I rise to speak on the Financial Accountability Regime Bill 2022 and the related bills, and I congratulate the Assistant Treasurer and the Treasury for their hard work in getting these bills ready so early in the 47th Parliament.
Without the shadow of a doubt, these bills will make the financial services sector in Australia a fairer place for consumers and will protect vulnerable citizens from predatory business practices. The main part of the package that I wish to focus on today is the introduction of regulations regarding small-amount credit contracts, or SACCs. SACCs encompass things like payday lending and buy-now pay-later lending. For too long these companies have been operating in what is essentially a regulatory wild west. With no government oversight, they've taken advantage of that fact. The activities of these companies prey on Australia's most vulnerable, and their predatory practices put countless low-income families and individuals under severe financial stress.
We've known about the problems associated with SACCs for a while now. The former government commissioned a review into the laws governing SACCs in 2015 which reported back to government in early 2016. Unfortunately, and despite early signs that the former government would implement the recommendations of the report, legislation was never passed. In the 46th Parliament there were a number of attempts by both Labor and the crossbench to bring reform to this sector. Unfortunately, these attempts were not supported by the former government and, as a result, and despite knowing about the problems for at least six years following the review, nothing had been done to fix them. That's six years where this parliament should have acted yet didn't; six years of predatory organisations exploiting weak regulations to rip off consumers and push Australians into financial crisis. Now, in the first few months of the new government, we are acting to do what the former government failed to do. We are acting to strengthen consumer protections and help to ensure that predatory lending practices are stamped out.
If you want to get a picture of the extreme predatory behaviour of some of these companies, you just need to walk down a main street of some of the poorer suburbs of Australia—areas with disproportionate levels of low income. If you walk down streets in suburbs like Dandenong in Melbourne or Campbelltown in Sydney, you will find there are actually ATMs offering instant payday loans. These ATMs are in those areas for a reason. They're not in Manly, they're not in Toorak—they're in the most disadvantaged areas of the country, preying on people's desperation and vulnerabilities. They're there for the sole purpose of making money off the most vulnerable in our society.
SACC providers use glossy marketing and slick campaigns to draw people in. They promise the world but rob you in the fine print. Excessive handling and establishment fees mean that while no interest is charged, by law, people are paying 20 per cent extra on their principal loan as an establishment fee and an extra four per cent each month. This means, for example, that for a loan of $2,000 paid off over 12 months, consumers will pay $3,360.
These loans are insidious and they are becoming unavoidable. They're everywhere. More and more, everywhere that we turn, wherever we shop, we are bombarded with options to buy now pay later or to take out loans to provide an immediate solution to a financial issue. You can even buy now pay later for food deliveries. You genuinely can't make this up. It is the worst excesses of the capitalist system when left unchecked. That these financial companies are offering people unaffordable loans in order for them to buy food is unbelievable.
To give you an idea of some of the harm these lenders do, Care Financial Services from my electorate has provided me with a few incredibly troubling case studies. Of course names have been changed. Frank is in his mid-30s. He works full time and has a partner and young son. About 18 months ago every parent's worst fears became a reality for Frank when his 18-month-old son became ill and was hospitalised for nearly six weeks. Whilst still working, Frank travelled back and forth to be with his son, staying in hotel accommodation during this time. He turned to payday loans to help meet unexpected expenses during this stressful time. He took out about 10 payday loans during the time his son was in hospital and in the weeks after as he struggled to keep up with accommodation costs, household bills and the high repayments incurred on his growing payday loan debts. Frank says payday lenders allowed him to borrow multiple loans, and he doubts they could have reasonably concluded that he had the capacity to repay them. He estimates that he owes more than $6,000 to about 10 different payday loan providers. Some of the loans were taken out to keep up with the debt spiral he was in. Frank says these debts have left him feeling overwhelmed and stuck. He's now on a mental health treatment plan. Unable to keep up with his debts, Frank states he tried to deal with the payday lenders himself, including negotiating payment arrangements, but some of the payday lenders have been difficult to deal with.
Sara is a single parent whose primary income comes from the disability support pension. In early 2019 Sara and her child both needed a computer to study and access course materials at home. Sara went to a local store and saw a computer advertised for just under $1,000. She didn't have the money to buy the computer outright, and asked if there was a layby option. She was advised this wasn't possible but that she could apply for a loan to buy the computer. She took that advice and applied for a $1,000 payday loan. This application was rejected, but the lender advised Sara that she could have a greater chance of obtaining a loan if she applied for a higher amount. The application for a larger loan was approved.
This assessment of sustainability described Sara's monthly expenditure on groceries as just over $220, and there was no mention of her rent obligations. In the documents the lender recorded that the borrower's purpose was to buy a computer for a little over $1,350—a computer that was advertised for just under $1,000. The loan documents also say that a commission of approximately $200 was to be paid by the lender to the store for introducing Sara's credit business. The loan documents state that the total amount payable for the loan was a little over $2,300—for a computer that retails for under $1,000! This is the kind of behaviour that we're dealing with here.
This bill is also relevant to consumer leases. A consumer lease, which is also marketed as a rent-to-buy scheme, lets people rent items—for example, a laptop, whitegoods or furniture—for a set period. The person makes regular payments until the lease ends. Despite often being charged significantly more than the recommended retail price of the goods, at the end of the lease the consumer does not own the goods. In one case the Australian Securities and Investments Commission found that a dryer with a retail price of $345 cost $3,042 through a consumer lease. This is equivalent to an interest rate of 884 per cent. Of course, these leases are usually marketed to people who cannot afford the relatively small amounts of money to purchase these goods upfront.
This package of bills implements a range of measures to reform this sector: firstly, the establishment of an accountability regime for financial sector companies, as recommended by the banking royal commission; secondly, the establishment of a compensation scheme of last resort for victims of financial misconduct, which was also recommended by the banking royal commission; and, thirdly, the implementation of the government's response to the long-outstanding SACC review. The previous government introduced but never passed legislation that responded to some recommendations of the SACC review. The consumer protections in this legislation go further than those proposed by the previous government.
Schedule 4 of the bill introduces a number of amendments to the National Consumer Credit Protection Act to strengthen consumer protections for both SACCs and consumer leases. These include caps that limit what lessors can charge under consumer leases; caps on net income that consumers can spend on SACC and consumer lease payments; requiring SACCs to have equal repayment intervals to prevent providers extending loans to increase the amount of fees they can collect; extending the prohibition of unsolicited offers of SACC products to previously unsuccessful loan applicants and prohibiting certain predatory marketing practices for consumer leases. The bill also introduces broad anti-avoidance provisions.
The CEO of Financial Counselling Australia said of this bill:
Financial counsellors are delighted that this long-awaited legislation has finally been introduced to the Parliament. Every day we see clients with high-cost payday loans and consumer leases that they struggle to pay.
The most important part of this Bill will be in the accompanying regulations that will cap the amount a person can pay for each product to 10% of income. This will make it less likely that people will end up trapped in a never-ending cycle of debt.
I want to use this opportunity to really thank and acknowledge the incredible advocates of these reforms and in particular the thousands of financial counsellors around the country who help people in their lowest moments. These people are dedicating their lives to helping others and they are really at the coalface with the worst excesses of capitalism and their impact on vulnerable Australians. I want to particularly thank the counsellors from Care Financial Counselling in my electorate, the CEO Carmel Franklin and specifically Deb Shroot. Care is an incredible institution that helps thousands every year. In 2021, through Care's counselling, over $1,546,000 of debt held by Canberrans was either waived or reduced, and almost $171,000 of assistance was provided to members of the public in the form of a community loan to help them get through hard times.
As I often say in this place, Canberra has a high median income, and that does make it a particularly difficult place to be poor. It is the most expensive city in Australia in which to rent. The work of Care and other counselling institutions is vital for the financial wellbeing of so many in our community. But Care can't do it alone; they need governments, both federal and territory, to provide help to those who most need it. This bill goes some way to ensuring that the worst abuses don't continue in this space, and it protects consumers from the more predatory aspects of this type of lending. Financial counsellors have been ringing the alarm bell for years. It's their tireless campaigning that has ensured these changes have happened. Again, I want to thank them for fronting up every day and the important work that they do.
I think it would be remiss not to acknowledge that part of the problem here is that people are facing a cost-of-living crisis on terribly low incomes. Last term, when I did the Care financial counselling A Day in the Life program and met some of the clients, it was obvious that people who are living on social security payments are already some of the best budgeters in Australia. They have to be in order to make ends meet on these fixed and relatively low incomes. Part of the problem, it became clear in talking to these people, was not the way that they budgeted but the fact that these incomes were simply too low to live on. I want to acknowledge that government really does have a role in ensuring we have a strong and adequate social safety net. These reforms will go some way to addressing some of the worst things that people on very low incomes in our country are facing, but there is more that we can do to ensure we better address poverty in this country.
