Advocates are angry vulnerable Australians are still being “harmed” by payday loans and high-cost appliance contracts, years after the Federal Government promised to crack down on the practice.
- The Government pledged to tighten consumer lease laws more than two years ago
- The legislation is stalled in Parliament, despite attempts to introduce it as a private member’s bill
- Ray Pilven’s Radio Rentals contract had him paying more than twice the value of the products he had purchased
Ray Pilven lives with complex medical conditions and hasn’t worked since last year. Until recently, his small welfare income has been eroded by payments to Radio Rentals.
He has been forced to cut back on how much food he buys just to afford the leases on a washing machine, TV, phone and fridge.
Mr Pilven said he was also paying off a couch and bed he was “upsold” to by the company.
“I knew I was signing up to get the stuff, but I didn’t know I was signing up to pay for it twice,” he said.
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Financial counsellors say situations like Mr Pilven’s are far too common.
They are frustrated that legislation designed by the Government in 2017 to stop companies charging double a product’s value has never been given a hearing in Parliament.
“Too many people are being harmed in the form of high-cost credit,” Fiona Guthrie from Financial Counselling Australia said.
“Credit should help people and not harm them.
“When we’ve got products in the market place that leave people in a worse position, we need to act to change it.”
What changes did the Government promise to make?
The Federal Government pledged to tighten laws for consumer leases and payday loans in 2016.
“They released draft legislation in 2017, and that was it,” Ms Guthrie said.
The legislation was drafted after the Government announced a review of Small Amount Credit Contracts (SACC) more than three years ago.
SACC covers payday loans of $2,000 or less, and rent-to-buy goods which are called consumer leases.
The SACC review made a range of recommendations and the Government accepted most of them, including:
- Making sure consumers were not signed up to deals that cost more than 10 per cent of their net income.
- Introducing a cap so customers could not pay more than the base price of a product plus 4 per cent of that price per month.
But the industry association for consumer leasing wants a higher cap, allowing them to continue charging double the retail price in the first year, including fees and services.
Steve King from the Consumer Household Equipment Rental Providers Association (CHERPA) said the industry also wanted the green light for contracts that cost up to 20 per cent of a customer’s income, rather than the suggested 10 per cent.
“There’s no cap on leasing at the moment. We have our own internal cap at CHERPA of 20 per cent and we find the average of our members is around 17.5 per cent,” he said.
“The key to the whole financial industry is responsible lending and we’ve incorporated a program which allows us to do real time credit reporting, which allows us to do far better responsible lending so clients don’t overload themselves.”
Payday lobby is ‘strong, effective’
Fiona Guthrie from FCA blames fierce lobbying from businesses for the legislation remaining dormant, despite the Government’s support for change.
“We know what’s going on, and that’s some of the Liberal and National backbenchers who don’t like the legislation,” Ms Guthrie said.
“The payday lending lobby is a strong one and they have been very effective.”
In 2017, the Government said the legislation would be debated that year.
As it lay dormant, it was tabled twice by the Opposition and then Independent Cathy McGowan as a private member’s bill.
A senate committee also issued a report in February which made several recommendations to improve consumer protections in the small loan market.
The Government emailed the ABC a statement and said it is “acting to protect consumers”.
“As recommended by the Financial Systems Inquiry, the Coalition Government has passed legislation introducing the Design and Distribution Obligation (DDO) and Product Intervention Powers (PIP) regime.
“The extension of PIP and DDO will mean that SACCs providers will be required to determine a target market for their products and take steps to ensure products are marketed and sold to people within the target market.”
The statement said the Government was “also considering” further changes.
Cabinet re-shuffles have meant four different ministers have been responsible for the assistant treasurer portfolio, which oversees consumer affairs.
Labor’s Consumer Affairs Spokeswoman Madeleine King said her party would make the legislation a priority if elected to government.
“We will introduce the Small Amounts Credit Contracts legislation in the same way that we have already introduced it twice in the 45th parliament,” Ms King told the ABC.
“It will be very high our our legislative agenda.”
‘I just would have gone without’
Ray Pilven’s problems came to a screeching halt in March when he reached out to a financial counsellor — a free service offered through community organisations for people struggling with money problems.
Mr Pilven’s rent-to-buy contracts were cancelled on the grounds of financial and emotional hardship.
If not for that, his paperwork shows he would have spent $11,000 over the life of the contract, more than double the cost of buying those items outright.
“If I had any idea I would be paying this much more, I just would have gone without,” he said.
“I’m not real smart with any of this sort of stuff and a lot of other people aren’t that smart either.
“So it’s easy for us to get caught into these things I think.
“As far as I’m concerned, they should be paying me back.”
He said the industry needed to change so people weren’t caught out in contracts they didn’t understand and couldn’t afford.
“It should be really put out on paper exactly what you’re going to be paying, that would be way better than everyone, I think,” he said.
He said if he had his time again, he would have paid cash or used lay-by.
“I could have been getting all sorts of other stuff I could have paid cash for, it’s just made my life worse,” he said.
InRent, which provided Mr Pilven’s contract through a Radio Rentals store, said it did not discuss the personal details of its customers, but advised “a resolution satisfactory to both parties was achieved with Mr Pilven”.
In a statement, it said it strongly supported the “objectives and thrust of the proposed Small Amount Credit Contract legislation”.
“Especially the price caps on costs of consumer leases,” a spokesperson said.