Carol Brown (Tasmania, Australian Labor Party) Share this | Hansard source

I rise to make a brief contribution today and add my support to the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011. I would like to start by saying that I absolutely agree with Senator Williams when he talks about why people access payday lending. That is because they are desperate and vulnerable. And that is exactly why we need to put in safeguards to ensure that those people that are accessing these loans are not taken advantage of. The bill we have before us seeks to do that.

This bill continues the government's commitment to support the most vulnerable in our community, by protecting consumers who seek credit. It will also deliver part 1 of phase 2 of the COAG national credit reforms. The credit industry needs reform; for too long exorbitant costs have spiralled out of control. We must stop these uncontrolled costs and support those in our community who are most vulnerable. In supporting those who need it most we are moving to stop borrowers suffering from uncontrolled costs, help them reduce debt spirals and combat the current failure to utilise alternatives.

Short-term small amount lending, sometimes called payday lending, is an area that is long overdue for regulatory reform. People who take out short-term loans are generally low-income earners or are financially disadvantaged. They may require a small amount of money to pay a utility bill or to get a household appliance fixed. Thinking they have nowhere else to go, people often turn to payday lenders, who offer credit on a short-term basis, usually charging extremely exorbitant costs for the service. Under the stress of having to find some credit to meet a financial obligation, people do turn to payday lenders. However, there are other options already in the market that are available such as schemes through Centrelink or the highly successful No Interest Loan Scheme, the NILS scheme, that operates in my home state of Tasmania. I understand that all other states offer similar schemes.

The bill introduced by the Gillard Labor government will go some way to addressing this issue of payday lending to provide more protection for consumers who may need to engage in short-term credit. The high and largely uncontrolled costs associated with accessing short-term loans can exacerbate current financial problems that borrowers may already find themselves in. This means that people who access these payday lending services are more likely to suffer from uncontrolled costs and get caught up in debt spirals which are very difficult to get out of. So this bill will protect consumers and deliver in the area of credit reform. In making enhancements to protect consumers can I say that the government has engaged in significant consultations to deliver the best package of reforms possible. We have conducted significant consultations of the issues under phase 2. Consultation began in July 2012 with the release of the green paper National Credit Reform: enhancing confidence and fairness in Australia's credit law.

The bill builds upon the national consumer credit reform, which was introduced as part of the national partnership agreement to deliver a seamless national economy. The National Consumer Credit Protection Reform package is dependent on the states referring their powers to the Commonwealth under the COAG agreement. Tasmania was the first state to introduce the required legislation into parliament, where it was passed in 2009. This shows Tasmania's commitment to national consumer credit reform.

The government has also consulted directly with payday lenders and consumer groups, and coming out of these consultations we have changed provisions within the enhancements bill in response to issues raised by both. We have also made amendments as to the issues that have arisen out of inquiries into the bill conducted by the Parliamentary Joint Committee on Corporations and Financial Services and the Senate Economics Legislation Committee.

This bill may not be 100 per cent perfect or achieve everything that the Consumer Action Law Centre wanted, but it is a start and it provides significant protection for consumers. The bill will introduce a national interest rate cap that will limit the costs of credit for consumers so that they will no longer be charged relatively high rates and high costs for these types of credit. This is Australia's first ever national interest rate cap and will apply to loans of less than $2,000 and 12 months duration. For these short-term small loans a cap on costs of 20 per cent of the credit provided, plus four per cent of the credit provided for each month of the credit contract, will apply.

In payday lending situations there have been cases where people borrowing $300 can be charged over $100 for a seven-day loan, and then can meet repayments on this loan only by not paying other bills, such as rent or power, relegating them to the cycle of debt that I touched on earlier. The bill also introduces other protections, including tailored response lending obligations that help support the position of borrowers who have already defaulted on payday lending services or who make repeated use of small, short-term lending. The bill will implement the government's election commitment on reverse mortgages, meaning that new laws will introduce appropriate protections against negative equity and will also provide better information for those seniors who are considering taking out a reverse mortgage.

Another element of the bill amends the National Consumer Credit Protection Act 2009 to deliver greater regulatory consistency between consumer leases and credit contracts. It will also deliver specific improvements to consumer law, including opportunities for borrowers to obtain variations to their repayments when they experience financial hardship.

I turn now to talk in more detail about the excellent service offered in Tasmania and its no-interest loans scheme which I mentioned earlier. The NILS Network in Tasmania provides interest-free loans for household essentials, car maintenance, education essentials and medical and dental services for individuals or families on low incomes. There are no interest charges or fees: borrowers pay back only the cost of the item or service. As the NILS Network says on its website:

NILS loans have the capacity to turn people’s lives around. Loan recipients often find that for the first time in their lives they are able to own something new and reliable. There is also a sense of pride and achievement associated with the completion of a loan.

The NILS Network also has many testimonials from users of the scheme, and I quote from one of those:

I was left with absolutely nothing but a suitcase full of clothes and care of my teenage daughter. I was residing in a women’s shelter. My husband had a bad gambling problem. He gambled away years of battling virtually in two years. I finally moved into a Housing home and of course, had nothing. I heard about NILS and applied for a washing machine as I have arthritis and am recovering from an illness. I washed by hand and could not afford to get credit or be accepted as a customer. I am so very grateful that NILS exists.

This story highlights very well the reason the government has taken this action. Many low-income consumers take out payday lending loans as a first point of call rather than using them as a last resort. Part of this reform is to make consumers think about other options, such as NILS, when they are faced with temporary financial shortages. Sometimes it may appear easy to take out a short-term loan but, for many, due to the costs involved, they are just delaying the inevitable and making their situation worse down the track.

I am pleased today to be supporting this bill that introduces a number of measures to protect consumers from the exorbitant costs associated with payday lending, and I commend the bill to the Senate.