Labor and Centre Alliance Senators
Introduction
The National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) replicates the exposure draft legislation that was released for consultation by the government in 2017. This bill was the response to a review the government commissioned in 2015 to tackle the increasing exploitation of people who entered into small amount credit contracts and consumer leases. Stakeholders and the broader community responded to the draft legislation.
Since this time, instead of implementing these measures, the government has failed to act, delivering more business to payday lenders and consumer lessors at the expense of ordinary Australians. In the period the legislation stalled, hundreds of thousands of people have been exposed to financial products without adequate protection from harm. That is why Labor and Centre Alliance introduced the government’s draft legislation as a private senator's bill.
Evidence to this inquiry, and to previous inquiries, demonstrates that the current regulation of payday loans and consumer leases is failing. Payday lenders can charge equivalent interest rates of more than 200 per cent per annum, and there is no cap at all on the costs that can be charged by lease providers. Lenders continue to sign people up to loans or leases with unaffordable repayments, which cause people to wind up in a debt spiral. Struggling families are left entrenched in debt or poverty.
This bill directly addresses these challenges. It includes caps on the total payments that can be made under a consumer lease, better regulation of repayment and 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 2019-2020 summer bushfires and the COVID-19 pandemic have increased financial vulnerability, and rendered more Australians vulnerable to the promise of small amount credit contracts and consumer leases. Similarly, young people are increasingly concerned about their financial security and are more likely to be taking on debt as a means of relieving immediate financial stress. Consumer protections are needed more than ever before.
This bill is a sensible, overdue approach that will take power out of the hands of predatory businesses and return it to consumers, providing significant benefits including better protection against unfair or exploitative practices. Comments in the committee report reflect the strong support of stakeholders working with consumers for this legislation.
Government ignores evidence presented to the Committee
Despite the substantial evidence presented in the committee report, government senators have failed to support what is, in effect, the government’s own bill. Consumer groups outlined ongoing and serious concerns regarding small amount credit contracts and consumer leases. Despite substantial opposition from industry groups and businesses to some elements of the bill, even these groups found it possible to support some elements.
For example, CHERPA, the peak industry body for consumer leases in Australia, submitted that it is 'broadly in favour of federal regulatory change for the industry'. The committee report chronicles a litany of failures of the current regulatory environment, including harrowing examples of exploitation of low-income earners.
The government majority on this committee recommended that:
… the government reports and builds upon the outcomes derived from the consultation period of the exposure draft, and with that, continues to diligently progress sensible reform and strengthen regulation in the area of small amount credit contracts and consumer leases.
While the majority report acknowledges the need for stronger regulation. Ultimately, it goes on to recommend against passage of the legislation. This reflects a gross failure by government senators to take responsibility for action. Since 2015, the government has known the harm caused by lax regulation in this sector. That is presumably why it drafted the bill currently under review. This bill does not reflect the work of the Opposition or Centre Alliance—it reflects the work of the government. Since this time, it has received further evidence of harm inflicted upon vulnerable consumers including two reports from this committee. Government senators have ignored the overwhelming evidence reflected in their own report and have abandoned Australian consumers for political convenience.
The majority report also recommends that the government table its response to the recommendations of the Senate Economics References Committee's inquiry into credit and financial services targeted at Australians at risk of financial hardship, prior to the bill being debated in the Senate. This report, much like the government’s legislative response to its 2015 review, is overdue. It should have been tabled within three months of the References Committee’s report being tabled in February 2019. The government should table its response, but its failure to meet its obligations to the Senate in this regard should not prevent this bill from being debated and passed.
Recommendation
That the government table its response to the February 2019 recommendations of the Senate Economics References Committee's inquiry into credit and financial services targeted at Australians at risk of financial hardship without delay, noting this response is overdue by over a year.
Economic impacts of COVID-19 increases urgency
This legislation was important before the pandemic. Now, with nearly a million Australians unemployed, and in the deepest recession in almost 100 years, the need for reform is only greater and more urgent. The well-established harm caused by unscrupulous payday loan and consumer leasing practices could potentially affect hundreds of thousands more Australians.
The committee’s report highlights some of the serious impacts that the recent 2020 bushfire crisis and the current COVID-19 pandemic are having on many Australians. In March 2020, stakeholders forecast the economic pressures stemming from COVID-19 would be a problem, and existing and new cohorts of vulnerable people would be susceptible to payday loans and consumer leasing in constrained financial circumstances.
Financial Counselling Australia gave evidence that the COVID-19 pandemic will exacerbate existing risk and only increases the need for this legislation:
… the people we see or people who are going to lose their jobs and their savings go very quickly are going to be in really dire straits. And this will be something that will last longer than the period a coronavirus outbreak lasts.
We cannot allow people to be put at further risk [...] when we've got people who don't have any money and are being harmed by products that are legal but are harmful, there's something wrong about our priorities.
These forecasts have been accurate. The ABC reported that financial counsellors have seen a spike in targeted messaging at their clients by payday lenders over recent months. Payday lenders have been exposed sending text messages offering 'COVID relief loans'. Clients of payday lenders have complained of aggressive texting and emailing during the COVID-19 crisis, sometimes two or three a day or even hourly. This can compound and aggravate financial distress, with evidence that some individuals in financial stress obtain multiple payday loans in an attempt to manage their debt.
The Consumer Action Law Centre noted the lure of these products:
I think people will often act in the most simple, convenient way to deal with the hardship in front of them [...] when someone is faced with a stressful situation, when they're experiencing some form of desperation, they'll be attracted to what seems to be the easy option.
The situation is set to worsen as government support measures are wound back, a concern shared by both government regulators and advocates, who have called it a 'ticking time bomb'. The Australian Securities and Investments Commission (ASIC) has said it expects a spike in payday lending as stimulus measures cease, and that 'consumers may become increasingly reliant on high-cost, short-term credit products that are aggressively marketed and may not be suitable'.
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. Many industries with high rates of youth employment—such as retail and hospitality—bore the brunt of shutdowns. Casual employees often found themselves ineligible for JobKeeper. The effect is reflected in the demands for alternative sources of financial relief. Young people were three times more likely than the general population to have taken out a payday loan or consumer lease to make ends meet.
These insights should be driving the Parliament to adopt protections against risky products in the marketplace. This bill gives us an opportunity to implement such protections.
Conclusion
The power of payday lenders and consumer leasing businesses must be curtailed. Passing this bill will reduce the vulnerability of people on low incomes to harmful financial products and put in place better protections for consumers.
The committee’s report reflects the substantial evidence in favour of change. It describes the effect of the bill and lays out both the technical arguments for change, and also presents a compelling case for reform with details of the impact on individuals let down by the operation of the law as it currently stands, including those who fall victim to unscrupulous behaviour by businesses in these industries.
Government senators on this committee had the opportunity to meaningfully respond to the overwhelming evidence presented to this inquiry. Disappointingly, they have chosen inaction.
Their inaction will have consequences for vulnerable Australians. The time has come to deliver small amount credit contracts and consumer lease reforms. There should be no more excuses or delays.
Recommendation
That the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) be passed.
Senator Alex GallacherSenator Jenny McAllister
Deputy ChairMember
Labor SenatorLabor Senator
for South Australiafor New South Wales
Senator Stirling Griff
Centre Alliance Senator
for South Australia