Catryna Bilyk (Tasmania, Australian Labor Party) Share this | Hansard source

[by video link] Labor has introduced the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) to the Senate because of the government's failure to act on payday loans and consumer leases. Between April 2016 and July 2019, 1.77 million Australians took out 4.7 million payday loans. Payday lending is a rapidly growing, multibillion dollar industry which traps hundreds of thousands of Australians in a debt spiral from which they cannot escape.

The Morrison government has ample evidence of the problem of lenders preying on vulnerable consumers. They know the devastating impact that this is having on people's lives. In fact, not only do they have the evidence; they have accepted the evidence. More than that, they promised—they promised—to act when they released their response to the Independent Review of Small Amount Credit Contracts. That response was released on 28 November 2016—yes, 2016. So, in a few weeks time, it will be four years to the day since those opposite promised to regulate to protect vulnerable Australians from the harm some of these products cause. And it has been three years since the government released the exposure draft of their small amount credit contract legislation. So what's the hold up, we ask. Do the government lack the competence to progress this legislation or do they simply not care? It's probably a bit of both. Whatever the case, it demonstrates an incredible lack of sensitivity to the plight of the thousands of Australians who are suffering because the current regulation simply isn't working.

There is a mountain of evidence of the incredible harm being caused by these financial products. We have the government's own small amount credit contract, or SACC, review, conducted, as I said, in 2016. We have the report of the Senate Economics References Committee inquiry into credit and financial services, which was targeted at Australians at risk of financial hardship; that was released in February 2019. Later in 2019, a report entitled The debt trap was released by the Stop the Debt Trap Alliance. They are a group of 26 welfare and community service organisations which have come together to fight for regulation to protect consumers from these products. Finally, we have the report by the Senate Economics Legislation Committee on this bill. In addition to examining the bill, the committee received a raft of further evidence of the harm caused by payday loans and consumer leases.

I have spoken before in this place about some of the consumers who have been exploited by payday lending, but let me outline again what some of these reports found. The Stop the Debt Trap Alliance report revealed that it is estimated that there are almost one million financially stressed and financially distressed households with payday loans and consumer leases. The alliance provided several cases to demonstrate the financial pressure that some of these households are being placed under. Among the case studies in the report was the story of Susan, an age pensioner, who took out around 20 payday loans and found that the only way she could pay them off was to go without food. There was Sarah, a woman fleeing family violence, who ended up taking out a series of loans to pay the bond and the rent for rental properties. Those loans were taken out when she was already behind on payments for others.

But the most tragic case, from my point of view, is that of Charlie, whose initial $650 loan, taken out to fund cremation services for her stillborn baby, spiralled into a mountain of debt which she was unable to pay. I remind people that there hasn't always been a payment for the parents of stillborn babies. The death of Charlie's baby and then the death of her father and mother around the same time took such a huge emotional toll on her that she was unable to work. Charlie ended up on a Centrelink income, fell behind on her payments and ended up owing significantly more than her original loan. Sadly, Charlie went to prison last year, so it is likely she will never pay off these debts.

Now, the names in these case studies are not the real people's names, but their stories are real, and that's what we need to remember. What these stories illustrate is why the report's title, The debt trap, was chosen. Often, when people are already vulnerable and they experience a setback in their financial circumstances, they struggle to pay even small loans. Then they take out further loans to help them meet basic living expenses, and this gets them into a cycle of debt from which they cannot escape.

The SACC review also included case studies, one of which was supplied by the Financial Rights Legal Centre. Ms A, as the report referred to her, was a single mother with eight children. She agreed to rent several household goods from the same rental company. Her sole income was from Centrelink and the payments were organised through Centrepay. While she believed that she was renting to own the goods, Ms A was told by the store that she would have to pay $100 cash per item when the rental contract expired and if she stopped any of the Centrepay deductions, the store would seize the goods. Ms A was never able to come up with the $100 needed to purchase any of the goods, so she continued with the Centrepay deductions.

At the time the case study was recorded she was struggling to meet other financial obligations like food, electricity and rent and she had a pending eviction hearing because of her rental arrears. It was reported to the SACC review during consultation that 25 to 35 per cent of lease consumers were behind on their leases, suggesting a large portion regularly encountered difficulties in meeting their payments. Part of the reason consumers struggle with these loans and leases is their extraordinary cost.

I had a meeting with the CEO of the NILS Network of Tasmania, John Hooper. He told me of a client who had approached them for help with a loan. This client had a consumer lease in place for a fridge valued at $1,800. While the payments of $70 a fortnight may sound affordable and reasonable, over the course of the three-year loan she would have paid three times the price of her original purchase. While the interest rate wasn't specific on the contract, NILS staff estimated it to be about 155 per cent per annum. In The debt trap report it was reported that some payday loans had effective interest rates as high as 400 per cent. If that's not bad enough, the government's SACC review had an example of a one-year consumer lease for a $345 dryer with a total cost of over $3,000. The equivalent interest rate for a loan of the same value is 884 per cent.

The Senate inquiry into this bill observed that low-income Australians have difficulty getting access to mainstream credit products, which gives them little choice when they get into financial difficulty but to access higher-cost products. I will read to you a list of examples detailed in the inquiry report of the kind of financial harm that consumers of these products are experiencing. They were provided by consumer groups that submitted to the inquiry and they included things such as a significant variation between a leased good's retail price and the total lease cost paid, which often resulted in lessees paying costs equivalent to multiples of a good's retail price; consumers struggling to pay their consumer leases or not having enough money left after repaying the leases to afford basic living costs; consumers reliant on income support payments for income and a high proportion of their income being used to repay consumer leases; complex health or social challenges contributed to consumers' experience with financial vulnerability and hardship; lease providers acting inappropriately when responding to repayment difficulty concerns; consumers having an incomplete understanding of the lease provisions, including the total costs payable under the lease or believing that they will own the goods at the end of the lease period; consumer leases being provided using unsatisfactory suitability assessments; and consumers repaying multiple leases or other debt types and experiencing repayment difficulties.

The debt trap report indicated that things are getting worse for consumers. The number of payday loans issued per month has increased by about 35 per cent from 2016 to 2019, when the report was released, and the value of those loans increased from around $60 million per month to around $85 million per month. The percentage of loans originating online has exploded from about six per cent in 2009 to about 86 per cent in 2019, while the proliferation of online loans comes with aggressive marketing tactics that traps more and more vulnerable consumers.

An example of that sort of aggressive marketing by lenders was explained to us by the Consumer Action Law Centre, who told the Economics Legislation Committee's inquiry into this bill that when consumers find themselves in a pattern of repeat use it's often promoted by the lender. Mr Gerard Brody, from the CALC, told the committee:

… once they have had one loan, they will continue to receive unsolicited communications to take out further loans, often seemingly timed at moments when they've just repaid a loan, so they can get another one.

Financial hardship caused by the COVID-19 pandemic and recession means that many more Australians will be vulnerable to harm from lenders. We know that industries with high rates of youth employment were hit particularly hard by the shutdown during the pandemic, and we now have concerning evidence that young workers impacted are turning to short-term finance. Data compiled by the Consumer Policy Research Centre suggests more than 300,000 young people took out a consumer lease or payday loan in July 2020 alone. The situation has the potential to get much worse as economic support through the JobKeeper payment and coronavirus supplement is withdrawn. Also vulnerable to potential harm from payday loans and consumer leases are the thousands of Australians whose homes and livelihoods were lost in last summer's horror bushfire season. Sadly, payday lenders are targeting the vulnerability of some people during the COVID-19 pandemic by sending text messages offering 'COVID relief loans'. The need to act is more urgent than it ever was.

While I'm talking about aggressive marketers preying on vulnerable consumers, I think it's important for consumers to understand the alternatives that are out there. There are various public services to help people get out of financial difficulty. You do not necessarily have to turn to a for-profit lender, who may not act in your interests. One option is the No Interest Loan Scheme, or NILS, which provides loans to low-income consumers with no interest whatsoever. Given the scheme is government subsidised, there are some eligibility rules around the loans, such as income limits and what you can take out a loan for. While you cannot use a NILS loan to pay off existing debts, it can be used for essential household goods, to finance a small business or to establish a household after fleeing domestic or family violence, amongst other things. My office recently became a NILS delivery partner, meaning we offer assistance with applications for NILS loans, so I encourage anyone from the Kingborough area who's listening and who is on a low income and needs finance to contact my office to see if they are eligible. Other Tasmanians, of course, can contact their local delivery partner or call NILS directly on 1300301650. There are also a number of free financial counselling services offered by welfare agencies, as well as the Commonwealth funded National Debt Helpline, which you can call on 1800007007.

I hope all of us in this place will do everything we can to promote these alternatives to our constituents and our communities, but, let me be clear, the fact that alternatives are available does not negate the problem; nor does it negate the urgency of acting on it by passing this bill. This bill includes a number of measures to protect consumers, including caps on the total payments that can be made under a consumer lease, better regulation of repayment payment intervals, removal of fees for loans that have been fully paid, prohibition of door-to-door selling, anti-avoidance protections, and stronger penalties for wrongdoing.

The foot-dragging from those opposite on this important regulatory change has already exposed hundreds of thousands of Australians to potential and actual harm from payday loans and consumer leases. The absolute sham of a report produced by the Liberal and National senators on the committee which inquired into this bill goes to show that those opposite have no political will to follow through on the promise they made four years ago. It's just another broken promise. The government senators ignored the overwhelming evidence provided to the committee about the harm inflicted by these payday loans and consumer leases. They even failed to back their own government's legislation. This bill replicates the exposure draft of the bill the government released in 2017. In other words, it is essentially the government's bill. By recommending that this bill not be passed, government senators on the committee have basically given the government a green light to continue the delays, inaction and obfuscation that have dominated their response to this legislation. (Time expired)