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Monday, 20 August 2012
Page: 5720


Senator CORMANN (Western Australia) (10:37): The coalition will not oppose the Consumer Credit Legislation Amendment (Enhancements) Bill 2012, but this bill is yet another example and a clear demonstration of the government's incompetence and complete dysfunction in dealing with the most basic parliamentary processes. When Senator Feeney only a few days ago introduced this legislation in the Senate, he tabled a second reading speech that was outdated by just a year. He tabled a speech that was completely unrelated to the legislation that is before the Senate. He tabled a second reading speech which assumed that all of the corrections that were imposed on the government by the Parliamentary Joint Committee on Corporations and Financial Services had not happened.

This piece of legislation, like so many pieces of legislation in the portfolio of the Minister for Financial Services and Superannuation, Bill Shorten, was not properly thought through. It did not strike the right balance between consumer protection by making sure that relevant services for which there is strong public demand remain available, accessible and affordable. So the Parliamentary Joint Committee on Corporations and Financial Services made a unanimous report making strong recommendations on how Labor's original piece of legislation should and must be improved. When I say it was a unanimous recommendation, it was a recommendation that was made by government members of the committee alongside coalition members of the committee. The Parliamentary Joint Committee on Corporations and Financial Services came to the view that Minister Shorten did not get this right and introduced a piece of legislation that was going to have detrimental consequences for consumers of these sorts of services right across Australia. But Senator Feeney, either because he was unaware of what had happened over the last 12 months or because somebody in Minister Shorten's office had not quite caught up with what was happening, was tabling a second reading speech here in the Senate which was to make us believe that in fact the government had not taken any of the recommendations on board, even though the bill itself reflected all of those changes. It is just another example of the complete chaos and the complete dysfunction and incompetence of this bad Labor government that we are subjected to at this point in time.

Senator Feeney's speech as incorporated talked about an up-front fee of 10 per cent of the loan and a cap of two per cent interest each month. In fact, the government's bill allows for an up-front fee of 20 per cent of the loan, and four per cent interest each month. It is absolutely extraordinary that the government cannot even get these sorts of basic processes right. As I have said before, the government with its amendments to the legislation has already acknowledged the flaws in the bill as originally presented to parliament. The government was forced back to the drawing board by the unanimous recommendations of the PJC inquiry. Under pressure from that inquiry, the government has agreed to very specifically increase the caps for small amount credit contracts, shorten the term for small amount credit contracts from 24 months to 12 months, and increase the establishment fees from 10 per cent to 20 per cent and interest rates per month from 2 per cent to 4 per cent as well as allowing an additional $400 fee to be charged for mid-tier loans between $2,000 and $5,000, remove the multiple contract prohibition on lenders under certain circumstances and introduce a commitment to prohibit loans with a term of 15 days or less by regulation.

These changes represent a significant concession to the arguments put forward by the industry in the context of the inquiry by the Parliamentary Joint Committee on Corporations and Financial Services and expressed in relation to the original bill. The government's original proposals clearly did not strike the right balance between appropriate consumer protection and making sure that short-term lending remains available and accessible and is as affordable and competitive as possible. Yet again Minister Shorten, in his enthusiasm to increase the levels of red tape and increase levels of regulation, had not really thought things through. He had not gone through proper process. He had not listened carefully enough to the legitimate representations by people across the industry who actually know what they are talking about.

The proposed government amendments address many of the concerns raised by stakeholders during the parliamentary committee process—specifically the concerns that the proposed caps on fees and interest charged on payday and small amount of loans would be uneconomic and would lead to many current participants withdrawing from the market, that many of the businesses that could close down are small family owned and operated businesses, that the reduction in the availability of payday and small amount loans would result in many people not having access to existing finance they rely on to meet unexpected expenses, and that the banks, having not participated in payday and small amount lending for some time because it is uneconomic for them to do so, would not re-enter the market to fill the gap if existing providers went out of business. Also, the reduction in legitimate licensed payday and small amount lenders may encourage unlicensed and illegal operators to enter this market, which would have reduced consumer protection instead of increasing it.

The amendments address these issues in that they ensure that the new caps on fees and interest charges will ensure that the vast majority of short-term lenders will remain commercially viable, that small family owned and operated businesses will not be adversely impacted, and that people who rely on these types of loans, which are not provided by banks, will continue to be able to access the finance they rely on to meet unexpected expenses. The ongoing viability of legitimate, regulated providers will discourage the growth of unlicensed and illegal operators, whose entry into the market would have reduced consumer protection.

While some of the provisions may not have been implemented by the coalition in government in the form that they have been proffered by this government, the significant concessions obtained by the coalition have achieved a much better balance between the twin aims of providing appropriate consumer protection and ensuring that short-term lending remains available than was the case in the original version of the bill. That is why, with these amendments, the coalition will not oppose this bill. The bill also introduces statutory protections in the provision of reverse mortgages, including a statutory protection against negative equity, and more detailed and prescriptive disclosure requirements. These measures were in the original bill and are not opposed by the coalition, and they are supported by the industry.

I draw the attention of the Senate, in this context, to the additional comments that were made by coalition members and senators as part of the parliamentary joint committee inquiry into the Consumer Credit and Corporations Legislation Amendment (Enhancement) Bill 2011. This is a pretty sizeable industry. Senators may be surprised to learn that this short-term lending industry provides cash advances of $800 million a year to about 500,000 customers. Half a million Australians access this service to the tune of $800 million a year. That was part of a submission that was made to our inquiry. This suggests that this industry, providing short term, small-amount loans, responds to and is meeting a substantial consumer need for those types of loans. Whenever we make regulatory changes, whenever we seek to impose additional regulatory restrictions, we must take account of the consumer impact and the potential consumer detriment which comes from reducing the availability of a product or the competitiveness in the industry that provides those sorts of services.

When Minister Shorten first announced the measures in the original version of this bill he asserted that this was all about protecting vulnerable consumers. In other words, this bill was based on an assumption that all short-term, small-amount loans are inherently harmful, and all those who take them out are inherently vulnerable. That is not correct, if you consider the evidence which ultimately was accepted by all Labor and coalition members of the committee. There was an acknowledgement there that the service goes much further.

I draw the attention of the Senate to some hard evidence. Rather than being used only by those who are vulnerable and desperate, many short-term, small-amount loans are provided to people in employment who have made a rational decision that the product meets their needs better than the alternatives. We heard evidence that many providers specifically require customers to be employed, or have a rule that they do not lend to those whose only income is government benefits. These providers included businesses like Money Plus, Money Centre, DollarsDirect, Cash Doctors and First Stop Money. Providers which do lend to welfare recipients, such as Cash Converters, gave evidence about their responsible lending practices in doing so. I quote a particular piece of evidence which was provided by Mr Day:

We at Cash Converters indicated that over 40 per cent of our customers are on welfare payments. We have a responsible lending structure in place that will lend a new customer a maximum of 10 per cent of net income and, out of that, we have a 97 per cent repayment rate. It does not necessarily happen at the end of the month. Some 30 per cent of them take longer, but there are no punitive penalties or additional costs involved in that.

That evidence is not consistent with an assumption that short-term, small-amount lending inherently and necessarily involves vulnerable and disadvantaged customers who are being forced to agree to terms which make it impossible for them to repay the loans.

This is a policy area which raises difficult issues. Clearly, there are people who are incapable of making sensible financial decisions, be that due to addiction, substance abuse, limited decision-making capacity or a range of other factors. But the suggestion that, somehow, this industry exclusively focuses on preying on and taking advantage of the weak and vulnerable was not borne out by the evidence. That was part of the political argument that Minister Shorten was pursuing at the outset when this legislation was introduced, and he had to backpedal on that to a pretty large degree.

The evidence that we considered also highlighted several serious concerns about the approach taken in the original bill, which led coalition senators to conclude that this was a hastily cobbled-together attempt to grab a headline rather than any meaningful attempt to come to terms with the difficult policy issues that arise from short-term, small-amount loans. We recognise that since then the government has sensibly come to the same conclusion as we have, and has responded to those concerns.

As I said at the outset, the coalition will not be opposing this bill. We welcome the fact that, on reflection, Minister Shorten has reconsidered his approach to this legislation, and that he has been prepared to consider the evidence which had been accepted by government members of the Parliamentary Joint Committee on Corporations and Financial Services as well. This bill started in a pretty unreasonable position but it has come a fair way. Given that the government has made significant concessions on all the issues that I have raised, the coalition will not be opposing this bill.