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Wednesday, 28 February 2018
Page: 2235


Mr HAMMOND (Perth) (12:09): Like the member for Isaacs, the most excellent shadow Attorney-General, I rise to support the Bankruptcy Amendment (Debt Agreement Reform) Bill 2018. In relation to the Bankruptcy Act, as we know, these amendments reform the Commonwealth debt agreement system. The debt agreement system is a good thing in that it provides an alternative to bankruptcy, and it is increasingly being used in that way. The bill contains a number of measures that the government claims will improve the existing debt agreement system.

The reason why this is very important at this point in time is the unprecedented level of financial stress that we see in Australian communities and families today. Further analysis released as recently as earlier this month confirmed what we hear and see in our electorates every day—that many households' financial situation is getting worse, with the culprit being living expenses. Forty per cent reported this as a key reason their situation is worsening. It is cited that almost 46 per cent of households surveyed also claimed the cost of necessities, such as fuel, utilities and groceries, is their biggest worry in relation to financial stress.

The reason why these reforms are clearly required as an alternative to bankruptcy is apparent when we see the increased level of bankruptcies prevalent in our community. More than 32,000 Australians went bankrupt in 2017, which is a 6.1 per cent year-on-year increase, according to an analysis of bankruptcy figures by illion, who were recently recognised as the Dun & Bradstreet credit reporting agency. Now that has increased in itself, with a 4.7 per cent year-on-year hike recorded in 2016. When we look at the causes for that it is very apposite to hear illion's Chief Executive Simon Bligh saying:

Consumer debt levels are rising steadily in Australia as a result of record mortgages and a surge in everyday essentials such as utilities, petrol and healthcare.

As we know, those factors, combined with the very poor wage growth that we are seeing under this government, are putting pressure on the wallets of Australians.

There is no coincidence here that the illion credit reporting agency is also seeing strong growth in the payday loans sector, which Mr Bligh says is often an early indicator of people getting in trouble in terms of paying their utility bills. That assessment is certainly confirmed when one reviews the data from the Credit and Investments Ombudsman. They released information to confirm systemic problems in the consumer leases and payday loans sectors. The CIO's recent annual report on operations reported that small- and medium-amount lenders accounted for 12.2 per cent of total complaints—the second highest, following debt collectors. Most of the complaints around small- and medium-amount lenders related to inappropriate finance, including irresponsible lending which made up over 56 per cent of those complaints.

Just in case one is thinking that these are isolated incidents—and they are certainly not—according to the industry data released by the payday loans sector itself, in 2015-16 there were over 619,000 new payday loans, with a book of over $476 million advanced. Just in case you need any further evidence as to whether these credit arrangements are being taken up by those most vulnerable in society, let's look at those who are applying for small-amount credit contract loans. We know that two in five of those who entered a SACC loan in this period were unemployed, that one in four—26 per cent—of these loans were given to people receiving more than 50 per cent of their income from Centrelink and that one in six of these loans were entered into with a customer with an existing loan.

In the second quarter of 2015, 75 per cent of lenders admitted to providing small-amount credit contract loans to customers who have had two or more small-amount credit contract loans in the previous 90 days. We also know that most people apply for these loans online—over 78 per cent in the second quarter of 2016. What it means is that these loans are quicker and easier to get than ever before. The average amount of a payday loan was $770. What we see is an effective interest rate on these loans of over 170 per cent on average. There are outlying cases that are truly horrendous in terms of the total repayment rates that are required. But if we average it all out we see an interest rate of over 190 per cent.

This is in a landscape of unprecedented levels of financial stress. There are over 8.47 million households that are financially stressed—those with mortgage stress, behind in lower-end payments, declined some form of credit or constantly borrowing to repay existing loans. There are an extraordinary number of financially distressed households that have gone even further in relation to financial stress—those who are repeat borrowers with limited options and unable to find $2,000 in an emergency within seven days. We are dealing with 1.8 million households—over 20 per cent of all households are financially distressed.

It means that reform in this area is absolutely imperative. But it also means that reform before vulnerable consumers get to this point in time is even more imperative. That is why it has been the Labor Party who has taken the steps that this government will not take to introduce reforms into this place by way of a private member's bill in the small-amount credit contract space. The tailored bipartisanship, which is increasingly difficult to find under this government, started in a positive manner in relation to payday loans and the rent-to-buy arena. The mandated review, the small-amount credit contract review, was undertaken and concluded in March 2016. To the credit of the Minister for Finance at that time, the review was considered very carefully. There is no criticism whatsoever of that process.

In November 2016, the government did the right thing and published its response to the small-amount credit contract review. The response was effectively an unconditional approval of the recommendations on the payday loan and rent-to-buy space—again, a positive step. That was in November 2016. Again, the reforms do not seek to shut down this industry and will not mean that financially vulnerable consumers do not have recourse. Parents with already stretched budgets, managing every dollar, faced with the fact that a washing machine has blown up and having five kids to get to school, need ready recourse to small amounts of funding in a circumstance where they can't otherwise obtain it. But it has to be on a playing field that is level and fair. And that is all these reforms sought to do.

Again, to the government's credit, it took them 12 months but they went so far as actually committing these reforms to proposed legislation which simply seeks to do two substantive things in addition to providing regulatory safety in this area. Firstly, quite reasonably, they will look at ensuring that the amount that can be borrowed to be repaid is ring-fenced at 10 per cent of a consumer's net income. That was agreed to by the government. Tick. Secondly, they seek to ring-fence the time it takes to repay the loan and the way in which one applies interest over that time period. Again, that was ticked off by the government. Tick. Despite some bumps along the road in the form of inaccuracies from the Minister for Finance as to how far down the legislative path these reforms were actually being pursued, the minister for consumer affairs, as he then was—now the Deputy Prime Minister—published in October last year that legislation which had been approved by cabinet—tick.

That press release made it very clear that two things were going to occur. The first was that the legislation would only be out in the wild for consultation for two weeks—quite right, because none of this was new and it all had bipartisan support. The second promise by the now Deputy Prime Minister—who, again, to his credit has demonstrated a track record of keeping his word—was that the legislation would be introduced last year, in 2017, after a long, long wait for vulnerable consumers, who shouldn't have to wait any longer. The legislation, again, was substantively endorsed by the peak body representing vulnerable consumers, which is again understandable because it represented a reasonable compromise in relation to the regulatory protections. But then it sank like a stone. In circumstances where the community is crying out for a demonstration of bipartisanship in this place, we got so close and this government squibbed it. They shirked it at the last moment. Having gone so far down the road, having got the tick-off from cabinet, nothing more was heard.

We have a change of ministerial responsibilities, and we know the payday lending sector is on the march. We know that there is a furious level of activity going on behind the scenes from this government, convening the now famous, or infamous, parliamentary friends of payday lending, to try to bury what was otherwise a sensible piece of legislation. It won't do. It is something which should be stopped, which should be discouraged and which we are surely all better than in this place.

This government, instead of pushing off responsible legislation to the long grass, now has a choice, because the legislation is in this place. It has been introduced as a private member's bill by the Labor Party, which has not a single sentence, comma or full stop changed from the government's legislation that went through their cabinet process. It's now here, whether they like it or not. If the government were really interested and substantively concerned about protecting vulnerable consumers, as they purport to be with the introduction of this legislation, they would actually do the right thing here. They would actually be honest and say that the small-amount credit contract legislation is the right thing to put into place for the protection of all of those millions of households facing crippling financial distress.

So the government have a choice. If they want to be responsible, grown up and honest, they can actually do what they always said they were going to do, which is back their own legislation, which is now in this place and which should not wait for its implementation in order to ensure that the increasing number of financially stressed and vulnerable consumers in this country have at least some level of protection to ensure that they are not in a situation where they stare down the barrel of another debt agreement arrangement as an alternative to bankruptcy in the way that this legislation otherwise provides.