Jenny McAllister (NSW, Australian Labor Party, Shadow Cabinet Secretary) Share this | Link to this | Hansard source

Many families are doing it tough. Many families struggle to bridge the gap between their income and their basic needs. This has been true for too long and, in the recession that we are, unfortunately, experiencing, it is likely to be exacerbated. It should not be beyond us to ensure that, when these families reach out for credit, that credit is affordable and offered on just terms. Yet, too often, families who are most in need find themselves in the hands of lenders whose products are neither affordable nor fair. The consequences for those families and those individuals are far reaching. They are seen daily by the financial counsellors who struggle to attend to the spiral of debt and the problems that rack up for those families.

The bill before us, the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2), responds to a gross failure by this government to respond to the needs of those individuals and those households. It's a bill that I am pleased to sponsor with Senator Griff. It replicates the exposure draft legislation introduced back in 2017 by the government itself. One wonders what has been happening since 2017. But the story is even worse than that because that exposure draft legislation responded to a review the government commissioned in 2015. It has been five years—five years during which the exploitation of people who entered into small amount credit contracts and consumer leases has been left unattended and ignored by a government that simply refuses to see the consequences for people who need its help most.

When that legislation was introduced in 2017, stakeholders and the broader community engaged in good faith; they perhaps expected that the government would listen to their responses, make some amendments, fine-tune the legislation and get on with it. But for three years there has been an absolutely deafening silence on this question. Instead of implementing the measures foreshadowed in the exposure draft back in 2017, the government has failed to act. In this same period of time, hundreds of thousands of people have been exposed to financial products without adequate protection from harm. That is why Senator Griff and I have introduced the government's own legislation—and that is the bill that is before us today.

In the past few weeks, there's been another announcement. The government has flagged further changes to consumer credit laws. We have little detail, and I'll return to that later in my remarks. But I make this point: based on the government's performance to date, we have very little reason to trust that it will bring forward the necessary changes to protect vulnerable people. Reform is urgent. The current arrangements are simply unconscionable. Payday lenders can charge equivalent rates of more than 200 per cent per annum. There is no capital on the costs that can be charged by consumer lease providers, and lenders continue to sign up people to loans and leases with unaffordable repayments, which can cause people to wind up in a spiral of debt. Struggling families are left entrenched in debt and poverty.

This bill directly responds to those challenges, and it's supported by advocates who work on a daily basis with victims of the current arrangements. It includes caps on the total payments that can be made under a consumer release. It includes better regulation of repayment and payment intervals. It removes fees for loans that have been fully paid. It prohibits door-to-door selling. It includes anti-avoidance protections and stronger penalties for wrongdoing in a sector where noncompliance with the existing arrangements is rife. The committee report for this bill speaks to the support from stakeholders for this legislation, and the Senate now has the opportunity to take the lead to do what the government should have done years ago. The parliament can act when the government will not.

There are many compelling reasons for the passage of this legislation, but I want to speak today about an issue of particular relevance for my role as shadow assistant minister for communities and the prevention of family violence. Financial counsellors tell us that women fleeing family violence are frequently turning to risky financial products at a time of great vulnerability. In addition, where perpetrators are perpetrating financial abuse, these products can be turned into a tool of abuse themselves. This bill includes reforms that explicitly identify family violence as a reasonable cause of financial hardship, for the purposes of the hardship provisions under the National Credit Code.

The need is acute. The Stop the Debt Trap Alliance is a national coalition of over 20 consumer advocacy organisations from around Australia, including financial experts, community advocates and service providers. They offer the story of Sarah, a 43-year-old woman who moved to Australia with her child and now ex-husband. Shortly after that, Sarah was forced to flee her family home to escape violence. With only a few dollars in her pocket and nowhere to turn she found herself, effectively, homeless for months couch surfing, staying in refuges and in short-term accommodation. Fortunately, as so many women do, Sarah found full-time work. She was able to start looking for a permanent housing option. However, her financial circumstances were such that Sarah took out six loans, over a five-month period, in order to pay the bond and rent for rental properties, including four small amount credit contracts, SACCs. At the time of taking out the fourth small amount credit contract, Sarah was already behind in repayments on the other three SACCs and two other loans. She also had two buy-now, pay-later debts. While the fourth SACC recorded on the documents that the purpose of the loan was to pay for rental bond and the first month's rent, they didn't include these costs when they were assessing the sustainability of the loan. This is a sector that is ripe for poor practice.

It is time for the government to take the exploitation that is occurring daily in this sector seriously and to take actual steps to protect vulnerable people like Sarah. The protections offered in the legislation before us today will go some way to reducing these risks. Unbelievably, at the end of September, the government, effectively, ditched the position they'd established—the result of the process that had commenced five years ago—and indicated that there are new changes to consumer laws. As is so often the case with the government, there is an announcement, there is a press release and there is very little detail. There is no indication from the government's recent announcement that they intend to deal with most of the matters covered in this bill.

To name just a few examples, this bill requires small amount credit providers to have equal repayments and equal repayment intervals over the life of the loan. It prohibits small amount credit providers from charging or requiring payment from an unexpired permitted monthly fee where the consumer fully repays the loan. It prevents unsolicited invitations. But years after work on this process began, it is unclear whether the government intends to offer these protections in the legislation that it says it will bring forward.

I look forward to the Senate having the opportunity to examine this legislation, should it ever be introduced. But I would say to this chamber that we should not wait. If we want to take action to protect consumers, we have the power to act now. We have a bill before us. It is the result of extensive review and consultation. It is supported by stakeholders, and we could pass it today. With the ongoing economic fallout from the pandemic and the winding back of support measures, it is absolutely critical that the parliament now, finally, implement key reforms to protect people from exploitative lenders who seek to take advantage of their financial vulnerability. The power of these lenders, the payday lenders and the consumer-lease providers, must be curtailed. Passing this bill will reduce the vulnerability of people on low incomes to these harmful financial products and put in place better protections for consumers.

There is substantial evidence in favour of change. The technical arguments for change are logical and they're well substantiated. But the most compelling argument for change is found in the voices of the victims of exploitation, let down by the operation of the law as it currently stands. When it comes to meaningfully responding to the overwhelming evidence presented time and time again through inquiry after inquiry, the government has chosen inaction. This inaction has consequences for vulnerable Australians. There should be no more excuses or delays.

In closing, I'd like to acknowledge that many of my Labor colleagues here and in the House of Representatives have campaigned on this issue for years and years. We take seriously the voices of the victims—the voices of those who've been exploited. We take seriously the negative impacts that unscrupulous lenders have on people in our communities, and we are not giving up. My colleagues and I will continue to fight until there is meaningful reform in this area.

Stirling Griff (SA, Centre Alliance) Share this | Link to this | Hansard source

One of the great privileges of serving in this place is being able to hear the stories and experiences of Australians from all walks of life, in all manner of situations. Some of these stories are inspiring; others are moving reminders of what defines us. Some are stories which challenge us in any number of ways, and some are deeply affecting and stick with you for weeks and months after.

One such story for me was from a witness to the inquiry for this bill, the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2). He was a last minute inclusion and, I suspect, was somewhat reluctant to share his story a with a roomful of strangers. I am glad he did. He spoke about his son's hospitalisation, the long hours he spent at hospital, the worry that he felt and the stress as his savings ran down. To make ends meet, he contacted a payday lender. It was clear how effortless the process was. The lender made it so easy to go from an inquiry to an application to finalising a loan. I have no doubt that this is a process intentionally designed to avoid moments of reflection or decision. Sadly, and as happens so often, this one loan became a series of loans and the debt was rolled over again and again, each time requiring a new application with new fees and more interest and each time leaving the borrower in greater debt and distress. This is how a single small loan becomes a financial catastrophe. It can be an extremely easy, rapid transition to the point where a loan is able to ruin a person's finances, their credit and also their relationships. There should be no doubt that these are dangerous financial products and their use requires close regulatory oversight.

This bill was introduced almost a year ago by Senator McAllister and me. We both felt deeply frustrated by the government's inaction on payday lenders. It is a well established fact that many of these lenders are dishonest and exploitative. But, when we heard from them at the inquiry, you'd think that butter wouldn't melt in their mouths. The existing regulatory framework does little to lift the standards in the industry or to protect consumers. So back in 2017 the government at that time decided to act. They drafted a bill that would cap fees, ban door-to-door sales and increase penalties for unscrupulous actions relating to payday loans and consumer leases. It wasn't enough, but it was a step in the right direction. Treasury circulated an exposure draft and the industry lobbying immediately began. The lobbying must have been incredibly effective, because the government soon gave up. They stopped all work on it. They didn't give up on some of the more controversial aspects or water down their proposal; they just gave up on it completely. The government preferred to keep a few lobbyists and loan sharks happy than protect financially vulnerable consumers from exploitation. After years of inaction, Senator McAllister and I introduced the bill in the hope of passing the government's own legislation for them—or shaming them into doing the right thing themselves. It turns out shame doesn't have much effect on this government. In the three years since they walked away from this legislation, thousands of borrowers have been conned into loans they didn't need and couldn't afford. Many of these people could have been protected if the government had acted.

In the last few years, as has become clear, the 2017 proposal was not going to be enough. The restrictions, protections and penalties all need to be stronger. I had hoped this is what the government's new proposal would provide, but, no, they've gone in the other direction. They've actually watered down their proposal when it needs strengthening. It's not hard to see what's going on. They have heard and seen the stories of exploitation by dodgy lenders during the pandemic. They know the community expects the government to protect them from this kind of behaviour. This weak response allows them to claim they are taking action but without delivering any greater protections for consumers and without doing anything to upset the dodgy lenders.

Under normal circumstances, the government would be actively making the case for its legislation. There would be a discussion paper, press releases, dozens of interviews with a minister and an army of Treasury officials out to explain the details, but on payday lending reforms there is silence. It's not surprising. Who would want to front up and defend it? Who would want to face the question: why has the government softened its position on payday lenders in the middle of a recession? Nothing justifies this approach—nothing that the community would find acceptable.

This campaign isn't over. We still have to proceed with this bill, because someone has to change the rules. Someone has to recognise that COVID-19 financial support doesn't reach everyone in the community, and that there are people in desperate financial situations who are vulnerable and are being exploited. Lenders are there who are making a living by preying on that vulnerability. The government has made clear that they are not willing to stop this, so I hope the Senate will support this bill, and I hope members of the coalition in the other place will consider their most vulnerable constituents and their conscience when this bill comes before them.

Paul Scarr (Queensland, Liberal Party) Share this | Link to this | Hansard source

( At the outset, can I say I've listened carefully to the contributions from Senator McAllister and from Senator Griff. There is absolutely no doubt that they both feel passionately about this issue, and I commend them on their interest. I want to talk, from my perspective, about a threshold question in relation to this whole area. I come to this debate as someone whose term commenced on 1 July this year, so I haven't been here for many of the previous debates in relation to this subject, but it seems to me that the threshold question with respect to regulation of credit in our society, whether or not it's payday lenders, whether or not it's consumer credit products, is about achieving a balance. That balance is between, on the one hand, seeking to protect the most vulnerable in our community—we heard stories from both Senator McAllister and Senator Griff which drew out in stark relief vulnerabilities of particular people in our community—and, on the other hand, seeking not to overregulate the industry, seeking not to exclude mainstream players through overregulation, additional costs and regulatory burdens.

The last thing we want to do in this place is create an environment where mainstream operators are sent out of business and these sorts of credit options for the most vulnerable in our community go underground and become unregulated, where loan sharks and other people who don't agree or comply with any procedures of governance or responsible lending practices at all, people who aren't mainstream and who really are the sharks swimming in the ocean of our world, take advantage of the most vulnerable in our society. So there is a need to achieve that balance between protecting the most vulnerable in our community and recognising that the credit business is a legitimate business and there are ethical operators in this space who are trying to do the right thing.

I read the report into the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) provided by the Economics Legislation Committee, and I thought that tension between those two issues—of protecting the vulnerable but also making sure mainstream credit options are available to the most vulnerable in our society—was brought out by two sections of the report, and I'd like to quote from those sections. In relation to protecting the most vulnerable, paragraph 2.76 of the report provided an example of a lady called Amanda. Amanda is an Aboriginal woman in her mid-40s who lives in a regional New South Wales town and is reliant on Centrelink benefits. In 2016 she entered a four-year consumer lease contract to acquire a seven-piece dining set and a three-piece lounge suite. The sum of the payments under the contract was $9,000. The best estimate of the value of the goods, some of which were second hand, was $1,550. That's $9,000 in terms of total payments and $1,550 in terms of the value of the goods. Clearly Amanda, an Aboriginal woman in her mid-40s, who was vulnerable, was taken advantage of and was left in a catastrophic financial situation. This place should seek to introduce legislation which addresses that sort of exploitation of the vulnerable. That's one peg in the ground.

The other peg in the ground of trying to achieve balance in this debate was drawn out for me in paragraph 2.9 of the report. Paragraph 2.9 provides some statistics as to the number of loans that we're referring to in this space. It says, 'The National Credit Providers Association, NCPA, submitted that in 2018 there were 839,036 small amount credit contracts.' So that is nearly one million small amount credit contracts. It should be noted that there was a total of 1.36 million applications for those small amount credit contracts, so close to half a million were rejected. The report continued:

The Consumer Household Equipment Rental Providers Association … indicated that, at any given time, there are up to 700 000 active consumer lease contracts.

Clearly, there are many people in our community who are seeking small amount credit contracts to tide them over. Sometimes repeated entry into these contracts can lead to catastrophic financial results. There's no question about that. But, at the same time, there is demand for these sorts of smaller amount credit contracts and also for consumer lease contracts. So a balance needs to be achieved between making sure that appropriate credit facilities are available for the most vulnerable in our society and, at the same time, providing that the most vulnerable in our society are protected.

The second point I want to make in relation to this debate is on the context in which the debate is taking place. It was announced in the 2020-21 budget—changes to responsible lending obligations. In Budget Paper No. 1, on page 121, a summary is provided with respect to the government's proposed changes to responsible lending obligations. That included:

The Government is simplifying Australia's credit framework by removing responsible lending obligations for most credit products. The Government's reforms will make the credit application process easier for consumers and allow eligible borrowers to obtain credit faster, improve competition by making it easier for consumers to switch lenders and enhance access to credit for small business. The new regime will support the more efficient flow of credit in the economy by removing the current prescriptive framework and 'one size fits all' approach to ensure credit assessments are attuned to the needs of borrower and credit products.

Importantly in the last sentence of that description in the budget papers it says:

Responsible lending obligations for small amount credit contracts and consumer leases will be retained and laws strengthened to ensure the users of these products, typically more vulnerable consumers, are properly protected.

So that is the articulation of the government's position with respect to these matters.

That articulation was amplified upon in a fact sheet which was released by the Australian government, by Treasury, entitled 'Consumer credit reforms'. That outlines a lot of the steps which have been taken by the government in relation to credit generally and also consumer credit. I must say, if you were to listen to some of the contributions from those on the other side of the chamber, you would be led to think that the government had been asleep at the wheel with respect to this matter and nothing had been done. The reality is quite to the contrary.

Let me give you some examples of what the government has done in this space. Firstly, ASIC has been provided with a product intervention power that allows ASIC to ban or amend a credit product where that product has resulted or is likely to result in significant consumer detriment. Secondly, a design and distribution obligation has been imposed which requires product issuers to identify and distribute their products to appropriate consumers. Thirdly, a best-interest duty was imposed for mortgage brokers. Fourthly, the maximum corporate and financial sector civil and criminal penalties under the credit act were more than doubled. Fifthly, there are enhanced protections for credit card customers by banning unsolicited offers of credit limit increases, simplifying how interest is calculated and requiring online options be available for consumers to cancel cards or reduce their limits. Sixthly, there was the establishment of AFCA, the Australian Financial Complaints Authority, increasing access for borrowers to external dispute resolution. Those are some of the steps that have been taken by this government in relation to addressing matters relating to the flow of credit in our society.

The fact sheet also announced some more detail with respect to policy that will be introduced in legislation in this place. That includes the following in this space:

Imposing a cap on the total payments that can be made under a consumer lease …

I gave the example of Amanda, the Aboriginal woman on Centrelink benefits, who purchased goods worth thought approximately $1,550 and ended up paying $9,000 for those goods. I quote again from the fact sheet:

The permitted cap on costs—

for that sort of consumer lease facility—

will be equal to the sum of the base price of the goods hired under the lease, permitted delivery fees and permitted installation fees multiplied by 4 per cent per month (up to a maximum of 48 months). Lessors will additionally be able to charge a one-off establishment fee of 20 per cent of the good's base price.

So there will be protections with respect to the imposition of caps on total payments that can be made under a consumer lease.

In addition, there will be new protected earning amounts for small amount credit contracts and consumer leases. Again, I quote from the fact sheet released by the Australian government in this regard, noting that there are two limbs to the relevant caps, firstly:

So there is a general cap of no more than 20 per cent for SACC and consumer lease repayments, with no more than 10 per cent of this being allocated towards small amount credit contracts. The second limb of the protected earnings amounts provides:

So the government is proposing to introduce those protected earnings amount caps in legislation to address some of the concerns which were raised by those opposite and, indeed, were raised by those writing the majority report of the Economics Legislation Committee in relation to this matter.

I want to conclude my speech with a number of general reflections in relation to this legislation. I have read the draft bill in its entirety and I want to provide these reflections that are, perhaps, the reflections of someone who is looking at this bill with a fresh pair of eyes. Firstly, I think it's important that the protected earnings amount caps are actually in the bill and not in regulations. I say that because I think protecting the vulnerable in our community goes to the heart of this legislation. I would hate to see a situation where those caps were decided not by members of this place but, perhaps, by other agencies, through regulations or otherwise. I think that we, as representatives in this place, should be mindful of and consider this matter.

Secondly, whenever I see strict liability provisions in any draft bill I always pause to reflect. It does cause me concern, because we must always seek to endeavour to achieve a balance between appropriately penalising those who engage in bad faith, reckless indifference or wilful disregard for the law, as opposed to those who, through some form of inadvertence, albeit they've acted in good faith, trip up and make a mistake. This comes back to a number of principles: first, the general principle of rule of law. I'm always somewhat uneasy when I see a strict liability provision. I think it is incumbent on the government to explain why there should be strict liability provisions in any case where they're invoked. Secondly, we have to be careful that mainstream operators can continue to act in this space.

The last point I'd like to make is that this isn't a matter just for government. Clearly, there are a number of non-government organisations that are doing great work helping people in this space, and I commend each and every one of those organisations. But I also say it's up to everyone in this chamber and everyone in our society to reach out and help their fellow Australians in their times of need, to be available to provide counsel to the most vulnerable in our community, to provide advice, to assist them so they don't commit the mistakes that are frequently committed and frequently lead to financially catastrophic circumstances. That's certainly something that I've reflected upon, in terms of listening to the contributions to the debate today and also reading the report from the economics committee.

Nick McKim (Tasmania, Australian Greens) Share this | Link to this | Hansard source

The National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) effectively copies, word for word, the government's 2017 draft bill to better regulate payday lending. Of course, we do need to better regulate payday lending in order to protect people from rapacious lenders and, on that basis, the Australian Greens will be supporting this legislation.

Unfortunately, after releasing a draft bill in 2017, the government walked away from any reform of payday lending, until it decided to include a new set of reforms for payday lenders in its recently announced package. Again unfortunately, the government's recently announced package basically blows up the entire system of consumer credit protection in this country so that the banks can continue to profit at the expense of the lives of so many Australians and their families.

We need to be clear about what the government is doing here. The government is walking away from the primary recommendation of the Hayne royal commission into banks in Australia—that is, recommendation 1.1 made by Commissioner Hayne:

The NCCP Act should not be amended to alter the obligation to assess unsuitability.

We now know that, in fact, the government is intending to amend the National Consumer Credit Protection Act in those terms—a blatant rejection of Commissioner Hayne's primary recommendations.

When this came out at estimates recently, I have to say government senators were particularly well scripted in their responses. I might add that their responses bore no relationship to reality, but they were very well scripted. Their defence of the decision by government to abandon its acceptance of recommendation 1.1 of the banking royal commission centres on what they say is the context for recommendation 1.1, namely Commissioner Hayne's consideration of the suggestion by some consumer groups that the test under the NCCP Act should be changed from assessing whether a loan is not unsuitable to whether a loan is suitable. In the government's contorted logic, government senators have equated the commissioner's rejection of this suggested change to mean that the commissioner didn't endorse the current test. This is a positively Orwellian attempt by the government to rewrite the history of the banking royal commission. Nothing could be further from the truth.

The commissioner was abundantly clear. To make that point, let me quote at length from the final report of the banking royal commission:

Subject to these matters—

that is, consideration of whether to change the test from 'not unsuitable' to 'suitable'—

there was little or no debate about the terms of the NCCP Act. And, as will be apparent from what I have said, I am not persuaded that the terms of the NCCP Act should be amended to alter the obligation to assess unsuitability. My conclusions about issues relating to the NCCP Act can be summed up as 'apply the law as it stands'.

But, of course, that's not what the government intends to do. After having accepted that recommendation in Treasurer Josh Frydenberg's name, under his signature, the government accepted the recommendation of the banking royal commission that the law should not be amended to alter the obligation on lenders to assess unsuitability. The government has now walked away from that recommendation and from its previous acceptance of that recommendation.

Commissioner Hayne was basically saying: 'Don't strengthen responsible lending laws. Don't weaken responsible lending laws. Just apply them as they stand.' He was abundantly clear on that, and he made that recommendation in order to protect ordinary Australians from the rapacious, unethical and greedy banks and from the toxic culture of those banks that was exposed during the banking royal commission. Now the government is walking away from that primary recommendation of the banking royal commission.

What the royal commission showed was the banks' willingness to engage in predatory lending and the banks' willingness to engage in unlawful lending. But, instead of making the banks abide by the law, the government is now proposing to change the law to abide by the banks. Again the corporatocracy rules in this country, and the banks are some of the most powerful corporations in Australia.

We have already in this country some of the highest levels of household debt in the world. Make no mistake, looser lending standards—which is the road the government has decided to walk down—will make it easier for banks to lure people into even more debt. And because, if the government gets its way, lenders won't have to assess unsuitability there will be a greater chance that ordinary Australians will not be able to service their debts. That is, they will fall into a debt trap, and it is very difficult to haul yourself out of a debt trap once you have fallen in.

Proposing these changes, as the government is doing in the middle of a recession, when people are suffering even more financial stress than the already significant level of financial stress they were suffering pre-COVID, is a recipe for disaster. It is shameful in the extreme that the government, having been dragged kicking and screaming into setting up a banking royal commission in this country and having initially supported that primary recommendation from Commissioner Hayne, is now walking away because the banks have given it its marching orders. Again, big corporates are running the show. Whether it's big banks, big coal, big gas or big gaming, the corporate vested interests are exercising their power and their influence over the government. When the banks say, 'Jump,' this government reflexively asks, 'How high?' When the banks said to the government, 'You have to walk away from the primary and most important recommendation of the banking royal commission'—the banking royal commission that exposed predatory and unlawful lending practices by Australian banks and a culture of extreme toxicity within Australian banks—it didn't take this government long to crumble, and crumble they did. The people who will pay the price for it will be ordinary Australians, and these banks, with their culture of greed and toxicity and who were exposed as acting in a predatory and unlawful way by the banking royal commission, will be the winners from what the government is doing.

Catryna Bilyk (Tasmania, Australian Labor Party) Share this | Link to 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)

Andrew Bragg (NSW, Liberal Party) Share this | Link to this | Hansard source

I rise to address this National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2). There has been a lot happen with small accounts and the provision of credit over the past few months. That is not surprising, because we are in the midst of a once-in-a-century pandemic, perhaps the worst economic shock in more than 100 years. So you would imagine, given the nature of our market economy, that there would be changes and these issues would be considered by this parliament as appropriate.

Our policy on small account credit contracts is to put in place a lot of the measures contained in this bill. We are looking to keep the responsible lending obligations in place, in relation to these small credit accounts, even though we note our very significant reservations about the rest of the regime. More importantly, our reservation with responsible-lending obligations for the broader economy goes to duplication and the maladministration of it by the corporate regulator, ASIC, which has a number of other issues I'll come back to. Our policy is to put in place caps so that lower-income Australians are not caught in difficult situations by small account credit products. We are also linking Centrelink payments to these caps so that people can't get into these difficult arrangements. There'll be a lot more transparency so that people can see what they're up for when they undertake some of these small account credit contracts.

As my colleague Senator Scarr noted, there are many cases where lower-income Australians do need access to these sorts of facilities, to this sort of money. Where it does not take an unreasonable portion of their income, particularly when it's been provided by Centrelink, they can be appropriate products. But I note the significant concerns, and I note in this debate that there have been sincerely held views, expressed by people like Senator McAllister and Senator Griff, that there is still a place for these products within an environment where there are more belts and braces. This bill is quite similar to the policy the Treasurer restated when he announced the abolition of the very poor responsible-lending obligation regime. It does put in place those caps. It does link Centrelink payments to this regime.

This bill is not going to be supported by this parliament, because it would be a small part of a bigger issue. There are two reasons for the Treasurer announcing that we would undertake wholesale reform into the provision of credit. Firstly, the responsible lending obligations imposed 10 years ago by this parliament, following the global financial crisis, have not worked particularly well. They are duplicative. They are, in many ways, quite confusing in that they impose over and beyond what the Australian Prudential Regulation Authority, APRA, has in place for banks, in terms of its lending standards. So the responsible lending obligations have not been effective. The way they've been put in place by ASIC, I think, has been well documented as very poor. ASIC has taken these matters through the courts, most famously, in the Wagyu and shiraz case.

The point here is that there is not a great deal of confidence in ASIC. They are dealing with enormous internal problems. Frankly, who would trust a corporate regulator that can't even get its own remuneration in order? We've seen very troubling allegations come out of the commission of ASIC, where it's been noted that the chair and the former deputy chair were paid money, in different forms, which was way out of the expectations that society would have for these sorts of roles. In particular—I come to this as a former internal auditor—you've got to have confidence in the controls that are put in place by regulators. In the case of ASIC, it had a risk and control framework that dealt with remuneration, but it wasn't followed. The confidence we have in ASIC is fairly low at the moment, you'd have to say. These issues of the provision of credit, the flow of credit and the provision of credit to people who can generally afford to pay it back should, in any event, go more into the prudential regime, which is run by APRA. In summary, on these questions of where the responsibilities for regulation fall, this really isn't a matter that ASIC should have been involved in, given that APRA has very detailed and quite onerous and rigorous lending standards, as you would expect.

The issue of the flow of credit is very important in the midst of a very significant recession. The RBA governor, Mr Lowe, has blamed responsible lending laws for hindering credit growth. Mr Lowe said, 'We can't have a world where a person can't pay off the loan, then it's the bank's fault.' Mr Lowe went on to say that the RBA actually wants some of the loans to 'go bad, because if a bank never makes a loan that goes bad, it means it’s not extending enough credit'. The broader issue here is responsible lending obligations and the laws. This is a very important thing for us to get right as a government and as an economy, because if you don't have the flow of credit, then you won't have businesses being able to invest and create jobs. That is something that I think the responsible lending obligations have also caused. So you've got a regulator that really isn't running a particularly good show, you've got horribly complex obligations which are duplicative and go above and beyond what the prudential regulator, APRA, already has in place for loans, and then you have, of course, a significant pandemic where you really have to make sure that every law and every regulation that we have in place is really needed. Because if you have laws and regulations that are impeding the economy and its recovery from a significant pandemic and recession—as responsible lending obligations have been doing—then we have to act.

I am certain that in time we will be able to reform ASIC. I'm certain that ASIC will be a better regulator in time. But it's not a good strategy for us to leave laws in the statute books that do not work or are undermining the economy. Sure, we should definitely make sure that lower income people are protected in the way that this bill envisages. That is why the guts of this bill is our policy, but we're going to enact this policy as part of a broader change to the regime of credit flow. For example, the responsible lending obligations for higher income earners have been shown not to work. The Wagyu and shiraz case was shown to be a disaster. I'm very pleased that others in this place have great confidence in ASIC. I just don't. I think the proper place for credit quality to be assessed, from a governance perspective and from an institutions perspective, is APRA. That is APRA's job. We want these regulators' feet to the flame. One of the problems we have too often in Australia is that you have too many people doing too many things, and accountability just slips away. I seek leave to continue my remarks later.

Leave granted; debate adjourned.