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Monday, 9 November 2020
Page: 5546

Senator SCARR ( Queensland ) ( 10:24 ): At the outset, can I say I've listened carefully to the contributions from Senator McAllister and from Senator Griff. There is absolutely no doubt that they both feel passionately about this issue, and I commend them on their interest. I want to talk, from my perspective, about a threshold question in relation to this whole area. I come to this debate as someone whose term commenced on 1 July this year, so I haven't been here for many of the previous debates in relation to this subject, but it seems to me that the threshold question with respect to regulation of credit in our society, whether or not it's payday lenders, whether or not it's consumer credit products, is about achieving a balance. That balance is between, on the one hand, seeking to protect the most vulnerable in our community—we heard stories from both Senator McAllister and Senator Griff which drew out in stark relief vulnerabilities of particular people in our community—and, on the other hand, seeking not to overregulate the industry, seeking not to exclude mainstream players through overregulation, additional costs and regulatory burdens.

The last thing we want to do in this place is create an environment where mainstream operators are sent out of business and these sorts of credit options for the most vulnerable in our community go underground and become unregulated, where loan sharks and other people who don't agree or comply with any procedures of governance or responsible lending practices at all, people who aren't mainstream and who really are the sharks swimming in the ocean of our world, take advantage of the most vulnerable in our society. So there is a need to achieve that balance between protecting the most vulnerable in our community and recognising that the credit business is a legitimate business and there are ethical operators in this space who are trying to do the right thing.

I read the report into the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) provided by the Economics Legislation Committee, and I thought that tension between those two issues—of protecting the vulnerable but also making sure mainstream credit options are available to the most vulnerable in our society—was brought out by two sections of the report, and I'd like to quote from those sections. In relation to protecting the most vulnerable, paragraph 2.76 of the report provided an example of a lady called Amanda. Amanda is an Aboriginal woman in her mid-40s who lives in a regional New South Wales town and is reliant on Centrelink benefits. In 2016 she entered a four-year consumer lease contract to acquire a seven-piece dining set and a three-piece lounge suite. The sum of the payments under the contract was $9,000. The best estimate of the value of the goods, some of which were second hand, was $1,550. That's $9,000 in terms of total payments and $1,550 in terms of the value of the goods. Clearly Amanda, an Aboriginal woman in her mid-40s, who was vulnerable, was taken advantage of and was left in a catastrophic financial situation. This place should seek to introduce legislation which addresses that sort of exploitation of the vulnerable. That's one peg in the ground.

The other peg in the ground of trying to achieve balance in this debate was drawn out for me in paragraph 2.9 of the report. Paragraph 2.9 provides some statistics as to the number of loans that we're referring to in this space. It says, 'The National Credit Providers Association, NCPA, submitted that in 2018 there were 839,036 small amount credit contracts.' So that is nearly one million small amount credit contracts. It should be noted that there was a total of 1.36 million applications for those small amount credit contracts, so close to half a million were rejected. The report continued:

The Consumer Household Equipment Rental Providers Association … indicated that, at any given time, there are up to 700 000 active consumer lease contracts.

Clearly, there are many people in our community who are seeking small amount credit contracts to tide them over. Sometimes repeated entry into these contracts can lead to catastrophic financial results. There's no question about that. But, at the same time, there is demand for these sorts of smaller amount credit contracts and also for consumer lease contracts. So a balance needs to be achieved between making sure that appropriate credit facilities are available for the most vulnerable in our society and, at the same time, providing that the most vulnerable in our society are protected.

The second point I want to make in relation to this debate is on the context in which the debate is taking place. It was announced in the 2020-21 budget—changes to responsible lending obligations. In Budget Paper No. 1, on page 121, a summary is provided with respect to the government's proposed changes to responsible lending obligations. That included:

The Government is simplifying Australia's credit framework by removing responsible lending obligations for most credit products. The Government's reforms will make the credit application process easier for consumers and allow eligible borrowers to obtain credit faster, improve competition by making it easier for consumers to switch lenders and enhance access to credit for small business. The new regime will support the more efficient flow of credit in the economy by removing the current prescriptive framework and 'one size fits all' approach to ensure credit assessments are attuned to the needs of borrower and credit products.

Importantly in the last sentence of that description in the budget papers it says:

Responsible lending obligations for small amount credit contracts and consumer leases will be retained and laws strengthened to ensure the users of these products, typically more vulnerable consumers, are properly protected.

So that is the articulation of the government's position with respect to these matters.

That articulation was amplified upon in a fact sheet which was released by the Australian government, by Treasury, entitled 'Consumer credit reforms'. That outlines a lot of the steps which have been taken by the government in relation to credit generally and also consumer credit. I must say, if you were to listen to some of the contributions from those on the other side of the chamber, you would be led to think that the government had been asleep at the wheel with respect to this matter and nothing had been done. The reality is quite to the contrary.

Let me give you some examples of what the government has done in this space. Firstly, ASIC has been provided with a product intervention power that allows ASIC to ban or amend a credit product where that product has resulted or is likely to result in significant consumer detriment. Secondly, a design and distribution obligation has been imposed which requires product issuers to identify and distribute their products to appropriate consumers. Thirdly, a best-interest duty was imposed for mortgage brokers. Fourthly, the maximum corporate and financial sector civil and criminal penalties under the credit act were more than doubled. Fifthly, there are enhanced protections for credit card customers by banning unsolicited offers of credit limit increases, simplifying how interest is calculated and requiring online options be available for consumers to cancel cards or reduce their limits. Sixthly, there was the establishment of AFCA, the Australian Financial Complaints Authority, increasing access for borrowers to external dispute resolution. Those are some of the steps that have been taken by this government in relation to addressing matters relating to the flow of credit in our society.

The fact sheet also announced some more detail with respect to policy that will be introduced in legislation in this place. That includes the following in this space:

Imposing a cap on the total payments that can be made under a consumer lease …

I gave the example of Amanda, the Aboriginal woman on Centrelink benefits, who purchased goods worth thought approximately $1,550 and ended up paying $9,000 for those goods. I quote again from the fact sheet:

The permitted cap on costs—

for that sort of consumer lease facility—

will be equal to the sum of the base price of the goods hired under the lease, permitted delivery fees and permitted installation fees multiplied by 4 per cent per month (up to a maximum of 48 months). Lessors will additionally be able to charge a one-off establishment fee of 20 per cent of the good's base price.

So there will be protections with respect to the imposition of caps on total payments that can be made under a consumer lease.

In addition, there will be new protected earning amounts for small amount credit contracts and consumer leases. Again, I quote from the fact sheet released by the Australian government in this regard, noting that there are two limbs to the relevant caps, firstly:

A person who receives 50 per cent or more of their net income from Centrelink from devoting more than 20 per cent of their net income to SACC and consumer lease repayments, with no more than 10 per cent of this being allocated toward SACC repayments.

So there is a general cap of no more than 20 per cent for SACC and consumer lease repayments, with no more than 10 per cent of this being allocated towards small amount credit contracts. The second limb of the protected earnings amounts provides:

A person who receives less than 50 per cent of their net income from Centrelink from devoting more than 20 per cent of their net income to SACCs or consumer leases (these are separate caps).

So the government is proposing to introduce those protected earnings amount caps in legislation to address some of the concerns which were raised by those opposite and, indeed, were raised by those writing the majority report of the Economics Legislation Committee in relation to this matter.

I want to conclude my speech with a number of general reflections in relation to this legislation. I have read the draft bill in its entirety and I want to provide these reflections that are, perhaps, the reflections of someone who is looking at this bill with a fresh pair of eyes. Firstly, I think it's important that the protected earnings amount caps are actually in the bill and not in regulations. I say that because I think protecting the vulnerable in our community goes to the heart of this legislation. I would hate to see a situation where those caps were decided not by members of this place but, perhaps, by other agencies, through regulations or otherwise. I think that we, as representatives in this place, should be mindful of and consider this matter.

Secondly, whenever I see strict liability provisions in any draft bill I always pause to reflect. It does cause me concern, because we must always seek to endeavour to achieve a balance between appropriately penalising those who engage in bad faith, reckless indifference or wilful disregard for the law, as opposed to those who, through some form of inadvertence, albeit they've acted in good faith, trip up and make a mistake. This comes back to a number of principles: first, the general principle of rule of law. I'm always somewhat uneasy when I see a strict liability provision. I think it is incumbent on the government to explain why there should be strict liability provisions in any case where they're invoked. Secondly, we have to be careful that mainstream operators can continue to act in this space.

The last point I'd like to make is that this isn't a matter just for government. Clearly, there are a number of non-government organisations that are doing great work helping people in this space, and I commend each and every one of those organisations. But I also say it's up to everyone in this chamber and everyone in our society to reach out and help their fellow Australians in their times of need, to be available to provide counsel to the most vulnerable in our community, to provide advice, to assist them so they don't commit the mistakes that are frequently committed and frequently lead to financially catastrophic circumstances. That's certainly something that I've reflected upon, in terms of listening to the contributions to the debate today and also reading the report from the economics committee.