RLC has highlighted the unfair and exploitative practices at the heart of this industry and the inadequacy of current protections under National Consumer Credit Protection Act 2009 in our submission.
Payday loans, or ‘Small Amount Credit Contracts’ (‘SACCs’), are short term, high interest loans of up to $2000, targeted at people who do not have access to traditional forms of credit.
Consumer leases are agreements for access to domestic goods, such as a fridge or washing machine, where consumers are locked into an agreement to pay off the good over several years - with an offer to buy the good at the end of this term. The effective interest rate of consumer lease agreements is often several hundred percent.
The marketing of these products is often targeted at vulnerable people who rely on Centrelink, with the products marketed as a ‘fair go’ or ‘affordable’ alternative. This is inherently misleading, in fact they are the most expensive way of accessing credit.
A recent ASIC report on consumer leases found that consumers who access basic household goods through consumer leases are paying on average three times the retail value.
Further more, Centrelink recipients have been regularly charged more than non-Centrelink customers for the exact same goods by these companies.
The same report found that in one case, a consumer lease provider charged an effective interest rate of more than 800%.
In August 2015, the Australian Treasury began a review of small amount credit contracts. The review will look at the laws around payday loans and consumer leases.
Here are 3 key suggestions from our submission:
- Uniform cap on costs: It’s difficult for most consumers to understand their liability and calculate the total cost of a loan or consumer lease during the application process. Most loans or leases have a range of different interest rates and additional fees and charges. RLC is calling for a single uniform fixed cap, inclusive of all other fees and charges, to apply across the board.
- Mandate upfront disclosure of total costs, effective interest rates and retail prices: RLC is calling for the mandatory upfront disclosure of the total costs of a consumer lease or payday loan before signing up. For consumer leases, this includes knowing the purchase price of the good, the comparative interest rate and a clear disclosure of the price difference between buying a good retail or buying a good on credit.
- No distinction between consumer leases and payday loans: The consumer lease industry continues to exploit loopholes, which permits them to charge unlimited effective interest rates, beyond the current 48% cap mandated for pay-day loans. The National Credit Code draws a distinction between consumer leases and small loans based on whether they provide ‘a right or obligation to purchase’. This remains an arbitrary distinction, as both products provide small amounts of credit at a highly inflated cost. RLC is strongly advocating for removing any legal distinction between pay-day loans and consumer leases.
The review panel will release its final report about the review to the Government by the end of this year.
If you or anyone you come across has trouble with payday loan or consumer lease, contact RLC for advice.
For consumers on low incomes who struggle to access basic credit, the best alternative is always free financial counselling and Good Shepherd Microfinance’s No-Interest Loans Scheme.
