings with credit products and credit providers'. In response to that COAG meeting and the agreement that was reached there was a phased approach to the introduction of legislation by the government. The first phase was the National Consumer Credit Protection Act that was passed by this parliament and agreed to by the various states. The second phase is this legislation that is before the Senate at the moment. This legislation deals in particular with payday lending, credit cards, business lending and other forms of credit. These reforms were agreed to by COAG on 19 April 2010 and legislation containing the new requirements was brought before the parliament last year. That legislation was referred to a committee, and I was fortunate to be a member of the committee, the Corporations and Financial Services Joint Committee, that had a detailed look at the provisions of the original legislation and issued a report in December 2011.

I want to point out the position of the coalition in the lead-up to the action that the government has taken on this very important area of reform. In 2001, the now shadow Treasurer, Joe Hockey, 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.

It is not often that I agree with Joe Hockey, but on this occasion in respect of that quote he was spot on. He summarised some of the issues associated with the provision of payday lending credit in our country. The question remains, given that that quote was made in 2001, why for the remaining six years of the Howard government Mr Hockey and his colleagues did nothing about this issue. They did nothing at all when in government to protect the most vulnerable in our society and reform this area of consumer credit. Once again, it took a Labor government to take this issue up through the COAG process, get agreement of the states and introduce this legislation.

In respect of the Corporation and Financial Services Committee's deliberations regarding the original bill, it was a difficult task that the committee had. The task was to look at the legislation and to ensure that it struck the right balance and that it was appropriate legislation and regulation allowing people who were providing consumer credit to run a profitable business into the future.

And, importantly, it was about allowing those who are in a position to access and repay such consumer credit to gain that access without an unreasonable burden on their right to access such credit and, also importantly—and this is where regulation in the past has not kept up with what has been occurring in society—protecting those who are most vulnerable, those who in some circumstances are not in a position to repay the payday loans that they take out and ensuring, given those circumstances, there is appropriate regulation and protection into the future.

We believe this legislation strikes the right balance. It does that by ensuring fairness in the protection of the most vulnerable accessing this credit; also by allowing those who are running businesses in this area to do so in a profitable manner and ensuring those who are in a position to repay these loans can access such credit.

This bill has four or five main aims: to enhance access to hardship provisions in the credit code; to introduce a protection against negative equity for holders of reverse mortgages; to introduce caps on costs for small-amount credit contracts, particularly in relation to upfront fees and ongoing interest charges; and to ensure greater consistency between the treatment of consumer leases and credit contracts.

With respect to short-term lending, or payday loans, a comprehensive amount of evidence and research data was presented to the committee during its inquiry. I would like to quote from what is probably the most comprehensive study conducted in recent years—that is, the joint study by RMIT and the University of Queensland, which was released in August 2011. That report provides probably the most up-to-date analysis of the circumstances of consumers accessing short-term loan credit. As part of the study, 160 interviews were conducted with consumers across Queensland, Victoria and New South Wales who had borrowed between $50 and $1,500 from non-bank lenders for short periods of time. The data that was produced by this study is instructive of the characteristics of those people accessing this credit, the amount of credit that they are accessing and the terms and conditions under which they access that credit. It highlights why the government have taken this action in protecting the most vulnerable consumers with greater regulation in this area. The researchers concluded that:

… poverty pervades the lives of most borrowers interviewed.

The study indicated that the users of short-term loans are commonly unemployed, receive government assistance, have lower rates of home ownership and are likely to be in their 30s or 40s. Of the 112 interviewed, 78 per cent received Centrelink benefits, less than 25 per cent were in paid employment and 75 per cent lived in rental accommodation. Only nine of the people interviewed owned their own homes and, unfortunately, eight of them were homeless. Of the 112 borrowers interviewed, only seven had credit cards and 68 had a poor credit history. I think that really underlines and highlights the need for regulation in this area and why the government have taken the steps that they have.

Some of the evidence of the welfare organisations who appeared before the committee was instructive. St Luke's Anglicare summarised the situation of payday lending in this country at the time and said:

Payday lending is undoubtedly the most expensive form of credit. There is a real question mark over whether these loans alleviate financial hardship or in fact exacerbate it.

Balancing that there was also evidence from a number of corporations and companies that provide credit in this space, particularly about the original provisions of the bill that were before the committee and the parliament. I am not going to go into the details of the evidence presented by a number of payday lenders—the corporations that provide this sort of credit—but I draw the Senate's attention to pages 97 to 98 of the report where the financial figures associated with payday lending on behalf of Cash Converters, one of the biggest suppliers of payday loans in the country, were presented to the committee. They highlighted the fact that these loans make up on average 50 per cent of the income of an ordinary business operating in this space. Their evidence was that provisions were too harsh, they did not strike the right balance and, importantly, that evidence was not challenged. That evidence of the financial position of many of those corporations and the effects that the original bill would have on their financial position was not challenged. I think that undermines the position taken by Senator Hanson-Young and the Greens in relation to this debate. They did not present any alternative evidence to the committee to dispute the figures that were produced by a number of corporations regarding the effects that the original bill would have on their business.

In the wake of that, the government have considered the recommendations of the committee in its report—quite sensible, balanced recommendations, I believe, which did have the overwhelming majority support of committee members—and we have reformed the bill. The bill now strikes the right balance. In respect of payday loans, there are a number of elements in this legislation which deal not only with protecting the most vulnerable but also with ensuring that those who operate in this space can operate a profitable business.

The elements of the bill are to: increase the cap on short-term small amount contracts to a 20 per cent establishment fee and a four per cent monthly fee; shorten the term for small amount credit contracts from 24 months to 12 months; remove the prohibition on refinancing of small amount credit contracts; introduce a mid-tier cap of 48 per cent plus $400 for loans of between $2,000 and $5,000 with a term of two years or less; place a prohibition on loans with terms of more than 15 days; place a maximum of 200 per cent total cap on charges for all lending; require consumers accessing small amount credit contracts to provide three months of bank statements and assist ASIC in their investigation; enhance the responsible lending requirements for brokers in this industry, particularly those who operate payday lending facilities through websites, and link them to ASIC's MoneySmart website; as well as address the risks of fees associated with debtors' accounts through repeated unsuccessful use of direct debit to seek payments incurred under small amount contracts. These are a suite of provisions that give greater protection for the most vulnerable consumers.

I draw the Senate's attention to evidence that was presented to the committee by some of the welfare agencies that operate in this area, particularly the Redfern Legal Centre. It acknowledged in its submission to the inquiry that there was a requirement for caps on fees and administrative costs associated with this. The centre said:

We acknowledge that the payday lending market is characterised by certain features that make small amount loans more expensive, including the high risk of default, and the high fees and the administrative costs of short term loans. There should be a limit on the amount of fees and costs that can be charged under small amount credit contracts to protect vulnerable consumers. It is important to recognise the role that payday lending plays in indebtedness amongst socioeconomically disadvantaged individuals.

That perfectly summarises the position of the need for reform and the government's reasons for its action in this area.

The bill also introduces new protections for seniors in respect of reverse mortgages. Seniors often can be particularly vulnerable when the value of the mortgage is greater than the value of their home. This is known, of course, as negative equity and to address this issue the bill will implement Australia's first statutory protection against negative equity. Reverse mortgage lenders and brokers will be required to discuss with the borrower the different scenarios and show them how the equity in the home will reduce according to the amount borrowed and different movements in house prices. This will ensure that when seniors access reverse mortgages they have the necessary knowledge to make decisions that protect their best interests and ensure that they do not end up in a vulnerable position.

The bill further introduces several important enhancements to the national consumer credit laws, which are aimed at protecting borrowers from severe enforcement action that is often taken by lenders, including the confiscation of property. These changes mean that the borrower is given the best chance to reach an agreeable arrangement with a lender in circumstances that are balanced and fair without being subject to costly court action. The bill also provides for regulatory balance between credit contracts and consumer leases, which are largely regulated consistently with credit contracts, to reduce the incentive for some providers to provide leases in a way that can disadvantage consumers.

All in all, this is a balanced set of reforms that takes into consideration the recommendations of the Joint Standing Committee on Corporations and Financial Services. It is a bill that will ensure the protection of the most vulnerable citizens accessing consumer credit in our country while also allowing those who have a requirement to access such credit to do so and for those running businesses in this important area to be able to do so in an ongoing profitable manner.

In respect of the foreshadowed amendments by the Greens, proposed by Senator Hanson-Young, I point out that to date in all of the deliberations that have occurred on this bill, through the committee process and through the debate in the House of Representatives, the Greens have not sought to move amendments to the legislation. The position put by Senator Hanson-Young this morning is the first that the parliament is aware of. I point out that the committee process, undertaken by the corporations and financial services committee, was a balanced approach. Senator Hanson-Young was involved in the hearings of that committee; she saw the evidence. None of the contrary evidence was presented in respect of the financial position of many of the corporations acting in this industry. For her to come in here now and say that the government has failed, when the government has taken a reasonable, balanced approach, assessing all of the evidence, ensuring that there is greater regulation in the industry, but at the same time allowing people to run profitable businesses in consumer credit, is simply misleading. It is another example, unfortunately, of the Greens dealing themselves out of the consideration of this important issue.

Their intransigence and inability to negotiate and compromise on this will mean that they have dealt themselves out of the debate on this issue. That is unfortunate because it is an area of regulation that requires a commitment from all sides to ensure that it works into the future.

This bill will enhance Australia's consumer credit regime. It will ensure the protection of the most vulnerable citizens and it is with a great deal of pride that I commend the bill to the Senate.