Many of these are marketed to consumers who are struggling to make ends meet, as a ‘fair go’ low cost alternative, when in fact they represent one of the most expensive ways of accessing credit or buying basic consumer goods.
People are often locked in to these arrangements through onerous, complex and one-sided contractual terms.
Interim report
The Treasury is reviewing the laws that regulate SACCs and consumer leases. ASIC has investigated consumer lease products and found they apply routinely exploitative interest, fees and charges.
In one case, a consumer lease provider had charged an effective interest rate of 884%.
The ABC reported last year that the largest consumer lease provider, Radio Rentals, received $90 million in payments directly from Centrelink, amounting to nearly half of the company’s annual revenue.
These credit products will always be unsuitable for people struggling to make ends meet.
In December last year, after reviewing the submissions and conducting a number of stakeholder roundtable consultations, the Treasury SACC Review Secretariat released its interim report. The Secretariat has recognised the social and financial harm inherent in many of these products.
The Secretariat also recognised that the way in which these products are marketed, as a ‘fair go’ credit alternative, may mislead vulnerable consumers, particularly those reliant upon social security income.
The interim report recognised and responded to many recommendations made by RLC and other consumer advocates.
- The Report recognises the inadequacy of industry’s response to date and the harm which these financial products continue to cause.
- The Report canvasses the idea of implementing a cap on costs for consumer leases, in similar ways to other financial products. This is a proposal RLC strongly supports.
RLC has made further submissions in response to the proposals outlined in the interim report.
These proposals include:
- A cap on repayments should be extended to consumer leases. This encourages the financial service provider to conduct a more genuine appraisal of a consumer’s financial position, and the (un) suitability of the products they are offering in this context.
- An effective interest rate cap of 48% should apply across all credit contracts and there should be no carve out exceptions for consumer leases. We see no substantial difference between consumer leases and other credit contracts where this cap applies.
- A limit on the term of consumer leases, to a maximum of two to three years, should be introduced. In our experience, we often see consumers under these lease agreements continuing to pay high monthly costs for depreciating goods long after the term of the lease has expired. This is often through open-ended Centrepay and direct debit deductions. There have been occasions where these repayments continue indefinitely and where lease providers have failed to notify consumers of a right to purchase the goods at the end of the lease agreement.
- A protected earnings amount should be introduced for consumer leases, in the same way they apply to SACCs, for the same reasons they apply to SACCs. We support the proposal for a 10% net income cap as the maximum amount that can be used to make lease repayments.
- Standard consumer lease agreements routinely include onerous and excessive early termination fees and other quasi-insurance fees – these terms are not properly explained to the consumer, do not represent a genuine pre-estimate of the providers losses and are unfair terms which should be expressly limited by regulation.
The final report was handed to the Government on 3rd March 2016, but has not been publicly released. We are calling on the Government to promptly release this report and act on recommendations to improve consumer protections in this area.
