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Tuesday, 26 June 2012
Page: 7947


Ms HALL (ShortlandGovernment Whip) (11:43): The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 is extremely important. It will benefit a number of people within my electorate. It addresses an issue that has been of considerable concern to me and to other members of parliament. It addresses the fact that people in very adverse financial circumstances will pay anything and do anything, within certain parameters, to obtain money. People may be desperate for small loans to replace broken household appliances, for example, and I think there is strong research that shows that people are using payday loans to pay utility bills. These loans cover a person until their next pay packet. Under this legislation, people will have more protection from inappropriate lending practices.

The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, particularly with the amendments the government has made to it, is very good legislation. The bill introduces protection for the consumers of short-term, small amount loans by imposing a cap on such loans and on the duration of such loans. The bill bans the process of multiple borrowing of short-term loans to address the risk of debtors falling into a debt spiral. It also requires lenders and brokers who arrange these loans to disclose the availability of alternatives.

As a member of parliament I regularly—I repeat, regularly—have constituents come to my office who are under severe financial strain. One of the first things I do is ask them if they have any loans and what the loans are. Invariably, these constituents have a series of small-amount loans that would be covered by the legislation we are dealing with here today. They are loans that have exorbitant interest rates—loans that, to be frank, these constituents will never be able to pay off if they continue down the track they are going. I usually refer these constituents to financial counsellors, who have the expertise to deal with my constituents' financial stress. But, invariably, when people on low incomes reach a crisis state, when they are not able to pay a bill or replace an appliance, they will redraw those loans. At the moment, there just is not that protection that is needed.

These reforms also provide protection to borrowers who use payday lenders, and stop payday lenders from overcharging consumers who are desperate for money, as I have shown, by including limits on the costs they can charge. The fine balance in this legislation is to ensure that people who need money desperately, the people who most need the protections under the legislation, would not be forced to use even less scrupulous lenders. So I think this is good legislation.

I was a bit disappointed to hear the previous speaker, the member for Forde, castigating the government for making further amendments to improve this bill. I think the opposition should be congratulating the government on making improvements to the bill to ensure that it is very good quality legislation that provides protection. I see the member opposite shaking his head. That indicates to me that he is not supportive of protecting the people covered by this legislation. However, the previous speaker indicated that the opposition would be supporting the government in relation to this legislation, so I do hope that the next opposition speaker's contribution to the debate will be along the same lines.

When I was doing research for this speech, I came across a submission from St Luke's Anglicare to the joint committee inquiry into the consumer credit amendment bill. They highlight very graphically the importance of this legislation—why it is needed. They talk about people experiencing social and economic disadvantage in rural Victoria; their awareness of the impact of payday lending on individuals and households; and the financial inclusion work that they do in terms of counselling, for example. They are supportive of the government's moves to address this issue and believe it should be embraced by all sides of parliament.

I would like to concentrate a little bit more on the bill. I think I have highlighted the issues and the need for legislation to protect people who are experiencing financial strain and do not really have any options. I believe this legislation will strike the right balance between having a sustainable and responsible industry and reducing consumer debt by increasing the cap on short-term contracts to a 20 per cent establishment fee. That is a change from the original legislation and relates to the government's amendment; previously, it was a 10 per cent establishment fee and two per cent monthly fee. The bill shortens the term for small account credit contracts, from 24 months down to 12 months, to target the most vulnerable consumers. It removes the prohibition on the refinancing of small-amount credit contracts. That was not permitted in the original legislation. From my previous comments you can gather that I may have a little question mark over that, because there are some people who get themselves into a lot of trouble by the refinancing of credit contracts. The bill introduces a mid tier of 48 per cent plus $400 for loans between $2,000 and $5,000. It introduces a review of the cap and other issues relating to the amount of credit contracts. It establishes a prohibition on loans with terms of 15 days or less, which I think is quite important, and there is a maximum 200 per cent total cap on charges for all lending.

This legislation goes across a number of areas. It looks at reverse mortgages. I am sure that a number of members in this House have spoken to seniors who have taken out a reverse mortgage on their home only to be faced with exorbitant interest charges. They find that the way in which the loans work really cuts into their capital in a big way and that they are in danger of no longer owning their home. This legislation will provide Australia's first statutory protection against negative equity, which will eliminate the risk of borrowers paying the lender more than the value of the house. There have definitely been reported cases of this happening.

Potential borrowers will be provided with targeted disclosure of the financial consequences of entering into these types of contracts, which will enable them to better assess the impact it will have on them. The bill will reduce the risk of borrowers losing their homes because of default, by prohibiting certain default triggers. There is nothing more worrying to an older person than the fact that they may lose their home. The bill also introduces new arrangements dealing with the rights of seniors who may not be borrowers. As a result of these changes, senior consumers will have a better understanding of how reverse mortgages work and can make better choices. That is what this is all about: people making choices and understanding the implications of their decision when they enter into a contract or borrow money.

There has been widespread consultation on this legislation. The government conducted extensive consultations under the phase 2 consultations, which began in July 2010. There was the release of the green paper National credit reform—enhancing confidence and fairness in Australia's credit laws. The primary vehicle for consultation with stakeholders has been consultation groups chaired by Treasury and a broad range of representatives. Treasury has also chaired two special groups in respect of reverse mortgages and consumer leases. There has been widespread consultation. The government has listened to the feedback from organisations such as St Luke's Anglicare in Victoria and it has listened to organisations that provide loans.

As with all legislation, it is all about getting the right balance. The opposition has had its chance to comment on the legislation. It is very important that this legislation pass the House, because it will provide greater financial security for Australians. Many Australians are experiencing economic difficulty and problems with finances, and it really is beholden on a responsible government to put in place legislation that affords them protection. The credit and consumer corporations legislation delivers benefits and protections for consumers who take out credit. The four main elements are the regulation of short-term and small-amount loans, otherwise known as 'payday loans'; delivery of the government's election promise in respect of reverse mortgages, which is very important and which I have highlighted; further improvement of aspects of the national credit laws; and addressing regulatory gaps in relation to consumer leases.

These reforms are important and continue the national credit reforms which are part of the COAG reform agenda. I urge all members of this parliament to support the legislation. It is good legislation and it is delivering to those Australians who need our support.