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Tuesday, 26 June 2012
Page: 7956


Mr CIOBO (Moncrieff) (12:27): If there is one fundamental relationship that everyone involved in finance or the markets understands it is the relationship between risk and reward. The fundamental proposition that you can never escape is that the higher the risk the greater the reward, and vice versa: the more reward there is for taking more risk. So it is with those who operate in the segment of the market that the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 deals with, that segment of the loans market that is inherently risky because of the customer base that accesses these types of loans.

My concern with this bill—and I note at the outset that the coalition is not opposing this bill that the government has put forward—is that this is yet another step on the journey in this country that sees us continuing to impose regulation on the basis of it being a social benefit in the community. I have put on the record now on a number of occasions my serious concern that as a nation we have become obsessed with regulating every single aspect of people's lives on the basis of saying from a paternalistic point of view, 'This is in your best interests.' This is simply another step down that pathway.

It seems to me as a member of the coalition, and as someone who genuinely believes in smaller government not big government, that a better way to address this problem would be to adopt the approach that the best way we can deliver maximum benefit for consumers is through the promotion of healthy competition. If there is a reason why consumers, when accessing payday loans and other types of small amount credit contracts, feel like they are being overcharged, and if there is a concern that exists among those who operate in this space and those who provide financial counselling that consumers are being taken advantage of, my response to that is that it is obviously because the market is not competitive enough. In a more competitive marketplace those that would seek to basically extract maximum profit from consumers would be unable to do so because consumers would substitute their product offering with someone else who is a provider in the marketplace and is more reasonable. That is the solution to concerns that people have about consumers being gouged by providers who seek to obtain maximum profit.

On the face of it legislation like this always seems superficially attractive. On the face of it legislation that is built upon the basis of saying, 'There is a social harm that is being done to the vulnerable in our community so therefore we the government will step in and address that social harm,' always seems superficially attractive. But at what point do we as legislators go to the character of our nation and say, 'How much regulation is too much regulation?' I guarantee you one thing: I do not think in the 11 years I have been in this chamber I have ever heard a single minister or participant stand in this chamber and say, 'We are introducing all this new regulation because we think it is a bad idea.' There is a newsflash: no-one has ever come in and said, 'We're going to introduce this regulation because we think it's a bad idea.'

Every piece of legislation that moves through this House and the chamber upstairs is built on the premise that it is for the good of the people. I think, as I have said on a number of occasions, that enough is enough. We need to take a stand that says, 'We do not need to regulate every aspect of people's lives.' The way to achieve a solution where there is excess interest being charged and where there are access fees being charged is to drive the best consumer outcome by having a more competitive marketplace, not by having increased compliance and regulation. Ultimately, the consequence of more regulation and increased compliance costs is that the consumer pays more. It is innovation that withers and fundamentally the consumer ends up being in a worse position than they were to begin with.

What we see is the reallocation of harm from perhaps being concentrated on one per cent of the marketplace to now being spread across the consumer segment. Yes, you do not see the imposition of harm on one or two per cent of the marketplace but, rather, you spread the imposition of harm across the entire marketplace. The net impact of that in the marketplace is for the worst. But the government stands up and says, 'This is a better outcome because now we have stopped one or two per cent being adversely affected in a more significant way.' This is without realising that by spreading the harm across the entire marketplace we as a country are, in net terms, in a worse position.

I acknowledge, as I said, that the coalition are not opposing this bill, but I do not think this is a good bill. I do not think it is a good bill because it is typical of the response of both sides of the political aisle—I am not going to turn this into a partisan comment—whose first reaction is always to say, 'More regulation,' in response to consumer concerns that are raised by certain advocacy groups who are bone fide in outlining and being advocates about their concerns but in my view do more fundamental injustice to the Australian people by effectively clearing the pathway for more and more regulation.

I would love to hear from the minister responsible arguments about why an increasingly competitive marketplace—one in which we allow lower barriers to entry so that more people can operate in the space and there can be more loans available and greater access to these types of small-amount credit contracts—will not provide the kinds of protections we are talking about for those consumers that need to take advantage of these kinds of options. This is especially so when the speaker in this debate immediately prior to me outlined the alternatives available. The previous speaker outlined that there are, for example, advances available through Centrelink and payment terms usually with utility providers and the like. I would love to hear why consumers are not empowered with that knowledge and feel that they must resort to payday lenders. If there are payday lenders out there in the marketplace, I say: let's have more providers filling the space so that no-one is able to inflict price gouging on consumers, because consumers say, 'Why would I go to that person who charges obscene start-up costs or establishment fees or an obscene interest rate when I can choose to go to another provider?' That is the solution. Regulating the amount of interest, regulating the number of days and regulating establishment fees and the like always seem superficially attractive, but it is my contention that in the long term they do more damage than good.

I acknowledge that the government—and it is unfortunate that it came to this—had to make around 79 amendments to their original piece of legislation. I think it is good that the government have done that, but to me it underscores how misguided the government were initially with respect to their original piece of legislation.

I was contacted by large numbers of providers in the space who outlined their concerns to me that, had this bill gone through as it was initially drafted, the consequence would have been that they would have withdrawn from the market. It runs contrary to some of the popular views out there, but these are not people who are despicable, these are not people who are seeking to price-gouge and these are not people who are sending around merchants of fear and intimidation to extract the maximum amount of interest out of their customers. In most instances these are genuine business people who are providing a product in a segment of the consumer market that is particularly risky. They employ people to operate in this space. Their business—in many instances they are family businesses—plus the employees that they have, were directly threatened in terms of their commercial viability by the original iteration of this legislation. So I welcome the amendments, although I do that in the context of not being particularly supportive of more and more regulation. My concern with respect to these people operating in this space—and this was put forward to me by a number of those providers in my electorate of Moncrieff, on the Gold Coast—is that, had they left the marketplace because by way of regulation and legislation they would no longer have been commercially viable, that market segment that would have been left vacant and unprovided for would have been met by, for example, bikies moving into this space. So, based on the original piece of legislation, we would have had a government that said, 'We're here for you, consumer, to make sure that you're not taken advantage of and that price gouging doesn't take place,' and the direct consequence—mentioned to me not by one provider but by five or six—would have been that they would have left the marketplace. So the so-called protection the government would have delivered to those customers who need to take advantage of payday loans would have been to throw them to the wolves. It would have meant that they were actually obtaining money from so-called payday lenders that in fact would have been fronts for bikie organisations and other criminal gangs, who I absolutely guarantee you would not be taking time to know their client or to check whether or not their clients could repay the loan but rather would absolutely deal with threats of intimidation and violence if loans were not repaid. So thank goodness, frankly, that the government has moved a swag of amendments to its own legislation so that common sense, hopefully, prevails. Increasing the establishment fee from 10 to 20 per cent and interest rates per month from two to four per cent for small-amount credit contracts is the kind of amendment that we are talking about where I think it has taken decisions that will be of benefit to consumers.

But I go back to the fundamental proposition with respect to the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill, which is that I fundamentally believe that the concerns that have been raised could be addressed by lowering barriers to entry and by making it easier for there to be multiple providers in this space. That is how you bring about maximum consumer benefit: give consumers options. Make suppliers compete to be in the space. Deny those suppliers in the space the opportunity to price-gouge by giving consumers ability to choose who they want to go to. The more providers in the space, the lower the margins. Instead, this government has adopted the approach of saying, 'What's required is more regulation,' so in fact the barriers to entry are actually increasing.

So time will tell whether this was a decision that is in the best interests of consumers. There may be in the future fewer examples of one, two or more victims of unscrupulous payday lenders who seek to price-gouge. But I leave this question: how will we truly measure the general net detriment that all consumers face as a consequence of increased compliance and increased regulation? It is my contention that we will not be able to measure that, but I have no doubt that the net impact of this legislation will be to visit a greater degree of cost on all consumers in the space, rather than the current situation, which sees fewer people paying less.