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Consumers win and payday lenders lose in federal government's response to SACC laws inquiry

Esther Han

Unscrupulous companies will no longer be able to charge struggling Australians 880 per cent interest on consumer leases for goods such as fridges and dryers under new "small amount credit contract" laws.

In its response to the small amount credit contract review, which focused on the payday lending and consumer leasing (rent-to-buy) sectors, the federal government said it accepted 21 of the 24 recommendations, in part or in full.

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"Implementation of these recommendations will ensure that vulnerable consumers are afforded appropriate levels of consumer protection while continuing to access SACCs and leases," said Kelly O'Dwyer, the federal Minister for Revenue and Financial Services.

Last year's inquiry referred to the fact the most financially vulnerable consumers were paying the highest lease prices for basic household goods.

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A typical lease for a 5kg dryer attracts an interest rate of 26 per cent. But in one extreme case, a Centrelink recipient leasing a $345 dryer was charged an interest rate of 884 per cent, meaning they ultimately forked out $3040.

This practice will now end, with the government accepting the recommendation to place a cap on total payments on a consumer lease equal to the base price of the good, plus 4 per cent of that price each month.

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It will seek to apply a cap of 10 per cent of a borrower's income on payments for consumer leases. It also supports retaining the existing price caps on small loans.

Consumer Action Law Centre said the announcement was a "good start" in stopping payday lenders and rent-to-buy companies from "grossly exploiting" financially vulnerable Australians.

"We welcome a commitment to anti-avoidance measures given this is an industry that has shown it can't be trusted to put Australians' best interests first," said its chief executive Gerard Brody.

It warned of the possibility of companies dodging the cap on costs by setting their own recommended retail price from which the cap is calculated.

Here's how a $345 dryer can cost someone more than $3000.

Here's how a $345 dryer can cost someone more than $3000. Photo: ASIC

It was disappointed the government hadn't picked up the problem of lead generation - lenders selling the details of consumers whose loan applications they'd refused - and that it had rejected the recommendation that default fees reflect actual costs.

The Consumer Household Equipment Rental Providers Association, which claims to represent 90 per cent of the consumer leasing industry, said it condemned the government's announcement, saying it will destroy 380 small businesses and eliminate 1500 jobs in the next six months.

An ASIC study found the amounts charged by different lessors for the same good can vary significantly.

An ASIC study found the amounts charged by different lessors for the same good can vary significantly. Photo: ASIC

It also claimed consumers would lose out, with half a million families, many of whom are located in regional and city fringe areas, facing the prospect of losing access to basic household appliances.

"We have actively tried to engage the government during the review process and have been ignored," said the lobby's chief executive Andrew Gresswell.

"How will this Government help low-socio economic families access electrical goods once the whole consumer leasing industry is wiped out?"

Ms O'Dwyer expects the legislation to pass next year. She said the government realised there will be a "significant impact" on the industry, "and will put in place appropriate grand-fathering arrangements".

Affected companies include MakeItMine, Rent4Keeps, and Rentorilla.

The government will seek to stop predatory lending with new affordability rules. It will also try to stop borrowers from taking out a small loan if they have defaulted on an earlier loan or in the 90-day period before the assessment, has had two or more other small loans.

It will also ban unsolicited offers of payday loans, which Consumer Action says will reduce dangerous marketing designed to get customers to impulsively sign up to credit they "don't need, don't want or can't afford".

SACCs are loans of less than $2000 to the consumer with a maximum term of 12 months.

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