Arthur Sinodinos (NSW, Liberal Party) Share this | Hansard source

Senator Cameron says he wants to exclude all consumer leases from Centrepay. We in the government believe that his private senator's bill, the Social Security (Administration) Amendment (Consumer Lease Exclusion) Bill 2015, will not do that and is flawed. The objective of Centrepay is to assist customers in managing expenses which are consistent with the purposes of their welfare payments and reducing financial risk by providing a facility to have regular deductions made from their welfare payments. The government has already taken action in this area. Following a review and subsequent stakeholder consultation, the Department of Human Services introduced a range of changes to Centrepay to improve its operation and provide greater information to customers. These changes include the exclusion of consumer leases not regulated by the National Consumer Credit Protection Act 2009—referred to as the National Credit Act— and the expansion of Centrepay to support alternatives to consumer leases such as low-interest loans, no-interest loans, savings plans and lay-by. We argue that it is important to ensure that people who have very limited access to most forms of credit—or to alternatives to consumer leases—are still able to access necessity goods, as we call them, such as refrigerators and washing machines.

The department works to build strong assurance practices for the consumer leasing industry and to influence its behaviours. Centrepay is currently transitioning to a new contract and assurance framework that will provide more options in responding to poor business behaviour and will provide additional dedicated assurance resources. The new Centrepay policy and terms list the categories of goods and services eligible for Centrepay deductions. The policy and terms also list the categories that are explicitly excluded. Let me be clear: the new Centrepay policy and terms do not rely on social security law to exclude particular goods. This bill is not needed and this bill will not exclude consumer leases from Centrepay.

As part of the continuing transition to the new Centrepay policy and terms, businesses approved for the household goods categories have been required to specify whether they provide regulated consumer leases or unregulated consumer leases which are being excluded from Centrepay. They are also required to provide positive agreement to compliance with the new policy and terms. We are also obtaining more detailed data on usage of Centrepay for consumer leases, which was not the case previously. Usage of Centrepay for unregulated consumer leases during that grandparenting period—we do not call it 'grandfathering' or even 'grandmothering' anymore; it is now 'grandparenting'—will be monitored closely.

I turn to the issue of the Australian Securities and Investments Commission, or ASIC. The Department of Human Services is not a regulatory authority, nor should it be. It is a payment authority of the federal government. ASIC are responsible for the regulation of consumer leases under the National Consumer Credit Protection Act 2009. They undertake research and activities to promote compliance with the National Credit Act. ASIC has undertaken enforcement action against a number of consumer lease providers for failing to comply with the requirements of the National Credit Act, particularly for failure to comply with the responsible lending obligations in the act.

The Department of Human Services has a close relationship with the regulatory agencies, including ASIC. This has led to some businesses being removed from Centrepay. So action has been taken. ASIC has been doing its job and the Department of Human Services has been doing its job; they have been working closely together in dealing with businesses that deserve to be removed from Centrepay. I understand the department recently provided information to assist ASIC with its current research aimed at better understanding consumer leasing practices and the impact on welfare customers. That is important work.

We all know there are concerns about the behaviour of some consumer leasing businesses and we are working with ASIC to address that. Some consumers, often welfare recipients, pay far too much for leased goods. It is those providers we need to address. This is something that has recently been acknowledged by Assistant Treasurer Josh Frydenberg. The department is going about addressing this issue in an informed and planned way, the way any good government would. There is no point rushing in with half-baked measures. That is why, at the minister's request, the Department of Human Services is chairing a working group which is consulting with business and non-government organisations about a requirement for Centrepay-approved businesses to disclose to their customers the effective interest that would apply for any consumer lease product. This will help ensure people make informed choices.

It is very easy to say those words, but think about what it means in practice. This is about transparency. This is about saying to someone, before they enter into a contract: 'This is the effective interest rate. This is what you will have to pay over that period. You think you are buying this refrigerator for X. However, because you are paying over time'—depending on the terms they may be able to buy the piece of equipment at the end of the term—'the effective cost to you is X times two.' This is the point. This is transparency at work. This is how you get people to make responsible decisions. They can then say: 'Okay, I cannot afford to do this. The interest rate is too high.' That is transparency, which is very important.

At the same time, the Assistant Treasurer, my friend the Hon. Josh Frydenberg MP, has announced an independent review of the small amount credit contract provisions of the National Consumer Credit Protection Act 2009. The review has been given terms of reference which include consideration of whether the small amount credit contract provisions should also be applied to consumer leases. The government is closely considering consumer leases and will take further steps as appropriate. When the Assistant Treasurer announced the review on 7 August 2015 he indicated that it fulfils a statutory requirement under the credit act to examine and report on the effectiveness of the law relating to small account credit contracts. He acknowledged there:

The Government recognises that small amount lenders can play an important role in the economy by providing credit to consumers who are excluded from mainstream forms of finance.

That is what we are talking about here. We are talking about people who do not qualify for most normal forms of finance. This is an issue for the banking system and for the financial service providers as much as it is for society — finding a way in which we can help those people who do not have access to other more mainstream forms of finance. Mr Frydenberg announced:

The Government wants to ensure that the regulatory framework strikes the right balance by protecting vulnerable consumers without imposing an undue regulatory burden on industry.

This review will have a consultation process. The panel will call for submissions from interested parties and consult widely with stakeholders and will report by the end of this year. We do not have to wait until the middle of next year for the report of this group — we will have it by the end of the year. That will provide us with the opportunity to consider all of these measures that Senator Cameron has rightly raised in the context of full information including a proper structured review by experienced people of the small amount credit contracts. The review will be chaired by Ms Danielle Press, the CEO of Equipsuper, and will include Ms Catherine Walter , Deputy Chair of Funds Management Vict oria, and Mr Stephen Cavanagh, p artner at HWL Ebsworth. So this is a blue-ribbon panel that I think will do an excellent job in looking at this matter.

The government has made it clear that it concedes the point that Senator Cameron has made. Mr Frydenberg conceded that there were issues, and while Senator Cameron was out of the chamber I made the point that we support greater transparency around disclosure of effective interest rates. We need to put consumers in a position to be informed. The other element of this, and it is not covered here, is that we also need to make sure that we are rolling out financial literacy programs to those most vulnerable people. Not everybody may have access to the ASIC website or to some of the programs that the banks and others have rolled out, so it is important for us to supplement what we are doing by having appropriate financial literacy programs.

I want to consider the impact of this bill on income management. If the bill were enacted there would be welfare recipients on income management who would not be able to pay for any consumer lease obligations, regulated or unregulated, using their income managed money. Those on income management would be able to continue to pay for regulated leases using their non-income managed money via Centrepay or unregulated leases via other private payment arrangements. This could place these vulnerable people in financial distress, which is what income management was designed to avoid. Excluding consumer leases from income management has the potential to cause further hardship to already vulnerable people. Some people have existing arrangements to pay consumer leases from income managed funds, and the Department of Human Services would be obliged to end these arrangements. For some people on income management this type of arrangement may be the only option available to them to obtain basic household goods. The government does want more lower cost options available to people, which is why it continues to support the Good Shepherd no-interest loan scheme and why Centrepay is expanding to include low interest loans, savings and layby.

I commend the financial system because over the last few years a number of the banks and others have sought to address issues in this area through mechanisms like no-interest loan schemes. Ironically, these are in part based on the experience in developing countries. In places like Pakistan and Bangladesh, the Grameen Bank provided low- or no-interest loans—very small loans—to people and they found, remarkably, that people were not frittering these loans away. They were either getting basic goods they needed or they were starting small businesses. The repayment rate was very high. If you backed these people, they more than repaid your faith in them by not just repaying the money but often by starting new businesses and getting their lives and their families in order.

I fully support the rollout of these sorts of alternative loan and payment options for lower income people, but that must go hand in hand with continuing to expand financial literacy and putting the Assistant Treasurer in a position by the end of the year, when we have the fruits of that review, to institute small loans. That will give us the chance to have a comprehensive package around this whole area. It will give us just a bit more time. Senator Cameron just has to wait until the end of the year and we can do things in a more comprehensive package, and this private member's bill and the debate on it will help inform the government's further consideration of options. That is very important, and it is a very useful thing that we have been able to do. It is particularly important that we look at how the government can encourage these alternative loan options that I talked about before. We should do whatever we can to link these options to broader strategies within government; to encourage people who are on the fringes of society—Indigenous groups are a particularly large part of that—into the mainstream by linking what we do in this area with workforce participation and other measures. This is not about being punitive; that is not what we are talking about here. We are talking about how we, in a whole-of-government way, can address the sources of disadvantage that people have so that they are in a position where they do not see themselves as passive welfare recipients condemned to a life on the dole or condemned to two or three generations of poverty. The intergenerational transmission of poverty is one of the biggest challenges we face with these groups on the margins of society. It is very important to take a whole-of-government approach to all of this.

In relation to the matters which are being considered in the context of this private member's bill, I think it would be good to have a whole-of-government approach which would take account of what the Assistant Treasurer will be providing to us in the form of a report by the end of this year. That report in part will be informed by work that is being done by ASIC, which released its report into small-amount credit contracts in March. That was focused on compliance. It did not look at policy questions such as whether the existing rules are effective or appropriate. ASIC found that compliance with some regulations was working well, including a requirement to provide a warning about alternative credit options. However, ASIC did find some issues present in the sector, including adequate documentation and record keeping, as I alluded to before. ASIC has put the industry on notice that it needs to improve. Since 2010 its enforcement action has resulted in close to $2 million in refunds to more than 10,000 customers who have been overcharged. The government fully supports ASIC's actions to date in ensuring that all lenders are complying with the law. I look forward to further debate on measures which can strengthen appropriate regulation and compliance in this area.