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Economics Legislation Committee—Standing Committee—National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2)—Report, dated September 2020


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September 2020

The Senate

Economics Legislation Committee

National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2)

© Commonwealth of Australia

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ISBN 978-1-76093-119-3 (HTML Version)

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iii

Members

Chair Senator Slade Brockman LP, WA

Deputy Chair Senator Alex Gallacher ALP, SA

(Member from 2 July 2019 to 5 February 2020. Deputy Chair from 4 July 2019 to 5 February 2020. Member from 16 June 2020. Deputy Chair from 17 June 2020)

Senator Kimberley Kitching ALP, VIC

(Member from 5 February 2020 until 16 June 2020. Deputy Chair from 6 February 2020 until 16 June 2020)

Members Senator Andrew Bragg LP, NSW

Senator Jenny McAllister ALP, NSW

Senator Susan McDonald NATS, QLD

Senator Rex Patrick IND, SA

Participating members Senator Alex Antic LP, SA

Senator Stirling Griff CA, SA

Secretariat Mr Mark Fitt, Committee Secretary Mr Michael Finch, Research Officer Ms Stephanie Gill, Research Officer Dr Andrew Gaczol, Principal Research Officer Mrs Taryn Morton, Administrative Officer

PO Box 6100 Phone: 02 6277 3540

Parliament House Fax: 02 6277 5719

Canberra ACT 2600 Email: economics.sen@aph.gov.au

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Contents

Members ............................................................................................................................................. iii

Acronyms and Abbreviations ........................................................................................................ vii

Chapter 1—Introduction .................................................................................................................... 1

Chapter 2—Views on the bill.......................................................................................................... 19

Dissenting Report ............................................................................................................................. 61

Appendix 1—Submissions and additional information ........................................................... 67

vii

Acronyms and Abbreviations

AFIA Australian Finance Industry Association

APR annual percentage rate

ARCA Australian Retail Credit Association

ASIC Australian Securities and Investments Commission

BNPL buy now pay later

CALC Consumer Action Law Centre

Care Inc Care Inc. Financial Counselling and the Consumer Law Centre of the ACT CCLCSA Consumer Credit Law Centre South Australia CCLSWA Consumer Credit Legal Service (Western Australia) Inc. CHERPA Consumer Household Equipment Rental Providers

Association

Credit Act National Consumer Credit Protection Act 2009 Credit Enhancements Act Consumer Credit Legislation Amendment (Enhancements) Act 2012 Credit Regulations National Consumer Credit Protection Regulations 2010 DSP Disability Support Pension

EM Explanatory Memorandum

FAA&MS Financiers Association of Australia and Min-it Software FCA Financial Counselling Australia

FID Finance Industry Delegation

financial hardship report Inquiry into credit and financial products targeted at Australians at risk of financial hardship FRLC Financial Rights Legal Centre

Good Shepherd Good Shepherd Australia and New Zealand HRC Parliamentary Joint Committee on Human Rights

HRCLS Hume Riverina Community Legal Service

MBL Maurice Blackburn Lawyers

NCOSS NSW Council of Social Service

NCPA National Credit Providers Association

NILS no interest loan scheme

PEA protected earnings amount

RBA Reserve Bank of Australia

references committee Senate Economics References Committee RRP recommended retail price

SACCs small amount credit contracts

Scrutiny Committee Senate Standing Committee on the Scrutiny of Bills SDTA Stop the Debt Trap Alliance

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the bill National Consumer Credit Protection Amendments (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2)

the committee Senate Economics Legislation Committee the Review Review of the Small Amount Credit Contract Laws the Review Panel Review panel for Review of Small Amount Credit Contract Laws

Treasury Department of the Treasury

1

Chapter 1 Introduction

Referral of the inquiry 1.1 The National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) (the bill) was introduced in the Senate and read a first time on 2 December 2019.1

1.2 On 5 December 2019, the Senate referred the bill to the Senate Economics Legislation Committee (the committee) for inquiry and report by 6 April 2020.2 The committee agreed to extend the reporting date to 21 September 2020, in accordance with the Senate motion of 23 March 2020 authorising committees to extend inquiry reporting dates due to the COVID-19 pandemic.3

Purpose of the bill 1.3 The bill proposes a number of amendments to the National Consumer Credit Protection Act 2009 (Credit Act) to adjust consumer protections relating to small amount credit contracts (SACCs) and consumer leases.4

1.4 If enacted, the bill seeks to:

 cap the total repayment amounts for consumer leases;  require SACCs to have equal repayment amounts and equal repayment intervals;  prohibit SACC providers charging monthly fees to consumers if loans are

repaid early;  prevent SACC providers and credit assistance providers from making unsolicited invitations for credit to current and former SACC consumers;  prohibit door-to-door selling of consumer leases;  introduce anti-avoidance measures relating to SACC and consumer leases

providers that circumvent provisions of the Credit Act; and  strengthen the penalties for providers of SACCs and consumer leases that do not comply with relevant law.5

1.5 The bill also amends the Credit Act to facilitate, via amending the National Consumer Credit Protection Regulations 2010 (Credit Regulations), a new

1 Journals of the Senate, No. 32, 2 December 2019, p. 1000.

2 Senate Standing Committee for Selection of Bills, Report No. 10 of 2019, 5 December 2019, p. [3].

3 Journals of the Senate, No. 47, 23 March 2020, p. 1045.

4 Small amount credit contracts (SACCs) are commonly referred to as 'payday loans'.

5 Explanatory Memorandum, pp. 2-3.

2

protected earnings amount (PEA) for consumers of SACCs and consumer leases to prevent repayments exceeding 10 per cent of consumers' net income. 6

Background 1.6 The bill replicates the Australian Government's exposure draft legislation that was released for consultation in October 2017.7 The purpose of the exposure draft legislation was to implement the government's response to the

independent Review of the Small Amount Credit Contract Laws (the Review).8

1.7 During consultation on the exposure draft legislation, the Department of the Treasury (Treasury) received over 140 submissions from industry stakeholders and consumer groups, and the government has considered issues raised in those submissions.9

1.8 On four occasions between February 2018 and September 2019, bills that replicated the provisions of the exposure draft legislation were introduced to the House of Representatives by non-government members.10 Those bills were removed from the House of Representatives Notice Paper.

Small amount credit contracts and consumer leases 1.9 SACCs are non-ongoing credit contracts, with contract terms between 16 days and one year, and a credit limit of $2000. The Credit Act provides that a credit contract is a SACC if all of the following criteria are met:

 the contract is not a continuing credit contract;11  the credit provider under the contract is not an authorised deposit taking institution;  the credit limit of the contract is $2000 (or such other amount as

prescribed by the Credit Regulations) or less;

6 Explanatory Memorandum, p. 3.

7 Explanatory Memorandum, p. 2.

8 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 6.

9 Ms Kate O'Rourke, Acting Division Head, Financial System Division, Department of the Treasury

(Treasury), Committee Hansard, 13 March 2020, pp. 67-68.

10 House of Representatives, Votes and Proceedings, No. 100, 26 February 2018, p. 1396; House of

Representatives, Votes and Proceedings, No. 145, 22 October 2018, p. 1910; House of Representatives, Votes and Proceedings, No. 160, 28 February 2019, p. 2097; and House of Representatives, Votes and Proceedings, No. 16, 16 September 2019, p. 252.

11 A continuing credit contract is defined by Section 204 of the National Credit Code as a credit

contract under which multiple advances of credit are contemplated, and the amount of available credit increases as the amount of credit is reduced.

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 the term of the contract is at least 16 days, but not longer than one year (or such other number of years as prescribed by the Credit Regulations);  the debtor's obligation under the contract are not, and will not be, secured; and  the contract meets any other requirements prescribed by the

regulations.12

1.10 Consumer leases are 'contracts for goods hired wholly or predominately for personal, domestic or household purposes' for a period greater than four months.13 Consumers pay the lessor, usually every fortnight, over a fixed term ranging between 12 and 48 months.14 The consumer does not have a contractual right or obligation to purchase the leased good, and the total amount payable by the consumer exceeds the cash price of the good.15

1.11 SACCs and consumer leases, including those licensed to provide those products, are legislated by the Credit Act.16

Credit Act and responsible lending obligations 1.12 The Credit Act commenced in July 2010 and established a national framework for the legislation of credit products by the Commonwealth.17 Provisions of the Credit Act significantly improved consumer protections for those

borrowing money for 'personal, domestic or household needs' and aimed to deter 'predatory lending practices'.18

1.13 Chapter 3 of the Credit Act makes provisions for responsible lending obligations which apply to those engaging in credit activities via an Australian credit license (licensees). The responsible lending obligations:

…set in place expected standards of behaviour of licensees when they enter into consumer credit contracts or leases, where they suggest a credit contract or lease to a consumer, or assist a consumer to apply for a credit contract or lease.19

12 National Credit Code, Part 1-2 5(1).

13 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 26.

14 Australian Securities and Investments Commission (ASIC), Cost of consumer leases for household

goods, Report 447, September 2015, p. 4.

15 Consumer leases are defined by sections 169 and 170 of the National Credit Code. The cash price is

defined by subsection 204(1) of the National Credit Code.

16 The Credit Act does not apply to business lending (including SACCs).

17 Prior to the Credit Act, jurisdiction for the regulation of credit products was the responsibility of

the states and territories.

18 ASIC, Payday lenders and the small amount lending provisions, Report 426, March 2015, p. 4.

19 Credit Act, s. 5.

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1.14 The key obligation of licensees is to ensure that they do not provide, suggest, or assist a consumer to enter a credit contract, or lease, if the product is unsuitable for the consumer. Licensees must assess that a credit contract, or lease, 'is not unsuitable for the consumer's requirements' and that the consumer is able to meet their financial obligations under the product.20

Maximum costs 1.15 The maximum amount that can be charged in relation to a credit contract is capped at an annual percentage rate (APR) of 48 per cent.21 However SACCs are exempted from the APR cap.22 Instead, SACC providers impose

prescribed fees and charges to consumers, including:

 an establishment fee not exceeding 20 per cent of the credit amount;  a monthly fee not exceeding four per cent of the credit amount; and  a default fee of no more than twice the credit amount.23

1.16 There is no statutory cap on the price that can be charged for a consumer lease.24 25

1.17 The SACC Review Panel (the Review Panel) considered that the APR exemption for SACCs and consumer leases ‘is a concession which should not continue to the extent that it produces outcomes which are inconsistent with that objective'.26

Consumer Credit Legislation Amendment (Enhancements) Act 2012 1.18 From March 2013, the Consumer Credit Legislation Amendment (Enhancements) Act 2012 (Credit Enhancements Act) amended the Credit Act to strengthen consumer protections relating to SACCs and consumer leases.27

20 Explanatory Memorandum, National Consumer Credit Protection Bill 2009, p. 4.

21 National Credit Code, ss. 32A(1).

22 National Credit Code, ss. 32A(4).

23 National Credit Code, s. 31A and s. 39B.

24 Department of the Treasury (Treasury), Review of small amount credit contract (SACC) laws: Final

report, p. 2.

25 In 2015, ASIC reviewed the cost of consumer leases for household goods and found that there

'…was no consistency in the amounts charged relative to the value of the goods being leased, and there could be a difference in total cost between the cheapest and most expensive leases of up to 467%'. The ASIC report also found that, of the lessors reviewed, Centrelink recipients were charged more than five times the retail price of goods over a two-year term (a 248 per cent equivalent interest rate). In one case, costs equated to an interest rate of 884 per cent. See ASIC, Report 447: Cost of consumer leases for household goods, September 2015, pp. 6-7.

26 Treasury, Review of SACC laws: Final report, March 2016, p. 5.

27 Revised explanatory memorandum, Consumer Credit Legislation Amendment (Enhancements) Bill

2012, pp. 6-7.

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1.19 For SACCs the Credit Enhancements Act included provisions which required licensees to: disclose additional product and financial awareness information to consumers; access consumers' bank statements for the previous 90 days; not enter into a SACC with a duration of less than 15 days; only impose prescribed fees and charges;28 and not enter into a SACC if a consumer is in default under another SACC, or has been a debtor under two, or more, SACCs in the past three months.

1.20 Provisions of the Credit Enhancements Act also introduced a requirement for licensees not to enter into SACCs 'with a class of consumers prescribed by the regulations.'29 The Credit Regulations defines these consumers as people receiving 50 per cent or more of their gross income under the Social Security Act 1991 (i.e. through Centrelink).30 Further, the Credit Regulations provide that a consumer who receives 50 per cent or more of their gross income through Centrelink must not be required to make SACC repayments which exceed 20 per cent of their gross income.31 32

1.21 The Credit Enhancement Act also added section 335A to the Credit Act, which required the Minister to establish an independent review of the SACC laws, as soon as practicable after 1 July 2015.33 34

Independent review of small amount credit contract laws 1.22 The government announced the review of SACC laws in August 2015. The Review Panel was chaired by Ms Danielle Press, and included two members, Ms Catherine Walter AM and Mr Stephen Cavanagh.35

Consultation paper 1.23 The Review Panel released its initial consultation paper in September 2015. The paper presented 16 key discussion questions, including in relation to:

28 See para. 1.15 for an overview of prescribed fees and charges.

29 Consumer Credit Legislation Amendment (Enhancements) Act 2012, Schedule 13, Provision 13.

30 National Consumer Credit Protection Regulations 2010, ss. 28S(2).

31 National Consumer Credit Protection Regulations 2010, ss. 28S(3).

32 Section 113CC of the Credit Act imposes a civil penalty of 5000 penalty units and a criminal

penalty of 50 penalty units for licensees that breach the requirements of ss. 28S(2) and ss. 28S(3).

33 The provisions of the Credit Act required to be reviewed were: subsections 117(1A); 118(3A);

123(3A); 130(1A); 131(3A) and 133(3A); and Division 7 of Part 3-1.

34 Under s. 335A of the Credit Act, the independent review was also required to consider whether a

national database of small amount credit contracts should be established, and if any additional provisions relating to small amount credit contracts should be included in this Act and/or the National Credit Code.

35 Treasury, Review of the SACC laws: Consultation on the regulation of small amount credit contracts and

comparable consumer leases, September 2015, p. 3.

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regulatory burden; restrictions on repeat borrowing; efficacy of warning statements; anti-avoidance measures; and capping costs.36 The Review Panel called for submissions by mid-October 2015 and more than 40 submissions were received.37

Interim report 1.24 The Review Panel's interim report was released in December 2015 and considered matters relating to: responsible lending; repeat borrowing; SACC default fees; and regulated consumer leases. Possible policy options were

presented and the Review Panel sought feedback on options from stakeholders.38

Final report 1.25 The Review Panel's final report was submitted to the then Minister for Small Business and Assistant Treasurer, the Hon Kelly O'Dwyer MP, in March 2016.39 In presenting its findings, the Review Panel said:

…the laws applying to SACCs and consumer lease providers should be designed in a way that promotes financial inclusion and attempts to protect consumers from descending into a spiral of financial exclusion. We are recommending refinements of the laws applying to SACCs and consumer leases to ensure that they promote financial inclusion and that they are fit for purpose for the Australian economy now and into the future.40

1.26 The Review Panel made 24 recommendations. For SACCs, the Review Panel's recommendations included: extending the PEA to all consumers and reducing the PEA for repayments to 10 per cent of a consumer's gross income; removing the rebuttable presumption that a loan is unsuitable if a consumer is in default under a SACC, or has had two or more SACCs in the last 90 days; SACCs must have equal repayments over the life of the loan; and banning monthly fees if the loan is repaid early.41

1.27 For consumer leases, the Review Panel's recommendations included: capping the cost of leases to 4 per cent of the base price of a good for each month of the lease term; requiring the base price of a good to be the recommended retail

36 Treasury, Review of the SACC laws: Consultation on the regulation of SACCs and comparable consumer

leases, September 2015, pp. 6-8.

37 Treasury, Review of the SACC laws: Interim report, December 2015, p. 1.

38 Treasury, Review of the SACC laws: Interim report, December 2015, p. 2.

39 The report and associated submissions are available on the Treasury website. See Treasury, Review

of small amount credit contracts - Final report, https://treasury.gov.au/consultation/review-of-small-amount-credit-contracts-final-report (accessed 16 August 2020).

40 Treasury, Review of the SACC laws: Final Report, March 2016, p. v.

41 Treasury, Review of the SACC laws: Final Report, March 2016, pp. vi-vii.

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price (RRP) (or less); introducing a PEA whereby lessors must not pay more than 10 per cent of their net income for all consumer lease products; and banning the unsolicited marketing of consumer leases.42

1.28 The Review Panel's recommendations that apply to both SACCs and consumer leases, include: retaining the obligation for providers to consider 90 days of bank statements; requiring providers to disclose a product's APR to a consumer; and anti-avoidance measures for licensees adopting practices to avoid restrictions relating to charges or conduct.43

Government response 1.29 In November 2016, Minister O'Dwyer announced the government's response to the independent SACC review. The Government supported the 'vast majority of the recommendations, in part or in full.'44 Of the Review Panel's

24 recommendations, the government accepted 14 in full; partially accepted three; accepted three with amendments; supported one in principle; noted one; and did not accept two. 45

1.30 To implement the proposed changes, Minister O'Dwyer stated the government would progress legislation through Parliament in 2017, subject to legislative priorities. In October 2019, Assistant Treasurer Michael Sukkar MP indicated that the government is still committed to the reforms:

The Government is committed to progressing these important reforms which will ultimately improve the accountability of financial product issuers and improve outcomes for consumers.46

Provisions of the bill 1.31 The provisions of the bill are presented in one schedule. The provisions are summarised in paragraphs 1.4 to 1.5 and are outlined in further detail below.

Provisions relating to SACCs 1.32 The bill includes several provisions relating to SACCs that are intended to '…reduce the risk of SACC consumers, who are often lower income

42 Treasury, Review of the SACC laws: Final Report, March 2016, pp. vii-ix.

43 Treasury, Review of the SACC laws: Final report, March 2016, pp. x-xi.

44 The Hon Kelly O'Dwyer, Minister for Revenue and Financial Services, 'Government response to

the final report of the review of the SACC laws', Media Release, 28 November 2016.

45 The Hon Kelly O'Dwyer, Minister for Revenue a Financial Services, 'Government response to the

final report of the review of the SACC laws', Media Release, 28 November 2016.

46 Sophie Elsworth, 'Dangers of payday loans as Australian consumers left in loads of debt', Herald

Sun, 16 October 2019 (accessed 8 September 2020).

8

consumers in a financially vulnerable position, becoming unable to meet their basic needs or defaulting on other necessary commitments'. 47

Protected earnings amount 1.33 The bill provides that the Credit Regulations may be amended to create a new PEA for all SACC consumers. This extends the existing PEA for SACCs and prevents a provider from offering, entering into, or accepting repayments for

a SACC if a consumer's repayments would exceed the PEA.48

1.34 The government has stated its intention to amend the Credit Regulations to specify that the PEA is 10 per cent of a consumer's net income.49 Currently, a 20 per cent PEA applies only to consumers who receive 50 per cent or more of their gross income through Centrelink.50

Removal of the rebuttable presumption 1.35 The bill removes the ‘rebuttable presumption that a SACC is unsuitable if the consumer entered into two or more SACCs in the last 90 days, or is in default under a SACC.'51

1.36 The Review recommended this amendment on the basis it was implemented alongside the proposed PEA of 10 per cent.52 The Review Panel found that the rebuttable presumption 'has not been effective in addressing issues in relation to repeat borrowing and debt spiral' and has:

…resulted in uncertainty and complexity for SACC providers and increased compliance costs in circumstances where these issues can be more effectively dealt with by a bright line requirement.53

Equal repayments and equal repayment intervals 1.37 The bill requires SACCs to have equal repayment amounts and equal repayment intervals over the life of the loan, subject to limited and practical

47 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 9.

48 Bill, items 19 and 21, proposed subsections 133CC(1), 133CD(1) and (2).

49 Explanatory Memorandum, p. 4.

50 National Consumer Credit Protection Regulations 2010 (Credit Regulations), s. 28S.

51 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 9.

52 Treasury, Review of the SACC laws: Final Report, March 2016, p. vi.

53 Treasury, Review of the SACC laws: Final Report, March 2016, p. 22.

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exemptions.54 There are currently no restrictions on unequal repayment or repayment periods.55

1.38 Providers who breach the equal repayments and intervals provisions would be subject to a civil penalty of up to 2000 penalty units. A criminal penalty of up to 100 penalty units also applies, and this is a strict liability offence.56

1.39 This provision responds to the Review Panel's finding that some SACC providers were engaging in a practice of 'front loading' a consumer's repayments,57 and extending the life of the loan to generate extra revenue for the provider from monthly fees charged to the consumer.

Ban on monthly fees for repaid loans 1.40 SACC providers will be prohibited from charging monthly fees if a consumer repays the loan early.58 Currently, SACC providers are not restricted in structuring the loan contracts in a way that consumers are required to repay

monthly fees for the full contract term, even if the loan is discharged early. This provision applies to '…the months after the final repayment is made' and providers may charge a fee for the month in which the SACC is paid out.59

Ban on unsolicited SACC invitations 1.41 Provisions of the bill will ban providers from making unsolicited invitations to people who have a current SACC with the provider, or has had a SACC with the provider in the past two years, or a person who the provider knows has,

or has recently had, a SACC with another provider. These same provisions apply to credit assistance providers. The ban would not apply to the general advertising relating to SACCs.60

1.42 Providers who contravene these provisions are subject to civil penalties of up to 2000 penalty units, and a criminal penalty of up to 100 penalty units, including a strict liability offence of up to 10 penalty units.61 SACC providers

54 Bill, item 21, proposed section 133CE.

55 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 16.

56 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, pp. 16-17.

57 Treasury, Review of SACC laws: Final report, March 2016, pp. 27-28.

58 Bill, items 42, 44, 45 and 66, proposed subsections 31C(1)-(4), 82(2) and (3) and 204(1) of the Credit

Code.

59 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, pp. 17-18.

60 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 20.

61 Bill, item 22, proposed subsections 133CF(1), (2), (3) and (4).

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will lose the right to charge a consumer establishment and monthly fees if it reasonably concluded that the consumer entered into the SACC as a result of the provider making an unsolicited offer.62

Reforms relating to consumer leases 1.43 The bill includes several reforms to consumer protections to reduce the financial risks associated with consumer leases. As consumer leases are not regulated as credit contracts, the obligations of the Credit Code which apply

to credit contracts do not automatically apply to consumer leases.63

Cap on costs 1.44 The bill imposes a cap on the total costs that lessors can charge to consumers under the lease. The permitted cap will be calculated as the sum of the base price of the good, with a monthly fee of no more than 4 per cent of the base

price of the good, for a maximum of 48 months. Leases with an indefinite term are capped at an equivalent level, calculated as the sum of the base price of the goods multiplied by 1.92.64

1.45 For new goods, the base price will be the RRP of the goods (excluding GST), or a lesser agreed value. For a good where the RRP it is not known, the base price will be lesser of the market value of the goods or the agreed purchase price. The bill provides that for second hand goods, the base price is considered to be the RRP at the date of the goods manufacture, depreciated by 10 per cent for each year since the good's manufacture to a maximum depreciation rate of 30 per cent, or a lesser agreed value.65

1.46 Lessors who enter into consumer leases that breach the cap on costs provisions will be subject to civil and criminal penalties, and lose their rights to charge consumers fees under the contract.66

Requirement to obtain bank statements 1.47 The bill introduces a requirement on lessors to obtain and consider 90 days of a consumer's bank statements when assessing a consumer's financial situation. This does not limit lessors existing obligations to make reasonable inquiries

regarding a consumer's financial suitability for the lease, as required under

62 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 21.

63 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 26.

64 Explanatory Memorandum, p. 6.

65 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 30.

66 Bill, items 49 and 58 and proposed sections 175AA, 175AB and 175AC of the Credit Code.

11

the Credit Act's responsible lending obligations.67 A similar obligation is imposed on licensees who provide credit assistance in relation to consumer leases.

1.48 The requirement to obtain bank statements replicates existing equivalent provisions relating to SACCs and intends to address concerns that licensees may not make appropriate inquiries regarding lessees capacity to pay.68

Establishment of a protected earnings amount 1.49 The bill establishes a PEA for consumer leases, consistent with the provisions for the new PEA applicable to SACCs, of 10 per cent of a consumer's net income. 69 The PEA will apply to all consumer leases held by the lessee.

1.50 In conjunction with the bill's proposed amendments, the Credit Regulations would need to be updated to reflect the new PEA.

1.51 The bill prohibits licensees from entering into, or offering to enter into, a consumer lease which does not meet the requirement of Credit Regulations. For licensees who contravene these provisions, a civil penalty of up to 2000 penalty units applies, coupled with criminal penalties contingent on whether the licensee entered, or offered to enter into, a non-compliant lease (up to 50 penalty units) or whether the licensee required a lessee to make a payment which breaches the PEA provisions (up to 100 penalty units).70

Ban on door-to-door selling 1.52 Licensees will be banned from the door-to-door selling of consumer leases, unless there is a prior agreement with a resident.71 This provision is intended to address concerns raised by the Review Panel that unsolicited selling of

consumer leases has the capacity to cause lessees' financial harm.72

1.53 Lessors that contravene the door-to-door selling provisions are subject to civil and criminal penalties, including a strict liability offence of up to 10 penalty units. Lessors in contravention of the prohibition are also subject to loss of charge penalties, to create a greater incentive for provider compliance.73

67 Explanatory Memorandum, p. 6.

68 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, pp. 31-32.

69 Explanatory Memorandum, pp. 6-7.

70 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, pp. 33-34.

71 Explanatory Memorandum, p. 7.

72 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 34.

73 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, pp. 36-37.

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Base price disclosure 1.54 The bill provides that lessors must disclose to lessees the base price of goods hired under a consumer lease, and the difference between the good's base price and the total amount payable under the lease.74 The Australian

Securities and Investments Commission (ASIC) will have the power to prescribe, via legislative instrument, additional information that lessors must disclose.75

1.55 The Review Panel recommended base price disclosure to allow consumers to better assess the cost of the lease and promote the use of cheaper alternatives through better information transparency.76

1.56 Lessors in contravention of the base price disclosure provision will be subject to an existing criminal penalty under the bill of up to 100 penalty units.77

Reforms applying to both SACCs and consumer leases

Use of bank statements 1.57 The bill proposes to restrict SACC and consumer providers' use and disclosure of bank statements to purposes of: complying with obligations under the Credit Act or Credit Code; court or tribunal proceedings; or considering

financial hardship notices.78

Assessment of consumers' suitability 1.58 The bill requires providers of SACCs and consumer leases for household goods to record their assessment in writing, that the product is not unsuitable for the consumer and provide a copy of this assessment to the consumer. It

will be for ASIC to determine the form and content of these assessments via legislative instrument. This is a strict liability offence (50 penalty units) and also has a civil penalty (2000 penalty units).79

Warning statements 1.59 The bills seeks to reform warning statements which licensees provide to consumers by granting ASIC power to determine via legislative instrument the information and provision—how and when—of these warning statements.

74 Bill, items 54 and 55, proposed subsections 174(1) and (1A) of the Credit Code.

75 Explanatory Memorandum, p. 7.

76 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 38.

77 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 39.

78 Bill, item 36 (proposed sections 160F, 160G and 160H).

79 Bill, items 4, 6, 12, 14, 25, 27, 31, 33 (proposed sections 116A, 120(1A), 129A, 132(2A), 139A,

143(1A), 152A, 155(2A)).

13

Failure to comply with the warning statements carries a civil penalty (2000 penalty units) for licensees and also a criminal penalty (50 penalty units) for licensees that provide consumers leases for household goods.80

Anti-avoidance measures 1.60 The bill introduces three anti-avoidance measures. A person is prohibited from entering into or carrying out a scheme to avoid:

 the application of a provision of this act; and  a contract from being a SACC or a consumer lease. 81

Both of these prohibitions carry a civil (2000 penalty units) and criminal penalty (120 penalty units, or 2 years imprisonment, or both).

1.61 In addition, indefinite period consumer leases are regulated, subject to constitutional limitations.82

Commencement 1.62 The provisions of the bill will commence 12 months after the bill receives Royal Assent.83

Human rights implications 1.63 The bill's Explanatory Memorandum (EM) comments that the strict liability offences in the bill are appropriate due to the 'potentially serious financial impact a contravention may have on an affected consumer.' The EM

concludes the bill is compatible with human rights.84

1.64 In May 2018, the Parliamentary Joint Committee on Human Rights (HRC) considered an earlier iteration of the bill, which replicated the provisions of the government's draft legislation, and reported concerns with the bill's civil penalty provisions and strict liability offences.85

Civil penalty provisions 1.65 The HRC reported that the civil penalties proposed by the bill may be regarded as criminal under international human rights law, in part, due to the significant pecuniary sanctions for the bill's civil penalty provisions.86

80 Bill, items 9, 17, 18, 28, 34 (proposed section 124B, 133CB, 147A, 156C).

81 Bill, items 37, 38 (proposed sections 323A, 323B, 323C, 323D).

82 National Credit Code, subsections 171(1) and (1A), section 172A, subsections 175AA(3), 179,

204(1).

83 Bill, clause 2.

84 Explanatory Memorandum, p. 10.

85 Parliamentary Joint Committee on Human Rights, Report 4 of 2018, pp. 91-95.

86 Parliamentary Joint Committee on Human Rights, Report 4 of 2018, pp. 92-93.

14

1.66 The bill imposes a range of civil penalties for SACC and consumer lease providers who fail to comply with relevant regulations, including:

 civil penalties of up to 2000 penalty units (currently $420 000) for SACC providers that fail to record assessments of consumers' suitability, do not provide prescribed product information, or enter into SACCs for which consumers' repayments are not equal;87 and

 civil penalties for consumer lease providers who engage in prohibited conduct, such as the retailing of leases at places of residence;88 or SACC and consumer lease providers that use consumers' account statements in a prohibited way, charge prohibited monthly fees, or engage in a scheme designed to avoid the bill's provisions. 89

1.67 If the bill's civil penalties could be assessed as criminal under human rights law, then those provisions must be consistent with the criminal process guarantees in article 14 of the International Covenant on Civil and Political Rights. This includes the right not to be tried twice for the same offence, and the right to be presumed innocent until proven guilty under the law.

1.68 The HRC expressed concern that it is not clear whether a person could be subject to a bill's corresponding civil and criminal penalties for the same conduct. Further, the HRC noted that:

… the standard of proof applicable in the civil penalty proceedings introduced by the bill is the civil standard of proof (requiring proof on the balance of probabilities) rather than the criminal standard of proof (requiring proof beyond reasonable doubt), raising concerns as to whether the measure is compatible with the presumption of innocence. 90

Strict liability offences 1.69 The bill seeks to introduce several strict liability offences, with pecuniary penalties ranging from 10 to 100 penalty units. 91 The HRC observed the bill's strict liability offences may 'allow for the imposition of criminal liability

without the need [for a prosecution] to prove fault.'92 The explanatory materials for the government's exposure draft legislation maintains that the

87 See Bill, proposed subsections 116A(1), 124B(1), 133CB(1), 133CC(1) and 133CE(1) and section

129A.

88 See Bill, proposed subsections 139A(1), 147A(1), 152A(1), 156A(1), and 156C(1), and section 179VA.

89 See Bill, proposed subsections 160H(1), 323A(1), 323C(1) and 31C(1).

90 Parliamentary Joint Committee on Human Rights, Report 4 of 2018, p. 93.

91 Senate Standing Committee on the Scrutiny of Bills (Scrutiny Committee), Scrutiny Digest No. 1 of

2020, p. 21.

92 Human Rights Committee, Report 4 of 2018, p. 94.

15

strict liability provisions are appropriate, due to the serious financial impact contravention of the provisions may have on consumers.93

1.70 The HRC observed that the bill' strict liability offenses are probably rationally connected to the legitimate objective of consumer protections.94

Legislative scrutiny 1.71 The Senate Standing Committee on the Scrutiny of Bills (Scrutiny Committee) referred Senators to its consideration of a prior iteration of the bill from 21 March 2018.95

Delegated legislation 1.72 The Scrutiny Committee previously expressed concern that significant elements of the bill's civil penalty provisions are left to regulations or other delegated legislation.96 The Scrutiny Committee noted examples of civil

penalty offences for licensees that enter into a SACC or consumer lease that does not meet requirements that would be prescribed in the Credit Regulations.97

1.73 The Scrutiny Committee also observed that it would be desirable for the bill to separate the offence provisions from the provision itself, so that the offences are set out clearly and affected persons may ascertain their obligations.98

Strict liability offences 1.74 The Scrutiny Committee raised concerns, similar to the HRC, regarding the bill's proposed strict liability offences that, in relation to criminal law, would remove the requirement for a prosecution to establish a defendant is at fault.99

The Scrutiny Committee considers that strict liability offences undermine fundamental criminal law principles and, as such, a clear justification of those provisions is required.100

1.75 The Scrutiny Committee also observed that the Guide to Framing Commonwealth Offences states strict liability offences are only considered appropriate where

93 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 17.

94 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 17.

95 Scrutiny Committee, Scrutiny Digest No. 1 of 2020, p. 21.

96 Senate Standing Committee on the Scrutiny of Bills, Scrutiny Digest No. 3 of 2018, p. 24.

97 Bill, proposed subsection 133CC(1); sections 133CE and 156A and paragraph 133CE(2)(c).

98 Senate Standing Committee on the Scrutiny of Bills, Scrutiny Digest No. 3 of 2018, p. 25.

99 Scrutiny Committee, Scrutiny Digest 3 of 2018, p. 26.

100 Scrutiny Committee, Scrutiny Digest 3 of 2018, p. 26.

16

the offence is not punishable by a prison sentence or by a fine of more than 60 penalty units.101 Some strict liability penalties in the bill, relating to providers who enter into a SACC where repayments are not equal, or charge monthly fees following early repayment of a contract, attract a penalty of up to 100 penalty units.102

The 'Henry VIII clause' 1.76 The Scrutiny Committee raised concerns that proposed section 323D makes exemptions for provisions of the bill which would allow delegated legislation to override the primary legislation passed by Parliament and 'subvert the

appropriate relationship between the Parliament and the Executive.'103 104

Regulatory impact and financial burden 1.77 The explanatory material for the government's exposure draft legislation outlined the significant consultation which had occurred on the draft legislation through the Review Panel process and noted the consultation had

considered and identified the policy responses reflected in the bill.

1.78 The explanatory material estimated that the bill's reforms would result in a compliance cost to industry of $18.4 million. This includes:

… up-front costs to SACC providers and lessors to update their [information technology] systems, policies and procedures, training staff and updating disclosure documents. It also includes the ongoing costs of meeting the new obligations, such as documenting suitability assessments and complying with the protected earning amounts.105

Conduct of the inquiry 1.79 The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting written submissions by 21 February 2020.

1.80 The committee received 42 submissions as well as additional information and answers to questions on notice, which are listed at Appendix 1.

1.81 The majority of submissions were received from organisations that provide legal and financial counselling services. These organisations were generally

101 Scrutiny Committee, Scrutiny Digest 3 of 2018, p. 26.

102 Bill, proposed sections 133CE and 31C.

103 Scrutiny Committee, Scrutiny Digest 3 of 2018, p. 27.

104 Proposed section 323D provides that ASIC may, by legislative instrument, exempt schemes from

the requirements of sections 323C and 323D which require persons not to engage in schemes intended to avoid Credit Act requirements in relation to SACCs and consumer leases.

105 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 70.

17

supportive of the bill's provisions for enhanced consumer protections. Several submissions were also received from industry bodies and these submissions generally supported some of the bill's provisions and rejected others.

1.82 The committee held a public hearing for the inquiry in Melbourne on 13 March 2020. The names of the witnesses who appeared at the hearing can be found at Appendix 2.

Acknowledgements 1.83 The committee thanks the individuals and organisations who assisted the committee with its inquiry, particularly those that made written submissions and participated in the committee's public hearing.

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Chapter 2 Views on the bill

2.1 This chapter considers the views expressed in evidence received by the Senate Economics Legislation Committee (the committee) on the National Consumer Credit Protection Amendments (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) (the bill).

2.2 Evidence was mostly received from organisations which advocate for the financial rights of consumers.1 Consumer groups supported the bill's consumer protection provisions and recommended the bill's reforms be legislated. Evidence was also received from industry stakeholders, including providers of small amount credit contracts (SACCs), and consumer lease representatives. Industry stakeholders supported some of the bill's provisions and did not accept, or recommended amending, the bill's key provisions.

2.3 Evidence to the inquiry predominately addressed the following issues:

 financial vulnerability and hardship experienced by Australians, including the socioeconomic factors that can impact financial inclusion;  use of SACCs and consumer leases by people who are financially vulnerable and who may not be able to afford the costs of those products;  risks that SACCs and consumer leases contribute to people becoming over-

indebted and cause them financial harm;  need for reforms that support the financial inclusion of Australians who experience, or are at risk of, financial hardship;  capacity of the bill's provisions to enhance the protections for consumers of

SACCs and consumer leases; and  impact of the bill's provisions on SACC and consumer lease businesses.

Financial hardship, SACCs and consumer leases 2.4 The evidence received during the inquiry described the complex circumstances that can limit the financial inclusion of Australians, and lead to financial hardship. People on lower incomes have fewer options to access mainstream

credit products, are exposed to higher-cost credit products, and are exposed to lending practices which promote the use of higher-cost products.2 The bill's provisions, which propose to amend the law in relation to SACCs and consumer leases, regulate how SACCs and consumer leases are provided, and impact how consumers access those products.

1 These organisations are collectively referred to in this chapter as 'consumer groups'.

2 NSW Council of Social Service (NCOSS), Submission 17, p. 3.

20

2.5 The evidence shows SACCs and consumer leases are often used by people on lower incomes, and who may be financially vulnerable or experiencing financial hardship. 3 In some instances, Australians are using SACCs to meet essential living costs.4 In turn, making repayments on SACCs and consumer leases can make affording everyday living costs—including food and rent— more difficult. After entering into a SACC or consumer lease, consumers may prioritise making repayments over their essential living costs.5 Several submitters described consumers of SACCs and consumer leases falling into cycles of debt.6

2.6 Good Shepherd Australia and New Zealand (Good Shepherd) told the committee that 17 per cent of Australians are unable to access 'a small amount of credit, a transaction account or general insurance.'7 Polling by Choice similarly indicates that 14 per cent of Australian's are finding it 'difficult to get by on their current income', and a further six per cent are finding it 'very difficult to get by on their current income.'8 In a 2018 study, the Productivity Commission reported that nine per cent of Australians, equal to 2.2 million, lived below the relative income poverty line in 2015-16. 9 From 2001 to 2016, around half of Australians experienced income poverty for at least a year; the average duration being 1.8 years.10

2.7 At the state and territory level, NSW Council of Social Service (NCOSS) told the committee its research showed people in full time and part time employment in NSW experience poverty rates at five per cent and seven per

3 See, for example, Anglicare Australia, Submission 10, p. 4; Good Shepherd Australia New Zealand

(Good Shepherd), Submission 12, p. 5; Anglicare Tasmania, Submission 13, p. 3; Maurice Blackburn Lawyers, Submission 16, p. 2.

4 See, for example, Good Shepherd, Submission 12, p. 9; Mr Gerard Brody, Chief Executive Officer,

Consumer Action Law Centre (CALC), Committee Hansard, 13 March 2020, p. 2; Hume Riverina Community Legal Service (HRCLS), Submission 26, p. 4; Consumer Credit Law Centre South Australia (CCLCSA), Submission 30, pp. 4-5; Ms Lisa Garlick, Submission 31, p. [1]; LawRight, Submission 25, p. 3.

5 See, for example, Legal Aid Queensland, Submission 6, p. 3.

6 See, for example, Mr Shane Rattenbury MLA, Submission 4, p. [1]; Ms Marissa Payne, Submission 9,

p. [1]; Stop the Debt Trap Alliance (SDTA), Submission 19, p. [1]; NILS Network of Tasmania Inc (NILS Tasmania), Submission 21, p. 3; Australian Retail Credit Association (ARCA), Submission 23, p. [2]; LawRight, Submission 25, p. 3; Queensland Council of Social Services, Submission 42, p. 7.

7 Good Shepherd, Submission 12, p. 14.

8 Choice, Submission 8, p. 1.

9 Productivity Commission, Rising inequality? A stocktake of the evidence, August 2018,

https://www.pc.gov.au/research/completed/rising-inequality/rising-inequality.pdf (accessed 8 September 2020), p. 107.

10 Productivity Commission, Rising inequality? A stocktake of the evidence, August 2018, p. 122.

21

cent respectively.11 Anglicare Tasmania submitted that a third of Tasmanians are 'reliant on government income support'.12 Data commissioned by The Stop the Debt Trap Alliance (SDTA) indicates that the use of payday loans by Tasmanian households grew by 15.5 per cent in the six month period between January 2019 to July 2019.13 The Consumer Credit Legal Service (Western Australia) Inc. (CCLSWA) noted that the SDTA data also indicates the use of SACCs grew 13.5 per cent in Western Australia over the same period.14

2.8 The Salvation Army provided evidence from its Moneycare program that indicates 'the incidence of people with payday loan and consumer lease debts has increased significantly over the last decade, particularly for people aged 18-24 years.'15 The Salvation Army also submitted that in the last ten years the number of people presenting to the Moneycare program with SACCs has more than doubled (six to 13 per cent) and the amount of debt they owe has trebled.16 17 The Consumer Action Law Centre (CALC) noted data from the SDTA 'shows over 4.7 million payday loans were taken on by around 1.77 million households between April 2016 and July 2019.'18

2.9 However, industry stakeholders refer to data which they maintain shows that the size of the SACC market is not growing.19 The National Credit Providers Association (NCPA) submitted that in 2018 there were 839 036 SACC loans approved, out of 1.36 million applications.20 The Consumer Household Equipment Rental Providers Association (CHERPA) indicated that, at any given time, there are up to 700 000 active consumer lease contracts.21

2.10 Consumer groups encourage people using SACC or consumer lease products to consider options with less financial risk, such as financial counselling

11 NCOSS, Submission 17, p. 6.

12 Anglicare Tasmania, Submission 13, p. 3.

13 Stop the Debt Trap Alliance, The debt trap: how payday lending is costing Australians, November 2019,

p. 15.

14 Consumer Credit Legal Service (Western Australia) Inc (CCLSWA), Submission 29, p. 5.

15 The Salvation Army, Submission 1, p. 8.

16 The Salvation Army, Submission 1, p. 8; Mr Anthony (Tony) Devlin, MoneyCare Manager, The

Salvation Army, Committee Hansard, 13 March 2020, p. 10.

17 This data is inconsistent with data provided by industry stakeholders. See para. 2.39; Financiers

Association of Australian and Min-it Software (FAA&MS), Submission 40, p. 13.

18 CALC, Submission 39, p. 1.

19 See, for example, Cash Convertors, Submission 2, p. 3.

20 National Credit Providers Association (NCPA), Submission 33, p. [4].

21 Consumer Household Equipment Rental Providers Association (CHERPA), Submission 20, p. 4.

22

services or no interest loans.22 However, industry stakeholders consider that SACCs and consumer leases facilitate consumers' financial inclusion by offering access to credit in circumstances where a person may not be able to access mainstream credit products.23

2.11 Consumer groups support enhancing the regulation of SACC and consumer products, and strongly supported Parliament passing the bill. At the same time, industry stakeholders have expressed concern regarding perceived shortcomings of the SACC Review. 24 The Financiers Association of Australia and Min-it Software (FAA&MS) considered the outcome of the SACC review 'pre-determined' and a 'sham from the beginning'.25 However, submissions often noted significant consultation processes that have occurred in relation to SACC and consumer lease reforms, including the:

 2015-16 independent review into SACCS;  2017 Treasury's consultation on the exposure draft of the bill, held between 22 October-3 November 2017; and  2018-19 Senate Economics References Committee's financial hardship

inquiry.26

2.12 In February 2019, the Senate Economics References Committee (references committee) reported on its inquiry into credit and financial services targeted at Australians at risk of financial hardship (financial hardship report). The report made a number of recommendations for enhanced consumer protections relating to SACCs and consumer leases.27 The government's response to that report is yet to be tabled in the Senate.28

22 Ms Karen Cox, Chief Executive Officer, Financial Rights Legal Centre (FRLC), Committee Hansard,

13 March 2020, p. 4; Mr Brody, Committee Hansard, 13 March 2020, p. 4; The Salvation Army, Submission 1, p. 9.

23 See, for example, Cash Convertors, Submission 2, p. 2; CHERPA, Submission 20, pp. 3-4.

24 CHERPA, Submission 20, pp. 4, 5, 8 and 9; Mr Philip Smiles, Co-coordinator, Finance Industry

Delegation (FID), Committee Hansard, 13 March 2020, pp. 41-42; Finance Industry Delegation (FID), Submission 35, pp. 9 and 25; FAA&MS, Submission 40, pp. 5-6.

25 FAA&MS, Submission 40, p. 6.

26 Australian Finance Industry Association (AFIA), Submission 5, p. 2; Choice, Submission 8, pp. [1-2];

Marissa Payne, Submission 9, p. [1]; Financial Counselling Australia (FCA), Submission 15, p. 1; NCOSS, Submission 17, p. 3; Care Inc. Financial Counselling Service and the Consumer Law Centre of the ACT (Care Inc), Submission 18, pp. 2 and 4; CCLCSA, Submission 30, p. 2; Financial Rights Legal Centre (FRLC), Submission 32, p. 2; MyBudget, Submission 36, p. 8; CALC, Submission 39, pp. 4-5.

27 Senate Economics References Committee, Credit and financial services targeted at Australian's at risk of

financial hardship February 2019, pp. 3-17.

28 Australian Senate, President's report to the Senate on the status of government responses to parliamentary

committee reports (as at 30 June 2020), p. 6.

23

2020 bushfire crisis and the COVID-19 pandemic 2.13 The committee is mindful of the serious impacts that the recent 2020 bushfire crisis and the current COVID-19 pandemic are having on many Australians. These events have tragically caused the death of 33 and over 832 people,

respectively.29 The lives of many others have been fundamentally disrupted; including through financial hardship.

2.14 Some submitters raised concerns that the bushfires will result in financial hardship for people living in effected areas.30 As part of its submission to the Senate inquiry into the lessons learned from the 2019-20 bushfire season, the Australian Council of Social Service warned that, for people already experiencing poverty or disadvantage, an impact of natural disasters can be to entrench and drive poverty.31

2.15 The Reserve Bank of Australia (RBA) reported that many regional communities have been 'devastated' by the bushfires and noted, in addition to the loss of life, some lost property may not be replaced due to

underinsurance.32 The RBA highlighted the disruption caused to tourism and agriculture industries which are an important component of economic activity and employment in bushfire affected areas. Regions which rely on tourism were particularly effected as fires intensified over the summer holiday period.33

2.16 The COVID-19 pandemic is causing an unprecedented supply and demand shock to the Australian economy, with significant impacts for Australians' access to employment. Prior to Victoria experiencing a second wave of cases and associated lockdown measures, Treasury had projected that real gross domestic product is expected to fall 3.75 per cent in 2020, before rising 2.5 per cent in 2021.34 In July, the unemployment rate reached 7.5 per cent.35 Noting

29 Department of Parliamentary Services, 2019-20 Australian bushfires—frequently asked questions:

a quick guide, 12 March 2020, p. [1]; Department of Health, Coronavirus (COVID-19) current situation and case numbers, 17 September 2020 (accessed 18 September 2020). Number of coronavirus deaths correct at 18 September 2020.

30 See, for example, The Salvation Army, Submission 1, p. 9; Anglicare Australia, Submission 10, p. 5.

31 Senate Finance and Public Administration References Committee, Inquiry into the lessors not be

learned in relation to the Australian bushfire season 2019-20, Submission from the Australian Council of Social Service (No. 108), p. 5.

32 Reserve Bank of Australia (RBA), Statement on Monetary Policy: February 2020,

https://www.rba.gov.au/publications/smp/2020/feb/pdf/statement-on-monetary-policy-2020-02.pdf (accessed 8 September 2020), p. 41.

33 RBA, Statement on Monetary Policy: February 2020, (accessed 8 September 2020), p. 41.

34 Treasury, Economic and Fiscal Update: July 2020, https://budget.gov.au/2020-efu/downloads/01_Part_1_Overview.pdf (accessed 8 September 2020), p. 1.

24

the extreme uncertainty regarding the course of the COVID-19 pandemic, the RBA expects that, under a baseline recovery scenario, Australia's unemployment rate will 'peak at around 10 per cent by the end of this year' and 'decline gradually' to around 7 per cent by the end of 2022.36 Over the April-May 2020 period, the JobKeeper Payment, the largest one-off fiscal measure in Australia's history, supported the income of approximately 3.5 million workers employed across 920 000 organisations.37

2.17 The committee is aware that there has been media reporting which suggests that some SACCs providers are targeting people affected by bushfires and COVID-19.38 The committee also notes the concern that income support payments made through the Government's COVID-19 response, may be used to repay high-cost SACCs and consumer leases.39

Alternatives to SACCs and consumer leases 2.18 Consumer groups outlined a number of alternative options that are available, with costs lower than SACCs and consumer leases. These options include:

…speaking to a free community based financial counsellor and emphasising that a loan may not particularly be the answer to a person's situation. Emergency relief is also available for things like food, utilities and rent; no-interest loans provided by community organisations for things like white goods and car repairs; and of course there are also Centrelink advances of up to $2,000 available.40

2.19 Ms Stella Avramopoulos, Chief Executive Officer of Good Shepherd, outlined the functions of the no interest loans scheme (NILS):

35 Australian Bureau of Statistics, 6202.0 - Labour Force, Australia, Jul 2020,

https://www.abs.gov.au/AUSSTATS/abs@.nsf/allprimarymainfeatures/0F2CCE69F78ECEC5CA258 5E5003592E3?opendocument.

36 RBA, Statement on Monetary Policy: August 2020, August 2020, pp. 1 and 92 (accessed 8 September

2020).

37 Treasury, The JobKeeper Payment: Three-month review, July 2020, pp. 7 and 9.

38 See, for example, Jennifer Duke, 'Fear more desperate people will take on payday loans after fires,

coronavirus', Sydney Morning Herald, 25 March 2020,

https://www.smh.com.au/politics/federal/fears-more-desperate-people-will-take-onpayday-loans-after-fires-coronavirus-20200313-p549qu.html (accessed 24 August 2020); Loretta Florance and Liz Hobday, 'Calls for a ban on payday lenders, as they use coronavirus to market their products', ABC, https://www.abc.net.au/news/2020-04-26/coronavirus-financial-crisis-payday-emergency-loans-rent-bills/12118624 (accessed 24 August 2020); Anthony Keane, 'COVID-19 debt hits young adults the hardest as income dries up', Herald Sun,

https://www.heraldsun.com.au/business/covid19-debt-hits-young-adults-the-hardest-as-income-dries-up/news-story/456332d3da924b7c7dc1804401a391c4 (accessed 24 August 2020).

39 Mr Brody, Committee Hansard, 13 March 2020, p. 2.

40 Mr Devlin, Committee Hansard, 13 March 2020, p. 10.

25

NILS was established in 1981 and provides a safe and affordable alternative to high-cost finance options provided by payday loans or rent-to-buy products. Good Shepherd offers loans of up to $1,500 from 160 community service organisations at 625 locations across Australia. To be eligible for a NILS loan you must have a healthcare or pension card and earn under $45,000, have lived in your current residence for three months, and have a willingness and capacity to repay the loan. There are no credit checks with NILS loans. Women represent 66 per cent of NILS clients, and 23 per cent of clients identify as Aboriginal and Torres Strait Islander.41

2.20 The Department of Social Services considered that NILS provides a 'safe and viable alternative to other forms of credit, such as payday lenders, for small amounts of credit' and noted the program's wraparound services.42 In 2018-19, Good Shepherd Microfinance provided 29 832 NILS loans, with a total loan value of $34.2 million. These loans were most often used by consumers to pay for car repairs and car registration, and to purchase new fridges.43

2.21 Submitters acknowledged that alternative, lower-cost options may not be well known or understood by potential users,44 or may take longer for people to access. 45 A NILS loan can take up to 48 hours to approve, which is a significant period when SACCs and consumer leases can be assessed quickly online. 46 Consumer groups suggested that additional resourcing would assist to improve the alternative services being delivered.47

Views relating to the bill's SACC provisions 2.22 In order to provide background and context to their consideration of the bill's provisions, inquiry participants highlighted a number of broader issues regarding SACCs.

2.23 Consumer groups gave evidence that SACCs cause financial harm to consumers through high product costs and repeat usage, noting:

41 Ms Stella Avramopoulos, Chief Executive Officer, Good Shepherd Australia New Zealand,

Committee Hansard, 13 March 2020, p. 51.

42 Ms Lisa La Rance, Branch Manager, Financial Wellbeing Branch, Department of Social Services,

Committee Hansard, 13 March 2020, p. 55.

43 Good Shepherd Microfinance, 2018-19: Year in review,

https://goodshepherdmicrofinance.org.au/assets/files/2016/05/GSM_Year-in-Review-FY18_19.pdf (accessed 8 September 2020), p. 4.

44 See, for example, Mr Devlin, Committee Hansard, 13 March 2020, p. 10; Ms Jenny Hardy, General

Manager, No Interest Loans and Microfinance, Good Shepard, Committee Hansard, 13 March 2020, p. 51; Good Shepard, Submission 12, p. 15; NCOSS, Submission 17, pp. 7-8.

45 Ms Gemma Mitchell, Managing Solicitor, CCLSWA, Committee Hansard, 13 March 2020, p. 14.

46 Good Shepherd, Submission 12, p. 12.

47 Mr Devlin, Committee Hansard, 13 March 2020, p. 10; Anglicare Tasmania, Submission 13, p. 8;

TasCOSS, Submission 14, p. [2].

26

 evidence of increasing frequency of SACC usage,48 and increasing loan value; 49  use of SACCs by people predominately on lower incomes,50 including increasing use by younger people and females;51  significant case study evidence indicating SACCs have been provided in

contravention of the Credit Act/responsible lending obligations;52  examples of SACCs causing financial harm to consumers and predatory lending practices;53  financial literacy, counselling or NILS loans are better alternatives to SACCs

and more resourcing is needed;54 and  the bill has been consulted on extensively and some frustration that the bill's reforms have not been passed by Parliament.55

2.24 Providers argued that, although these products are higher-cost due to the risk-weighting attributed to the consuming demographic,56 SACCs are an important financial product for people who may not be able to access mainstream finance.57

2.25 Providers also called for increased compliance and not more regulation. Mr Paul Baril posed to the committee, 'Is there another financial service out there that's legislated more than we are?'58 Additionally, Cash Converters suggested

48 Mr Brody, Committee Hansard, 13 March 2020, p. 5; Ms Cox, Committee Hansard, 13 March 2020, p. 5;

Mr Devlin, Committee Hansard, 13 March 2020, p. 10.

49 The Salvation Army, Submission 1, p. 8; Mr Devlin, Committee Hansard, 13 March 2020, p. 10.

50 Mr Devlin, Committee Hansard, 13 March 2020, p. 11.

51 Mr Devlin, Committee Hansard, 13 March 2020, p. 10; Ms Hardy, Committee Hansard, 13 March 2020,

p. 54.

52 See para. 2.37.

53 See paras. 2.50-2.54.

54 Legal Aid Queensland, Submission 6, p. 6; NILS Tasmania, Submission 21, p. 15; FRLC, Submission

32, p. 3; Anglicare Australia, Submission 10, p. 5; Anglicare Tasmania, Submission 13, p. 8; TasCOSS, Submission 14, p. 2; Good Shepherd, Submission 12, pp. 13 and 18; Mr Devlin, Committee Hansard, 13 March 2020, p. 10; Ms Sandra Blake, Financial Counsellor, FCA, Committee Hansard, 13 March 2020, p. 18; Ms Avramopoulos, Committee Hansard, 13 March 2020, p. 49; Ms Gemma Mitchell, Committee Hansard, 13 March 2020, p. 18; Ms Fiona Guthrie, Chief Executive Officer, FCA, Committee Hansard, 13 March 2020, p. 19.

55 NILS Tasmania, Submission 21, pp. 2-3; Ms Guthrie, Committee Hansard, 13 March 2020, p. 15;

Mr John Hooper, Chief Executive Officer, NILS Network, of Tasmania, Committee Hansard, 13 March 2020, p. 49.

56 Mr Sam Budiselik, Chief Executive Officer, Cash Converters International Ltd, Committee Hansard,

13 March 2020, pp. 22-23.

57 Mr Sam Budiselik, Committee Hansard, 13 March 2020, p. 23. See also para. 2.10.

58 Mr Paul Baril, Chief Executive Officer, Cash Stop Financial Services Pty Ltd, Committee Hansard,

13 March 2020, p. 28.

27

that the bill will not increase financial inclusion, and could cause consumers to turn to unregulated financial providers, including buy now pay later (BNPL) providers.59

Protected earnings amount 2.26 Altering the protected earnings amount (PEA) for SACCs, (which currently stands at, 20 per cent for consumers who receive 50 per cent or more of their gross income through Centrelink) divided consumer groups and industry

stakeholders. Consumer groups supported the reformed PEA,60 with one of two reasons commonly provided in favour; if SACC products are more affordable consumers have more income available to afford basic living costs61 and it protects consumers, notably the financially vulnerable. 62

2.27 A 10 per cent PEA was widely supported, although a few submitters indicated a preference for a lower amount. The Consumer Action Law Centre (CALC) was involved in the 2016-17 independent review. Having evaluated international research and drawn on its own experiences, CALC recommended a proposal led by Pew Trusts, that a five per cent PEA be introduced. The same recommendation was also put to the committee.63 MyBudget would also prefer a five per cent PEA, although ultimately proposed the PEA be no more than 10 per cent.64

2.28 Industry stakeholders expressed reservations with reforming the PEA. Cash Converters is of the view that government is overreaching into a consumer's right to personal choice.65 Similarly, the NCPA believes that consumers should 'be free to choose the best credit option available' and Cash Stop views the application of the PEA to income earners as restricting.66

59 Mr Budiselik, Committee Hansard, 13 March 2020, p. 23.

60 Legal Aid Queensland, Submission 6, p. 3; Ms Marissa Payne, Submission 9, p. [2]; Anglicare

Tasmania, Submission 13, pp. 7-8; TasCOSS, Submission 14, p. [1]; NCOSS, Submission 17, p. 6; Care Inc, Submission, 18, p. 4; SDTA, Submission 19, p. [1]; CCLCSA, Submission 30, p. 5; MyBudget, Submission 36, p. 11; CALC, Submission 39, p. 16; FCA, Submission 15, p. 3; NILS Tasmania, Submission 21, p. 12; ARCA, Submission 23, p. 2; HRCLS, Submission 26, p. 2; CCLSWA, Submission 29, pp. 9-11.

61 Legal Aid Queensland, Submission 6, p. 3; Ms Marissa Payne, Submission 9, p. [2]; NCOSS,

Submission 17, p. 6; SDTA, Submission 19, p. [1]; NILS Tasmania, Submission 21, p. 12.

62 Anglicare Tasmania, Submission 13, pp. 7-8; Care Inc, Submission, 18, p. 4; CCLCSA, Submission 30,

p. 5; MyBudget, Submission 36, p. 11; CALC, Submission 39, p. 16; FCA, Submission 15, p. 3

63 CALC, Submission 39, p. 16; Mr Brody, Committee Hansard, 13 March 2020, p. 4.

64 MyBudget, Submission 36, p. 11.

65 Cash Converters, Submission 2, p. 4.

66 NCPA, Submission 33, p. [13]; Cash Stop, Submission 34, p. 3.

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2.29 Evidence from industry stakeholders indicated that a 10 per cent PEA may result in more costs to consumers, through longer loan periods.67 In turn, this could further disadvantage consumers. 68 It was also noted that a consumer's ability to access credit for an unexpected expense may decrease.69

2.30 Mr Paul Baril from Cash Stop, in appearing before the committee, noted his concern for the 'small guys':

When you go to 10 per cent—this is a fact—you have to have a massive amount more in your loan book. … I guarantee a lot of the small guys will close their doors. 70

SACC providers highlighted that a provider's rate of return is already 'so low'.71 Further, the Australian Finance Industry Association (AFIA) pointed out that providers may inadvertently exceed the PEA and be subject to significant breach penalties.72

2.31 According to the Finance Industry Delegation (FID), there is a lack of research and economic modelling for altering the PEA.73 As an aside, Cash Stop and the NCPA highlighted that a 10 per cent PEA is at odds with cashless debit card in some Australian communities.74 Finally, a couple of industry stakeholders noted that existing legislation is working as intended.75

2.32 Submitter's also provided evidence on the impact of BNPL products and the scope to regulate BNPL products under the Credit Act. Good Shepherd outlined the concerns it has with deferred payment schemes, including that it is another avenue through which an advance can be accessed and 'the high number of After Pay and similar debts that are represented in financial

67 Cash Converters, Submission 2, p. 4; Cash Stop, Submission 34, p. 4; NCPA, Submission 33, p. [3];

FID, Submission 35, p. 5; Mr Baril, Committee Hansard, 13 March 2020, p. 35; Mr Michael Rudd, Chairman, NCPA, Committee Hansard, 13 March 2020, p. 31.

68 Cash Converters, Submission 2, p. 11; NCPA, Submission 33, p. [3]; Mr Rudd, Committee Hansard,

13 March 2020, p. 31; Mr James (Jim) Baird, Consultant, Cash Stop Financial Services Pty Ltd, Committee Hansard, 13 March 2020, pp. 28-29.

69 Cash Converters, Submission 2, p. 4; Mr Budiselik, Committee Hansard, 13 March 2020, p. 23.

70 Mr Baril, Committee Hansard, 13 March 2020, p. 25.

71 Cash Converters, Submission 2, p. 5. See also Mr Baril, Committee Hansard, 13 March 2020, p. 25;

Mr Budiselik, Committee Hansard, 13 March 2020, p. 23.

72 AFIA, Submission 5, p. 5.

73 FID, Submission 35, pp. 5 and 24.

74 Cash Stop, Submission 34, pp. 3-4; NCPA, Submission 33, pp. [12-13]. Note: A cashless debit card

acts like a normal bank debit card with some restrictions, certain purchases are banned (e.g. alcohol, gambling) and no cash can be taken out.

75 NCPA, Submission 33, p. [3]; FAA&MS, Submission 40, p. 20.

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counselling cases'.76 Consumer groups supported regulating BNPL products, by extending the Credit Act or via some other form of regulation.77

2.33 SACC providers raised the issue of fair competition, providing evidence that consumers are accessing unregulated deferred payment schemes including in significant numbers and observing a decline in business.78 Mr Smiles told the committee that providers are 'dealing regularly with people coming to borrow SACCs to pay their [BNPL] payments'.79 Rate City conducted a survey of 1009 Australians, and released its results in September 2020, finding 32 per cent of people have used BNPL and of those 28 per cent found themselves in financial trouble. 80

Removal of rebuttable presumptions 2.34 The evidence presented to the committee on removing the rebuttable presumptions was mixed.

2.35 In its submission, LawRight suggested maintaining the presumptions on the basis they offer consumers protection, whilst acknowledging that it may not be the most effective mechanism. 81 The CALC noted that 'the current rebuttable presumptions lead to grey areas'.82

2.36 Some submissions raised the frequency and size of loans. MyBudget referred to the 2019 financial hardship report of this committee which suggested that the presumptions may have resulted in consumers taking out fewer, larger SACC loans but not limiting repeat borrowing.83 Further comments on loan frequency are included with the industry stakeholders' view below.

2.37 Case studies were included in the evidence, to illustrate providers entering into SACCs in contravention of the presumption provisions. For instance, 'Caitlin' started taking out small amounts of credit which increased over time, to cover her basic living expenses and this resulted in 45 loans over six years

76 Good Shepherd, Submission 12, p. 10.

77 FRLC, Submission 32, p. 2; Queensland Law Society, Submission 28, p. [2].

78 Mr Smiles, Committee Hansard, 13 March 2020, p. 44; Mr Haydn Cooper, President, Financiers

Association of Australia, Committee Hansard, 13 March 2020, p. 44; FID, Submission 35, p. 35; FAA&MS, Submission 40.1; p. 7; Mr Budiselik, Committee Hansard, 13 March 2020, p. 24; FAA&MS, Submission 40, p. 8.

79 Mr Smiles, Committee Hansard, 13 March 2020, p. 44.

80 Samantha Bailey, 'BNPL dragging Aussies into 'financial trouble'', The Australian, 8 September 2020

(accessed 9 September 2020); Rate City, 'Booming buy now, pay later causing money troubles for 1 in 3 users', 9 September 2020 (accessed 9 September 2020).

81 LawRight, Submission 25, pp. 3-6.

82 CALC, Submission 39, p. 16.

83 MyBudget, Submission 36, p. 14.

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and significant debt. According to LawRight 'many of [Caitlin's] loans triggered the presumption of unsuitability'.84 The story of 'Ryan' is also worth mentioning due to his 'income being sufficient to rebut the presumption of unsuitability', however, he had a gambling addiction.85 Between 2015 and 2017, 'Ryan' obtained at least 43 SACCs and three credit cards, from ten different lenders to fund his addiction. 'Ryan's' legal representative CCLSWA stated:

Many of these SACCS were approved concurrently, with lenders aware that Ryan was already servicing up to 12 other SACCs, a credit card debt and a car loan at the time of approval… Based on the documents CCLSWA managed to obtain, it appears that many of these SACC lenders failed to conduct assessments of suitability or to take reasonable steps to verify Ryan's financial situation.86

2.38 It was suggested that a 'bright line test'87 could potentially replace the presumption.88 CALC explained that a bright line test would 'offer better protection to consumers, be easier for lenders to comply with…and make it easier for the regulator to enforce'.89 Whilst the CCLSWA supported a bright line test and considered it 'superior to a rebuttable presumption from a regulatory perspective', its preference was for a database system.90

2.39 Industry stakeholders are in favour of removing the rebuttable presumptions.91 Cash Converters outlined that the presumptions were originally designed to reduce loan frequency and stated that the responsible lending obligations are working.92 An industry snapshot of 2018, provided by NCPA, stated the average loan frequency per year was 1.3.93 FID argues that the number of SACCs held by a consumer, or default events, is not a 'pivotal' issue.94 Further,

84 LawRight, Submission 25, p. 6.

85 CCLSWA, Submission 29, p. 11.

86 CCLSWA, Submission 29, p. 12.

87 A bright line test would ban the provision of a SACC to a consumer who entered into two or more

SACCS in the last 90 days.

88 The Review Panel in making its recommendation to remove the rebuttable presumption,

considered a bright line test and commented that whilst it 'would significantly reduce the incidence of repeat borrowing and would be easier for industry to comply with … in some instances, it may result in consumers taking out larger loans than needed'. Review Panel, Final Report, March 2016, p. 20.

89 CALC, Submission 39, p. 16.

90 CCLSWA, Submission 29, p. 13.

91 FID, Submission 35, p. 23; NCPA, Submission 33, p. [7]; Cash Converters, Submission 2, p. 5.

92 Cash Converters, Submission 2, p. 5.

93 NCPA, Submission 33, p. [4].

94 FID, Submission 35, p. 23.

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whilst supporting the repeal, FID noted that a properly regulated rebuttable presumption provision could work.95

Equal Repayments and Repayment Intervals 2.40 Despite having different perspectives, evidence to the inquiry highlights wide support from consumer groups (affordability perspective) and industry stakeholders (best practice perspective), for the bill's provisions to have equal

payment and repayment intervals.96

2.41 Legal Aid Queensland commented favourably that this provision would limit instances of providers reducing repayments over time, to extend the loan period.97 This reasoning is consistent with that of the Review Panel of the Independent SACC laws (the Review Panel), who recommended this issue be addressed in the same way as this provision sets out.98

2.42 Evidence from industry stakeholders suggested their support for this provision is due to it being best practice. For example, FAA&MS pointed out that it made the Review Panel aware of the unequal payments issue.99 In addition, FID described front-loading as 'unscrupulous and unconscionable conduct' although was less supportive of the Australian Securities and Investments Commission (ASIC) being granted legislative instrument powers.100

2.43 There was some concern from two industry bodies that the provision will prevent providers from arranging a repayment schedule that aligns with a consumer's salary.101 To overcome this potential issue, FAA&MS recommended amending:

95 FID, Submission 35, p. 5.

96 Legal Aid Queensland, Submission 6, p. 3; FCA, Submission 15, p. 3; Good Shepherd, Submission 12,

p. 8; Law Council of Australia, Submission 41, p. [1]; ARCA, Submission 23, p. [2]; LawRight, Submission 25, p. 2; CCLCSA, Submission 30, p. 3; Cash Converters, Submission 2, p. 6; Mr Budiselik, Committee Hansard, 13 March 2020, p. 23; NCPA, Submission 33, p. [7]; FID, Submission 35, p. 5 and pp. 27-29; FAA&MS, Submission 40, pp. 21-23; Mr Baril, Committee Hansard, 13 March 2020, p. 24.

97 Legal Aid Queensland, Submission 6, p. 3.

98 Review Panel, Final Report, March 2016, pp. 27-28.

99 FAA&MS, Submission 40, p. 21.

100 FID, Submission 35, pp. 28 and 5. See National Consumer Credit Protection Amendments (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2), item 21, proposed subsection 133CE(5).

101 FAA&MS, Submission 40, pp. 21-23; FID, Submission 35, p. 5 and pp. 27-29.

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…the drafted wording for subsection 133CE(1)(b) with 'the interval between the first repayment date and all other repayment dates are not identical'; so that consumer suitability can be maintained.102

Monthly fees where a SACC is repaid early 2.44 The prohibition on unexpired permitted monthly fees, received widespread support from consumer groups and industry stakeholders, following the same line of reasoning presented directly above—affordability and best practice

respectively.103

2.45 In support of its position, Legal Aid Queensland explained that this provision will 'reduce the fees and charges payable by the consumer'.104 It is recognised that SACCs are high cost due to the prescribed fees.

2.46 Two industry submitters provided evidence to indicate SACC lenders may already be complying with this prohibition. FID noted that this provision is consistent with the intent of the current legislation and Cash Converters highlighted it 'does not charge an early repayment fee'.105

2.47 A couple of concerns were raised by industry stakeholders in relation to a monthly fee being withdrawn by accident or deliberately at the finalisation of a loan, in light of the strict liability penalty.106

2.48 Evidence alerted the committee to the potential scenario of a monthly fee being drawn soon after a loan is finalised, by accident.107 Mr Smiles explained via example that in the two days after a loan is finalised, a monthly fee can be withdrawn due to administrative processes. In that case, Mr Smiles recommended, 'insist[ing] in a very timely manner that the lender refunds the money to the consumer' rather than be penalised.108

2.49 FAA&MS raised concern that the provision may be misused by a disgruntled consumer or advocate to cause a provider to be non-compliant for the purposes of the consumer/advocate raising a complaint with a regulator.109

102 FAA&MS, Submission 40, p. 22.

103 Cash Converters, Submission 2, p. 6; Legal Aid Queensland, Submission 6, p. 3; TasCOSS,

Submission 14, p. [1]; NCPA, Submission 33, p. [7]; MyBudget, Submission 36, p. 5; FCA, Submission 15, p. 3; NILS Tasmania, Submission 21, p. 13; ARCA, Submission 23, p. 2; FID Submission 35, p. 40; Good Shepherd, Submission 12, p. 8; Law Right, Submission 25, p. 2; CCLCSA, Submission 30, p. 3; Law Council of Australia, Submission 41, p. 1; NCPA, Submission 33, p. 7.

104 Legal Aid Queensland, Submission 6, p. 3.

105 FID, Submission 35, p. 40; Cash Converters, Submission 2, p. 6.

106 Credit Code (proposed subsections 31C(3-4)).

107 Mr Smiles, Committee Hansard, 13 March 2020, p. 44; FAA&MS, Submission 40, p. 31.

108 Mr Smiles, Committee Hansard, 13 March 2020, p. 44. See also FAA&MS, Submission 40, p. 32.

109 FAAM&S, Submission 40, p. 32.

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Unsolicited SACC invitations 2.50 The provisions of the bill prohibiting SACC providers from making unsolicited invitations to people who have a held a SACC in the last two years was supported by consumer groups.110 Evidence from consumer groups referred to

the initial temptation of entering into another SACC and the impact this can have on a consumer's circumstances.

2.51 Mr Brody, from CALC, in responding to questioning from the committee explained that:

One of the situations that people who use payday loans find themselves in is this repeat use, and they tell us that that repeat use is often promoted by the lender. So, once they have had one loan, they will continue to receive unsolicited communications to take out further loans, often seemingly timed at moments when they've just repaid a loan, so they can get another one.111

2.52 In consumer groups' submissions, consumers referred to the 'temptation'112 of SACCs and described being 'bombarded' and 'harassed'113 to enter another SACC.

2.53 The CCLSWA explained that '[f]or consumers with addictions, unsolicited small amount credit contract invitations can be particularly hard to resist' and provided the example of a client obtaining several SACCs from different lenders to purchase illegal drugs, who in the end did not obtain a refund from one lender due to the temptation associated with making contact.114

2.54 Legal Aid Queensland echoed and expanded on this sentiment as it:

…regularly sees vulnerable consumers, in extremely difficult financial circumstances, accepting new and unaffordable SACC loans after being approached by a SACC provider. These unsolicited loans always worsen the vulnerable consumer's circumstances and often lead to them being unable to pay their rent or afford food and other necessities… 115

2.55 Industry stakeholders were unsupportive of the prohibition.116 Cash Converters argued this provision is unnecessary for two reasons. First,

110 TasCOSS, Submission 14, p. [1]; NILS Tasmania, Submission 21, pp. 13-15; Legal Aid Queensland,

Submission 6, p. 3; NCOSS, Submission 17, p. 8; LawRight, Submission 25, p. 2; HRCLS, Submission 26, p. 3; CCLSWA, Submission 29, p. 14; MyBudget, Submission 36, p. 5.

111 Mr Brody, Committee Hansard, 13 March 2020, p. 3.

112 NCOSS, Submission 17, p. 8.

113 NILS Tasmania, Submission 21, pp. 15 and 13.

114 CCLSWA, Submission 29, p. 14.

115 Legal Aid Queensland, Submission 6, p. 3.

116 Cash Converters, Submission 2, p. 7; FAA&MS, Submission 40, pp. 15-17; Cash Stop, Submission 34,

pp. 5-6; FID, Submission 35, p. 5.

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responsible lending obligations are in place to 'prevent unsuitable loans, whether they are the result of unsolicited marketing or not'.117 Second, '[i]t is unnecessary to limit marketing in circumstances where only customers who have consented to marketing contact will receive SACC related marketing anyway'.118

2.56 Cash Stop stated, '[t]his is the most restrictive type of legislation ever proposed in a democratic country'.119 A couple of industry submitters were of the understanding that generic advertising would be banned under the law,120 however, as noted above, the ban would not apply to general advertising relating to SACCs.121

2.57 Some consumer groups and industry stakeholders raised concerns with the length and who/what the prohibition applies to, and offered amendments. NCOSS raised two issues with the two year limitation period:

The ease with which organisations hold onto large amounts of data removes any unreasonable burden on the licensee creditor to keep records of customers longer than a two-year period. Further, the two year limitation period is arguably inconsistent with the total prohibition of unsolicited selling of financial products pursuant to the Corporations Act 2001.122

Two submitters, Cash Converters and Cash Stop, were of the view that the ban should only apply to pre-approved loans.123

2.58 The NCPA suggested amending the wording of proposed paragraph 133CF(5)(a) to make clear that a SACC provider can still contact its customers.124

2.59 Both the FAA&MS and FID outlined potential issues in relation to third parties and recommended reviewing the wording.125

2.60 In terms of the strict liability offence penalty, NCOSS and MyBudget consider the evidential burden to be too high. To rectify this, both consumer groups recommended the fault element be removed.126

117 Cash Converters, Submission 2, p. 7.

118 Cash Converters, Submission 2, p. 7.

119 Cash Stop, Submission 34, p. 5.

120 See Cash Stop, Submission 34, p. 6; and FID, Submission 35, p. 15.

121 Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small

Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 21.

122 NCOSS Submission 17, p. 8.

123 Cash Converters, Submission 2, p. 7; Cash Stop, Submission 34, p. 6.

124 NCPA, Submission 33, pp. [7-8].

125 FAA&MS Submission 40, p. 16; FID, Submission 35, p. 14.

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Breaches 2.61 Civil, criminal and strict liability offences' provisions were not a significant feature of the evidence base. Where a penalty relates to a provision addressed above, that evidence has already been outlined.

2.62 The SACC penalties were described as 'rigorous',127 'tougher' and 'strengthened'.128 Whereas FID rejects the penalties, calling them 'draconian' and asking for them to be reviewed.129

2.63 In responding to questioning by the committee, Mr Gerard Brody, from CALC, outlined two observations regarding SACC businesses and penalties. One, the fear factor is not there as SACC businesses lack the reputational capital of a larger provider. Two, the 'the penalties and the likelihood of being caught are not significant enough … [and] might be seen as a cost of doing business'.130

Views relating to the bill's consumer lease provisions 2.64 The committee received significant evidence relating to the bill's consumer lease provisions. Consumer groups outlined ongoing and serious concerns regarding consumer lease conditions, particularly the high costs of leases, and

welcomed the bill's provisions to regulate costs. In the view of consumer groups, the bill's provisions will reduce the financial impacts on consumers.131

2.65 CHERPA, the peak industry body for consumer leases in Australia, submitted that it is 'broadly in favour of federal regulatory change for the industry', including to the costs and affordability of consumer leases, however, it is opposed to the 'specific numbers' proposed by the bill for capping costs and introducing a PEA.132

2.66 As noted in Chapter 1, there is currently no legislated cap on the total costs which lessees may be charged under a consumer lease.133

Cap on costs 2.67 The bill proposes to cap the costs of consumer leases to 4 per cent of the base price of the good for each whole month of the lease term, for a maximum

126 NCOSS, Submission 17, p. 8; MyBudget, Submission 36, p. 15.

127 Cash Converters, Submission 2, p. 10.

128 CCLSWA, Submission 29, p. 9.

129 FID, Submission 35, p. 5.

130 Mr Brody, Committee Hansard, 13 March 2020, p. 7.

131 See, for example, Care Inc, Submission 18, p. 4.

132 CHERPA, Submission 20, p. 2.

133 See paras. 1.44-1.46 of Chapter 1. For an explanation of the detailed cap on cost provisions see

Exposure draft explanatory materials, National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2017, pp. 28-32.

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period of 48 months. The bill defines the base price for new and used goods with reference to a good's recommended retail price (RRP).134

2.68 Consumer groups were supportive of a cap on costs at the bill's proposed rates.135 TasCOSS stated it would oppose a cost rate higher than what it currently proposed, as this 'would most likely cause significant detriment to low income consumers.'136 TasCOSS also suggested the provision for the cost cap provisions could be simplified by 'aligning it with the 48 per cent annual cost cap' applicable to the sale of goods by instalments and suggested the separate definitions for the base price and cash price of a good may be confusing.137

2.69 Industry stakeholders raised concerns that the cap on costs provisions do not adequately account for the costs incurred by consumer lease providers, and argued the provisions would adversely impact businesses' viability. 138

2.70 ASIC considered that the high costs of consumer lease products is driven by 'both lessors maximising the return on transactions and the inability of consumers to exert competitive pressure on lessors to reduce prices.' 139 140

Proposed base price 2.71 LawRight submitted that even if the bill's proposed cost cap is implemented, consumer leases would still attract significantly higher costs than other credit products:

The current proposed cap will allow consumer lease providers to charge an amount equivalent to 82% APR over 12 months, 76% APR over 24 months and 72% per cent APR over 36 months. This is significantly more than the cap of 48 [per cent] APR applied to credit contracts (other than SACCs and [Medium Amount Credit Contracts]).141

134 Refer to paras. 1.44 and 1.45 of Chapter 1 for an overview of the bill’s base price provisions.

135 TasCOSS, Submission 14, p. 1.

136 TasCOSS, Submission 14, p. 6.

137 TasCOSS, Submission 14, pp. 6-7.

138 CHERPA, Submission 20, p. 3.

139 Australian Securities and Investments Commission (ASIC), Report 447: Cost of consumer leases for

household goods, September 2015, p. 8.

140 ASIC's Report 447 also found that: there is significant variation in the amount lessors charge for

the same goods; the financial benefit of longer-term consumer leases are questionable; there is no consistency in the total amount charged for leased goods that have a similar retail price; lessors charges for the same goods can vary significantly; Centrelink recipients consistently paid more than advertised cost under a consumer lease; and Centrelink recipients were charged significantly more under consumer leases than under a SACC.

141 LawRight, Submission 25, p. 4.

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2.72 AFIA was supportive of the cost cap, but was concerned that the wording of proposed section 175AA was inconsistent between including GST in the calculation or the RRP and market value, but not including GST in the agreed purchase price.142

2.73 CALC expressed a concern that lease providers may inflate the RRP of goods:

Our concern is that it's very easy for these providers to inflate a recommended retail price, particularly if they're offering products that aren't available elsewhere. Some providers do that. They have their own branded products. So there isn't necessarily a marketplace where you can identify the recommended retail price. We think that issue could be dealt with better in the current bill.143

2.74 Legal Aid NSW did not consider that lessors should be allowed to charge a separate cost for delivering a leases good (under proposed subsection 175AA(8)), and raised a concern that the fee could be used as a cost shifting mechanism.144

High cost of consumer leases 2.75 Consumer groups told the committee that regulation to cap costs for consumer leases is both necessary and overdue. This view was frequently premised on consumer groups' experiences with assisting clients manage financial

challenges. Consumer groups reported their clients' financial challenges were worsened through high-cost consumer leases obligations.

2.76 Ms Karen Cox, Chief Executive Officer, Financial Rights Legal Centre, told the committee of one of the centre's clients who had experienced high cost leases:

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-pce lounge suite. The sum of the payments under the contract was $9,000. Our best estimate of the value of the goods, some of which were second-hand, was $1,550. That would amount to an equivalent interest rate of about 150 per cent per annum. A year later she entered another contract for two years to get a Samsung Galaxy mobile phone. This phone retails at $997 but the repayments under the two-year contract came to almost $4,900. Again, this is an effective interest rate of roughly 240 per cent. When she came to us she'd already paid $8,350 under these contracts. The only thing she had left in her possession was the second-hand dining set. The lounge had been repossessed at some point, and the phone had been stolen at a local fair. The lease provider was still claiming another $4,300. This is less than the original contract price but still a significant amount of money.

142 AFIA, Submission 5, p. 3.

143 Mr Brody, Committee Hansard, 13 March 2020, p. 6.

144 Legal Aid NSW, Submission 37, p. 5.

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Our financial counsellor looked into the client's situation, determined that her budget was well in deficit—a result of the payments required under these leases—and raised a dispute with the lease provider. Their reaction to that was to approach our client numerous times in her home, pressure her to stop dealing with us, offer her a $1,500 refund, imply that it would be a lot easier for her and her extended family if she resolved the dispute directly with them, and even offered her a commission on payments that might be made by the rest of the family.145

2.77 Consumer groups provided a number of case studies of consumer leases that had high costs, and appear to cause financial detriment to the consumer. The key, and often reoccurring issues, described in those examples, include:

 a significant variation between a leased good's retail price and the total lease cost paid, which often resulted in lessees paying costs equivalent to multiples of a good's retail price;146

 consumers struggling to repay there consumer leases, or not having enough money left after repaying the leases to afford basic living costs;147  consumers reliant on income support payments for income and a high proportion of their income being used to repay consumer leases;148  complex health or social challenges contributed to the consumer's

experience with financial vulnerability and hardship; 149  lease providers acting inappropriately when responding to repayment difficulty concerns; 150  consumers having an incomplete understanding of the lease provisions,

including the total costs payable under the lease or believing they will own the goods at the end of the lease period;151  consumer leases being provided using unsatisfactory suitability assessments;152 and  consumers repaying multiple leases or other debt types, and experiencing

repayment difficulties. 153

145 Ms Cox, Committee Hansard, 13 March 2020, p. 1.

146 Anglicare Tasmania, Submission 13, p. 7; CCLCSA, Submission 30, pp. 5-6.

147 Bucaan Community House, Submission 3, p. [1]; FCA, Submission 15, p. 2; CCLSWA, Submission

29, p. 19; CCLSWA, Submission 29, p. 17.

148 LawRight, Submission 25, p. 2; FRLS, Submission 32, p. 4.

149 QCOSS, Submission 42, p. 8.

150 FRLS, Submission 32, p. 4.

151 CCLSWA, Submission 29, pp. 16 and 17; HRCLS, Submission 26, p. 3.

152 Anglicare Tasmania, Submission 13, p. 7.

153 Mr Hooper, Committee Hansard, 13 March 2020, p. 49; FRLC, Submission 32, p. 4; Anglicare

Tasmania, Submission 13, p. 7; NILS Tasmania, Submission 21, p. 6.

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2.78 At the centre of the criticisms of the high costs of consumer leases is evidence that lease repayments result in lessees repaying multiples of the value of a good which, when considered as a percentage, results in lease costs equating to several hundred per cent. For example, without a regulatory cost cap, the HRCLS told the committee that one client's held multiple consumer leases with a total repayment obligations of over $12 000, for household goods that HRCLS estimated to be worth approximately $4500. Another HRCLS' client held a consumer lease for a dishwasher that had a total repayment obligation of $3000, while the appliance retailed for just over $800.154

2.79 In a particularly concerning case, Care Inc. told the committee of the experience of 'Merinda', an indigenous Australian women—living with serious mental and physical health conditions, residing in public housing, and whose only income is the Disability Support Pension (DSP)—who was paying 36 per cent of her income for nine consumer lease items, which will require total repayments of over $32 000.155

2.80 CCLCSA described another concerning case in which Jamie, a person living with an intellectual disability, who receives income through the DSP, lives in assisted accommodation and is supported through the NDIS, entered into lease agreements at a store for six items and which obligated him to make total repayments of over $17 000. The goods had a total insured value of $7280. After making lease repayments and paying for accommodation, Jamie did not have enough money left for food, transport or clothing.156

2.81 Maurice Blackburn Lawyers (MBL) noted that consumer lease providers may structure their leases in a way that avoids the product from being defined as 'a sale of goods by instalments', under which there is an annual cost rate cap of 48 per cent (under Division 4A of the Credit Code).157 To avoid the cost cap, MBL suggested some consumer lease providers may structure there products so that lessees do not have the right, or obligation, to purchase a leased good.158

2.82 LawRight consider that, as the bill's proposed cost cap exceeds the cap on cost applicable to other credit products, financial services providers may be incentivised to favour consumer leases over other product types.159

154 HRCLS, Submission 26, p. 3.

155 Care Inc, Submission 18, p. 4.

156 CCLCSA, Submission 30, pp. 5-6.

157 Maurice Blackburn Lawyers (MBL), Submission 16, p. 3.

158 MBL, Submission 16, p. 3.

159 LawRight, Submission 25, p. 4.

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2.83 In its final report, the Review Panel noted many consumer lease products include mechanisms that allow a lessee to purchase the leased good at the end of the lease period. The Review Panel saw this as evidence of the 'artificiality' of the distinction between consumer leases and goods sold by instalment under the Credit Code as artificial and based on 'form rather than substance'.160 CHERPA refuted the Review Panel's view and suggested the two products have different risk profiles as, under a consumer lease, a lessor is obligated to maintain a leased good.161

2.84 Mr King, CHERPA, responded to the issue of the high-cost of consumer leases and noted the industry does use percentages to calculate costs but there are high costs associated with leasing the goods:

Again, we don't work on percentages. But the reason we have the costs that we do is because we are not lending money; we are leasing out a product that has to be delivered, maintained and serviced et cetera throughout a process. Hence, the costs that we charge, the multiples that we've suggested, are there to allow for people to stay in business and to allow the client to have the service that they require…162

2.85 In responding to the variation between the RRP and the actual price of the good under a consumer lease, Mr King, CHERPA, told the committee that '[i]f a client could purchase outright then they would most likely get a better price—but they can't; otherwise, we wouldn't be leasing the product to them.'163

Costs of providing consumer leases 2.86 In its submission, CHERPA emphasised the high costs associated with providing consumer leases, and considered that the bill's proposal to cap costs contributed to a 'profound threat' to the viability of the consumer lease

industry and the financial inclusion of consumers.164

2.87 CHERPA argues that the consumer lease industry 'suffers from a high degree of risk exposure from consumers'. Goods that are retained by the consumers in cases of lease default, or damaged and broken goods were highlighted as significant costs to the industry.165 CHERPA also submitted that there are additional costs to consumer lease providers that are not experienced by SACC

160 Treasury, Review of small amount credit contracts - Final report, March 2016, p. 54.

161 CHERPA, Submission 20, p. 7.

162 Mr Stephen King, President, CHERPA, Committee Hansard, 13 March 2020, p. 37.

163 Mr King, Committee Hansard, 13 March 2020, p. 37.

164 CHERPA, Submission 20, p. 3.

165 CHERPA, Submission 20, p. 5.

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providers, including costs for: purchasing goods for leasing; warehousing those goods; and staff to provide the goods.166

2.88 CHERPA maintained that lessors have limited ability to recover goods in cases of default, which has led to an understanding in the industry that it is necessary to 'charge sufficiently' for all consumer leases to 'offset the risks' associated with leases that default.167 In CHERPA's view, charging an early termination fee, or a fee for the value of the goods, to lessees is not practical, in part, as the '…general consumer in the industry often has little if any cash in reserve, and is simply unable or unwilling to pay the defaulted amount'.168

2.89 In the interest of ensuring the consumer lease industry remains competitive, profitable and able to provide services to consumers, CHERPA proposed that the cap on costs be calculated using a multiple of base principle.169

Potential amendments to the bill's cap on cost provisions 2.90 MBL recommended that Part 4A of the Credit Code be amended so that the interest rate cap includes establishment fees and to cause consumer leases to be subject to the cap (of 48 per cent).170 LawRight similarly encouraged Parliament

to consider capping consumer lease costs at an equivalent annual percentage rate of 48 per cent.171

2.91 CHERPA recommended the bill be amended to incorporate its proposed method of capping costs with a base price multiple, using the following rates:

 for a 12 month lease, a base price multiple of two;  for a 24 month lease, a base price multiple of three;  for a 36 month lease, a base price multiple of three and a half; and  for a 48 month lease, a base price multiple of four.172

2.92 FAA&MS went further and recommended that section 175AA be deleted because it views the four per cent monthly fee as too low:

The issue we have is SACC fees and charges are GST exempt whereas consumer lease payments are subject to GST. That means instead of a return of 4 [per cent], the actual rate would be 3.64 [per cent].173

166 CHERPA, Submission 20, p. 8.

167 CHERPA, Submission 20, p. 6.

168 CHERPA, Submission 20, p. 6.

169 CHERPA, Submission 20, p. 10.

170 MBL, Submission 16, p. 3.

171 LawRight, Submission 25, p. 3.

172 CHERPA, Submission 20, p. 10.

173 FAA&MS, Submission 40, p. 37.

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2.93 In its submission, FAA&MS noted a series of concerns in relation to section 175AA, including that:

 the bill's provision to cap the cost of indefinite term leases at a multiple of 1.92 of the base price 'is leaving the floodgate open for any lessor determined to maximise the financial return to deliberately misrepresent the lease as an indefinite lease and run it for a shorter period' (ss. 175AA(3));174 and

 the bill's provisions to cap the cost of a leased good with reference to RRP could induce 'statutory cartel conduct' by requiring all lessors to refer to RRP (ss. 175AA(5)).

2.94 NCOSS recommended that the cap on cost provision 'be calculated by reference to the cash price of the goods as defined under section 204 of the National Credit Code.'175 176

2.95 The AFIA supported the cap on costs, but noted that section 175AA requires that the RRP and the market value are calculated exclusive of GST, while the 'treatment of GST for the agreed purchase price is not articulated.'177 AFIA recommended that GST should be explicitly included in the purchase price calculation.178

2.96 AFIA raised a concern that the definition of the base price may lead to unintended breaches by providers where the RRP changes between the time of a lease application and the lease being entered into, or where the RRP is not known for imported goods. AFIA recommended that sections 175AA(5)(a) and (b) be amended to 'include concepts within control of the lessor (e.g. the RPP known by the lessor).'179

2.97 AFIA also recommend omitting the words 'accept payment' from proposed sections 156C and 175AC, so that the lessor may not require a lessee make payments in excess of the permitted caps, but the lessor would not be penalised if they did not initiate or cause the overpayment.180

174 FAA&MS, Submission 40, p. 38

175 NCOSS, Submission 17, p. 7.

176 Section 204 of the Credit Code defines the cash price of a good or service to which a credit contract

relates as: the lowest price that a cash purchaser may reasonably be expected to pay for them from the supplier or, if the goods are not available for cash, or only available for cash at price similar to if the good was sold with credit, then the market value of the good or service.

177 AFIA, Submission 5, p. 3.

178 AFIA, Submission 5, pp. 3-4.

179 AFIA, Submission 5, p. 4.

180 AFIA, Submission 5, p. 5.

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Bank statements 2.98 The bill creates a requirement for lessors to obtain and consider 90-days of lessees' bank statements.181 Legal Aid Queensland supported this proposed requirement and reasoned that this would provide lessors with

improved visibility of consumers' financial circumstances; leading to fewer instances of leases entered into by vulnerable consumers.182 The provisions (sections 140(1) and 153(1)) were similarly supported by the CCLSWA.183

2.99 However, MyBudget suggested that this provision may not be enough to ensure lenders comply with responsible lending applications, and noted examples of providers obtaining statements from consumers but not considering the statements appropriately.184 The committee notes case study evidence, provided in relation to SACCs, suggests that bank statement may not always give providers a complete view of a consumer's financial circumstances.185

Protected earnings amount 2.100 A protected earnings amount (PEA) for consumer leases, which would prevent lessees from being required to make repayments at a rate more than 10 per cent of their net income, was widely supported by submitters as an effective

affordability protection for consumers.186

2.101 The bill amends the Credit Act to establish provisions which would give effect to a PEA for consumer leases, such as prohibiting a lessor from accepting payment from a lessee in excess of the PEA, and establishing penalties for contravention. However, the bill itself does not establish the PEA, as this is a change required to the Credit Regulations. MyBudget submitted that it is imperative that the amendments to the Credit Regulations take effect at the same time as the bill. 187

2.102 Financial Counselling Australia (FCA) considered that the proposed PEA for consumer leases are a 'vital consumer protection' to ensure consumers do not end up in a debt trap.'188 NCOSS strongly supported the 10 per cent PEA for

181 Bill, items 26 and 32.

182 Legal Aid Queensland, Submission 6, p. 4.

183 CCLSWA, Submission 29, p. 17.

184 MyBudget, Submission 36, p. 18.

185 CCLSWA, Submission 29, p. 10.

186 See, for example, Good Shepherd, Submission 12, p. 8; NCOSS, Submission 17, p. 4; HRCLS,

Submission 26, p. 2; CCLSWA, Submission 29, pp. 11 and 20; Care Inc. Submission 18, p. 4; ARCA, Submission 23, p. 2.

187 MyBudget, Submission 36, p. 13.

188 FCA, Submission 15, p. 3.

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consumer leases and stated the changes will ensure lessees 'will not be able to overcommit their income and will have money for cost of living expenses.'189

2.103 CCLSWA argued that current responsible lending laws are inadequate and the 'only way to protect vulnerable consumers is to make consumer leases safer by introducing safeguards such [as] extending the application of protected earnings to consumer leases.'190

2.104 AFIA emphasised the 'importance of balancing the needs for consumer protections for vulnerable customers with continuing access by all customers to the consumer lease market.'191 AFIA noted its concern that a flat PEA of 10 per cent for all lessees 'across the entire customer demographic unreasonably restricts lending to customers who do have the capacity to repay a proposed lease of household goods.192

2.105 CHERPA went further in its arguments and proposed that consumer leases should not be subject to a 10 per cent PEA, as is being proposed for SACCs, because there is 'clear ongoing utility provided by consumer leases.'193 That is, consumers acquire a benefit from the good obtained under the lease which, CHERPA suggests, is not provided through a SACC.194

2.106 CHERPA also suggest that a PEA rate of 10 per cent has the potential to cause financial exclusion by preventing consumers from accessing consumer leases in an environment where 'there is often no other recourse for obtaining essential household items.'195

2.107 As such, CHERPA submitted that it is preferable for industry to adhere to responsible lending practices rather than implementing a PEA for consumer leases. However, if a PEA is to be implemented, CHERPA proposed that it be set at a rate of 20 per cent, noting feedback from CHERPA members indicates that consumers may encounter financial difficulty when making repayments at a rate of approximately 17.5 per cent of net income.196

189 NCOSS Submission 17, p. 6.

190 CCLCSA Submission 30, p. 4.

191 AFIA, Submission 5, p. 4.

192 AFIA, Submission 5, p. 4.

193 CHERPA, Submission 20, p. 9.

194 CHERPA, Submission 20, p. 9.

195 CHERPA, Submission 20, p. 9.

196 CHERPA, Submission 20, p. 9.

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2.108 The committee notes CHERPA's code of conduct currently requires its members not to enter a lease agreement where the rental payments exceed 20 per cent of a lessee's income after tax.197

2.109 CHERPA, has suggested that the rationale for the 10 per cent relies on a 'somewhat arbitrary justification'.198 Other industry stakeholders criticised the Review Panel's formations of the suggested 10 per cent PEA, indicating it does not have a sound basis.199

Potential amendments 2.110 AFIA recommended that the bill's proposed 10 per cent PEA be limited to people who receive more than 50 per cent of their income through Centrelink.200 AFIA also recommended amendments that remove or qualify

sanctions for lessors that accept payment in excess of the permitted earning cap. It suggested this could be achieved by removing the 'accept payment' from sections 156C and 175AC, or introducing words to qualify that the lessor knowingly accepted payment, or providing that on becoming aware of an overpayment the lessor account for that in the customer's favour.201

2.111 CHERPA recommended implementing a PEA at a rate of 20 per cent of a consumer's net income.202

Ban on door-to-door selling of consumer leases 2.112 The bill prohibits credit assistance providers from attending places of residence for the purpose of inducing residents to apply for or obtain a consumer lease. 203 Several submitters supported banning the door-to-door

selling of consumer leases.204

197 CHERPA, Consumer Leasing Code of Conduct, March 2017, http://cherpa.com.au/wp-content/uploads/2020/02/CHERPA-Code-of-Conduct-v03-02-2020.pdf (accessed 4 September 2020), p. 9.

198 CHERPA, Submission 20, p. 8.

199 FID, Submission 35, pp. 41-42; FAA&MS, Submission 40, pp. 18-21 and pp. 26-27.

200 AFIA, Submission 5, p. 5.

201 AFIA, Submission 5, p. 5.

202 CHERPA, Submission 20, p. 11.

203 See paras. 1.52 and 1.53 of Chapter 1.

204 See, for example, Salvation Army, Submission 1, p. 9; Legal Aid Queensland, Submission 6, p. 4;

Good Shepherd, Submission 12, p. 11; TasCoss, Submission 14, p. [1]; MBL, Submission 16, p. 4; HRCLS, Submission 26, p. 3; CCLCSA, Submission 30, p. 3.

46

2.113 Legal Aid Queensland submitted that is has seen the 'most vulnerable consumers in our society placed in dire financial circumstances as a result of the door-to-door selling of goods through consumer leases.'205

2.114 Ms Lisa Garlick, a financial counsellor from Victoria, described a provider selling consumer leases by attending an indigenous community with a 'van full of household goods' and door knocking within the community. Ms Garlick noted the community made a complaint to ASIC regarding the provider's conduct and the provider closed shortly after, and has since started another company.206

2.115 The CCLSWA described a similar situation in which a young mother of two, living in a remote town in Western Australia, entered into a consumer lease for a television that was retailed through a van visiting her town, with a repayment amount of $186 per fortnight. That person fell behind on their repayments and 'ended up owing $4000 for the TV.'207

2.116 Ms Gemma Mitchell, Managing Solicitor of Consumer Credit Legal Services (Western Australia) told the committee that the ban on door-to-door selling did not go far enough to protect people in remote indigenous communities, because a provider may visit a community in a van and, through word-of-mouth, people may obtain a consumer lease at the van's location.208

2.117 Submitters also noted that consumer lease providers may use text messages to advertise leases,209 and that leases can also be accessed online.210

Potential amendments 2.118 NCOSS suggested removing the words 'except by prior arrangement' from proposed section 179VA, so that there are 'no circumstances where door-to-door sales of consumer leases are permitted'.211

2.119 Legal Aid NSW submitted that it regularly sees clients who enter into consumer leases while visiting family and friends, particularly for clients living in remote indigenous communities. To avoid this, Legal Aid NSW recommended section 179VA be amended to prevent a lessor consumer lease provider, or credit assistance provider, from attending residence for the

205 Legal Aid Queensland, Submission 6, p. 4.

206 Ms Lisa Garlick, Submission 31, p. [2].

207 CCLSWA, Submission 29, p. [17].

208 Ms Mitchell, Committee Hansard, 13 March 2019, p. 20.

209 Mr Brody, Committee Hansard, 13 March 2020.

210 Good Shepherd, Submission 12, p. 11.

211 NCOSS, Submission 17, p. 4.

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purpose of facilitating a person visiting the house to enter into a consumer lease.212

2.120 The FAA&MS said it 'fully supports' the intent of the provision, however objects to the existing penalty provision in Section 156 of the Credit Code being different to the penalty for proposed section 179VA.213 Section 156 of the Credit Code provides that credit providers must not attend a place of residence to induce a person to apply for or obtain credit, except by prior arrangement, and imposes a civil penalty of 5000 penalty units.214 The FAA&MS recommended that the penalty for lease providers that contravene section 156 be reduced to 2000 penalty units, to match the penalty which would be applicable to consumer leases under proposed section 179VA.215

2.121 Good Shepherd suggested that it is worth exploring:

…the ease and availability of SACCs and consumer loans online and ensuring that anti-avoidance protections extend to the online domain. Feedback from Good Shepherd practitioners reveals that the convenience and ready availability of payday loans and rent to buy schemes online makes them attractive for consumers.216

Base price disclosure 2.122 The bill's provisions to require a lessor to disclose to a lessee the base price of a good being leased was supported by some submitters as a beneficial measure for information transparency.217

2.123 The Hume Riverina Community Legal Service (HRCLS) suggested that if people were aware of the costs they will incur under a consumer lease then they 'would be much less inclined' to make those financial commitments. 218 MyBudget shared this view and noted that if pricing information was transparently disclosed, then people would look for an alternate to consumer leases and avoid becoming indebted to providers.219

212 Legal Aid NSW, Submission 37, p. 5.

213 FAA&MS, Submission 40, p. 44.

214 Section 156 of the Credit Code does not apply to the door-to-door selling of consumer leases. A

person who attends another person's residence for the purpose of offering goods or service for sale, and who offers credit to finance the sale, is not taken to have called for the purpose inducing a person to apply for or obtain credit.

215 FAA&MS, Submission 40, p. 44.

216 Good Shepherd, Submission 12, p. 12.

217 See, for example, Legal Aid Queensland, Submission 6, p. 4; CCLSWA, Submission 29, p. 19; HRCLS,

Submission 26, p. 3; MyBudget, Submission 36, p. 18.

218 HRCLS, Submission 26, p. 3.

219 MyBudget, Submission 36, p. 18.

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2.124 HRCLS highlighted examples where information on consumer lease pricing was not understood by their clients, either in relation to the total amount they would have to pay under the consumer lease, or difference between the total cost of the lease compared to the actual value of the goods.220 Legal Aid Queensland concluded that the proposed disclosure provision will go some way to addressing this 'information asymmetry'.221

2.125 The FAA&MS did not object to the principle of disclosing the finance amount, however, did not support the bill's disclosure requirement as FAA&MS disagrees with the proposed method for calculating a good's base price.222

Potential amendments 2.126 MyBudget recommended that the requirement to disclose the base price of a good be extended to require disclosure in the advertisement of consumer leases, and that disclosures be prominent in advertisements, 'similar to the

requirements of section 164 of the National Credit Code'.223

2.127 The FAA&MS recommended amending item 57 of the bill (subsection 174(5)) to remove the capacity for ASIC to determine, by legislative instrument, the particulars of how lessors would be required to disclose base price information to consumers.224 Conversely, the CCLSWA supported this provision and recommended it be adopted.225

Breaches 2.128 The bill introduces significant civil and criminal penalties for consumer lease providers who engage in conduct which the bill seeks to prohibit.

2.129 The Banking Royal commission was told that ASIC receives a large amount of complaints relating to consumer leases (and payday loans). Mr Brody indicated that between 2013 to 2017, enforcement action taken by ASIC resulted in consumer lease providers being fined, or making community benefit payments, of over $1.4 million and $8 million of remediation to customers.226

2.130 Anglicare Tasmania was broadly supportive of measures which ensure 'consumer lease providers abide by the Credit Act and are suitably penalised

220 HRCLS, Submission 26, p. 3.

221 Legal Aid Queensland, Submission 6, p. 4

222 FAA&MS, Submission 40, p. 36.

223 MyBudget, Submission 36, p. 6.

224 FAA&MS, Submission 40, p. 36.

225 CCLSWA, Submission 29, p. 19.

226 Mr Brody, Committee Hansard, 13 March 2020, p. 7.

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for breaches.'227 CCLSWA was similarly supportive of the bill's 'strengthened penalties to incentivise SACC providers and lessors to comply with the law.' 228 CCLSWA was particularly supportive of breach provisions for 'voiding monetary liability above the base price of the goods as a genuine deterrent to consumer lease providers entering into consumer lease agreements with costs above the permitted cap.'229

2.131 The FAA&MS remained 'at a loss to know why' criminal and civil penalties are proposed under section 156B, applicable to lessors that accept payment above the proposed PEA, given the Credit Act includes '…significant ability to deal with errant lessors' through court actions.230 FAA&MS also considered that the drafting of the proposed subsection 175AA(1), relating to lessors that breach cost caps, is 'sloppy'.231

Use of Centrepay for consumer leases 2.132 While not an amendment proposed by the bill, submitters and witnesses frequently suggested that Centrepay deductions for consumer leases should not be permitted.232 This suggestion was premised on consumer groups'

experiences that: consumer leases impose high costs for low value and Centrepay deductions prioritise lease repayments over living expenses.233234

227 Anglicare Tasmania, Submission 13, p. 7.

228 CCLSWA, Submission 29, p. 9.

229 CCLSWA, Submission 29, p. 20.

230 FAA&MS, Submission 40, p. 26.

231 FAA&MS, Submission 40, p. 39.

232 Centrepay is a voluntary bill-paying service available to Centrelink customers. Through

Centrepay, customers authorise Centrelink to deduct regular amounts from their social income payments to pay bills to approved businesses. The objective of Centrepay is to assist customers in '…managing expenses that are consistent with the purposes of welfare payments, and reducing financial risks'. See, Services Australia, Centrepay: policy and terms, v3.0, p. 5.

233 See, for example, MBL, Submission 16, pp. 4-5; FRLC, Submission 32, p. 2; Financial Counsellors'

Association of NSW Inc, Submission 38, p. [2]; CALC, Submission 39, pp. 14-15; Ms Cox, Committee Hansard, 13 March 2020, p. 4; Mr Brody, Committee Hansard, 13 March 2020, p. 7; Mr Colin Harte, Moneycare Assistant Manager, The Salvation Army, Committee Hansard, 13 March 2020, pp. 12-13; Ms Mitchell, Committee Hansard, 13 March 2020, pp. 16-17; Ms Mitchell, Committee Hansard, 13 March 2020, p. 17.

234 At the time of its 2015 report into the cost of consumer leases, ASIC found that Centrelink

recipients were consistently charged more than the advertised market rate for consumer leases. ASIC concluded that this was price discrimination and a 'likely market failure and a potential exploitation of a lack of consumer understanding by less financially literate consumers about the real cost of the lease.' See, ASIC, Report 447: Cost of consumer leases for household goods, September 2015, pp. 22-26.

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2.133 The HRCLS submitted that three of its clients had used Centrepay to pay for consumer leases, under which 'exorbitant rates' were charged for the goods and the use of Centrepay, resulted in prioritising of the clients' lease payments over 'food and other essentials.'235 The CALC described the conduct of some lease providers in relation to Centrepay:

We have also seen consumer lease providers restart Centrepay deductions after consumers have cancelled payments without obtaining the consumers' consent. We have seen subsequent Centrepay forms with different customer signatures. We have also assisted consumers who have suffered harassment as a result of cancelling deductions, or have had consumer lease providers continue to deduct payments through Centrepay after the relevant contracts had finished.236

2.134 Conversely, CHERPA submitted that 'consumers have all the power to cease any payments they make', including via Centrepay.237

Centrepay policy and complaints 2.135 Centrepay policy is administered by Services Australia. The policy provides that payday loans and other goods and services, including those which 'have significant potential for high costs but low value' or 'expose Centrelink

customers to unacceptable risks of financial stress or exploitation', cannot be deducted through Centrepay.238 Services Australia has received complaints relating to consumer lease providers' access to Centrepay.239 Services Australia told the committee it takes those complaints 'very seriously to make sure [businesses] are complying with Centrepay policy and terms.'240

2.136 Services Australia provided examples of complaints it received which allege that a particular lease provider contravened the Credit Act by failing to lend responsibly and, as such, considered that the provider was not compliant with Centrepay policy.241 242 The documents provided by Services Australia indicates it replied to some of those complaints and, in doing so, Services Australia advised that: the Credit Act is administered by ASIC; the complaints

235 HRCLS, Submission 26, p. 3.

236 CALC, Submission 39, p. 15.

237 CHERPA, Submission 20, p. 6.

238 Services Australia, Centrepay: policy and terms, v3.0, p. 7.

239 Services Australia, answer to written question on notice IQ20-000008, 13 March 2020 (received

11 May 2020); CALC, Submission 39, p. 14.

240 Mr Austin Stone, Acting National Manager, Deduction and Confirmation Branch, Services

Australia, Committee Hansard, 13 March 2020, p. 58.

241 Services Australia, answer to written question on notice IQ20-000008, 13 March 2020

(11 May 2020), pp. [3-5], 6-10], [12-14], [25-27] and [30-33].

242 Complaints were made by HRCLS and CALC, dated 11 January 2019, 14 March 2019,

23 April 2019 and 23 September 2019.

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related to regulatory matters for which it has 'no visibility of or jurisdiction'; it is not aware of relevant action taken by ASIC; and considers the provider 'suitable to be approved as a Centrepay Business.'243 In subsequent letters from October 2019, it appears Services Australia referred details of those complaints to ASIC.244 The committee is aware of adverse court findings against that

provider in relation to its conduct in providing consumer leases.245

2.137 Separately, the provider was found by the Federal Court to have contravened the Credit Act in relation to 275 000 leases, for which it 'failed to make reasonable inquiries about each consumer's financial situation'. The provider was ordered to pay a pecuniary penalty of $2 million.246 The provider was also the lead defendant in a class action, which settled for $29 million in December 2019.247

2.138 MBL was also critical of consumer lease providers using Centrepay to 'exploit vulnerable consumers'. MBL observed that Centrepay can cause lessees to 'set and forget' their repayments, which can often result in lessees to continue to pay for a good after their initial lease period as the contract is rolled on to an indefinite period. 248

2.139 CCLSWA's submission suggests that the introduction of a PEA for consumer leases will 'curtail the exploitation of Centrepay.'249

2.140 The committee notes that references to the committee's financial hardship inquiry report recommended Centrepay 'should only be available to entities that can demonstrate historic and ongoing compliance with relevant regulations, and that provide products at a fair price and in a fair manner.'250

243 Services Australia, answer to written question on notice IQ20-000008, 13 March 2020

(11 May 2020), pp. [16], [18] and [28].

244 Services Australia, answer to written question on notice IQ20-000008, 13 March 2020

(11 May 2020), pp. [34-37].

245 Australian Securities and Investments Commission v Thorn Australia Pty Ltd (2018) FCA 704; MBL,

Submission 16, p. 2.

246 Australian Securities and Investments Commission v Thorn Australia Pty Ltd (2018) FCA 704.

247 MBL, Submission 16, p. 2.

248 MBL, Submission 16, p. 2.

249 CCLSWA, Submission 29, p. 20.

250 Senate Economics References Committee, Credit and financial services targeted at Australians at risk of

financial hardship, pp. xi and 14.

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Views relating to provisions that apply to both SACCs and consumer leases

Commencement date 2.141 If passed, this bill will commence twelve months after the date of Royal Assent.251 The FID supported the commencement date and considered the timeframe 'essential' for SACC lenders and lessors to become compliant—seek

advice, update IT software programs, conduct training, develop documentation and manuals—and accommodate the associated costs.252

2.142 An earlier commencement date was suggested by two submitters. NCOSS and the FCA recommended the bill take effect three and six months after Royal Assent, respectively.253 A number of submitters expressed concern, and frustration, that the bill's reforms have not been implemented already.254 Ms Fiona Guthrie, from FCA, justified an earlier commencement on the basis that the benefits will be received earlier.255

2.143 As the bill provides for amendments to the Credit Regulations, 'MyBudget recommends that there be minimal delays between the implementation of the [b]ill, and the [r]egulations'.256

Use of bank statements

Potential amendments 2.144 FID recommended amending section 160G to provide clarity on the actions that providers can take under the section, including that providers should be allowed to use statements for the purposes of considering postponement

applications and be able to provide consumers' statements to other lenders and their professional advisors.257

Assessment of consumers' suitability 2.145 In supporting this requirement, consumer groups indicated that suitability assessments in the past have been subpar. Anglicare Tasmania described the assessments as 'poor quality' and Mr Anthony Devlin, from the Salvation

251 Bill, clause 2.

252 FID, Submission 35, p. 11.

253 NCOSS, Submission 17, p. 4; FCA, Submission 15, p. 3.

254 See, for example, Mr Hooper, Committee Hansard, 13 March 2020, p. 49.

255 Ms Guthrie, Committee Hansard, 13 March 2020, p. 19.

256 MyBudget, Submission 36, p. 12.

257 FID, Submission 35, pp. 29-30.

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Army, stated that payday lenders are not doing a 'proper assessment'.258 Legal Aid Queensland explained its experience with suitability assessments:

…consumers have difficulty in obtaining information about a lender's assessment of suitability. This requirement will improve the transparency of the lending assessments made by SACC and consumer lease providers.259

2.146 Cash Converters 'fully supports' documenting suitability assessments.260

2.147 Different concerns with this requirement were raised by two industry stakeholders. FID considers the assessment in writing to be unnecessary on the basis that it is 'already covered by timetable … [and] must be provided to requesting consumer ([s] 132)'.261 The FID also questions ASICs 'expertise' for determining the form of the assessment and views ASICs power to make legislative instruments as 'a profoundly unacceptable usurpation of the Minister's and Parliament's role'.262

2.148 FAA&MS outlined several issues with this requirement. First, it disagrees with a number of the civil penalties of this requirement, calling them 'outrageous' and 'excessive' when accompanied by a strict liability offence or recommending the penalty be reduced from 2000 to 50 penalty units.263 Second, it recommends for flexibility that 'the assessment' be amended to 'an assessment', so an interim assessment can be made.264 Third, it considers the new sections requiring a written copy to be given to the consumer in accordance with the Electronic Transactions Act 1999 as 'superfluous' and recommends they be deleted.265 Fourth, FAA&MS suggests there is an inconsistency between subsection 132 of the bill and the Electronic Transactions Act 1999, however the exposure draft explanatory materials explains that the new provisions ensure compliance and allow the assessment to be provided in an electronic form.266

258 Anglicare Tasmania, Submission 13, p. 5; Mr Devlin, Moneycare Manager, The Salvation Army,

Committee Hansard, 13 March 2020, pp. 10-11.

259 Legal Aid Queensland, Submission 6, p. 4.

260 Cash Converters, Submission 2, p. 9.

261 FID, Submission 35, p. 4.

262 FID, Submission 35, p. 4.

263 FAA&MS, Submission 40, pp. 14, 17, 24 and 25.

264 FAA&MS, Submission 40, pp. 14-15 and 17.

265 FAA&MS, Submission 40, pp. 17, 24 and 25.

266 FAA&MS, Submission 40, p. 17; Exposure draft explanatory materials, National Consumer Credit

Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2017, p. 46.

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Warning statements 2.149 Whist the Consumer Credit Law Centre South Australia 'observes that warning statements are not sufficient', 267 most arguments were made by industry stakeholders against reforming warning statements.

2.150 Both Cash Converters and Cash Stop contend that there are already warning materials in place for consumers.268

2.151 Evidence suggested that there is too much information in the warnings. FID described the warning as 'information overload' and also referred to research that says by the lending day the consumer has already made up their mind to borrow and is unlikely to read the warning statement.269 By introducing the reforms, FID made a similar argument to Cash Converters that '[f]urther warnings will add to the complexity and distract customers'.270 Cash Converters recommend that simplifying the warnings would be a better approach.271

2.152 FID indicated opposition towards ASIC's power, stemming from the uncertainty of what ASIC will request of industry in relation to the warning statements. FID predicted that it could lead to further documentation and may be unclear, at times, what is required. It also noted that this provision will require regular liaising with ASIC to present industry views and incur costs to SACC lenders in becoming compliant with the warning statement.272

Anti-avoidance measures 2.153 The anti-avoidance measures were widely supported amongst consumer groups.273 Submissions referred to the ease with which unregulated products are avoiding the law, describing such acts as 'exploiting loopholes' and

'circumventing the rules and protections'.274

267 CCLCSA, Submission 30, p. 5.

268 Cash Converters, Submission 2, p. 9; Cash Stop, Submission 34, pp. 7-8.

269 FID, Submission 35, pp. 5 and 12.

270 Cash Converters, Submission 2, p. 9; FID, Submission 35, p. 13.

271 Cash Converters, Submission 2, p. 9; Mr Budiselik, Committee Hansard, 13 March 2020, p. 26.

272 FID, Submission 35, pp. 12-13.

273 Salvation Army, Submission 1, p. 9; Good Shepherd, Submission 12, p. 6; Anglicare Tasmania,

Submission 13, p. 7; TasCoSS, Submission 14, p. [1]; FCA, Submission 15, pp. 3-4; MBL, Submission 16, p. 3; NCOSS, Submission 17, p. 3; NILS Tasmania, Submission 21, p. 12; HRCLS, Submission 26, p. 3; CCLCSA, Submission 30, p. 3; FRLC, Submission 32, p. 2; MyBudget, Submission 36, p. 5; Legal Aid NSW, Submission 37, p. 3; Law Council of Australia, Submission 41, pp. 1-2; Legal Aid Queensland, Submission 6, pp. 5-6;

274 MBL, Submission 16, p. 3; Salvation Army, Submission 1, p. 9; NILS Tasmania, Submission 21, p. 12.

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2.154 Expanding on this point, Mr Tim Gough, from ASIC, explained in his evidence that the anti-avoidance measures would protect compliant businesses and competition:

…as gaming the system can result in a race to the bottom where compliant businesses lose market share to their competitors and may feel compelled to engage in similar conduct. Protecting compliant businesses and ensuring the competitiveness of compliant business models would be an important outcome of these reforms.275

2.155 Case study evidence from HRCLS demonstrated the downside to entering a contract with an unregulated credit provider, as 'Tia'—who also had other outstanding loan products (not her real name)—was unable to negotiate a resolution when she borrowed $350, incurred an additional $262.50 'fee' and was receiving demands for payment of nearly $1300.276

2.156 FCA commends the forward-thinking nature of the measures, 'as no one can predict what new avoidance scheme will be dreamed up by these kinds of lenders'.277

2.157 Consumer groups, including Legal Aid Queensland commented on 'the importance of the [ASIC] having strong product intervention powers'.278 ASIC's witness, Mr Tim Gough, was supportive of the anti-avoidance provisions, noting that the product intervention powers have limitations such as the duration of an order, which is not the case with anti-avoidance provisions. 279

2.158 Industry stakeholders opposed the anti-avoidance measures.280 FID views the measures as 'absolute over-kill, given the mass of existing regulation' and recommends they be 'dropped' due to conflicting with the approach to justice, lacking reasonableness and conflicting with explanatory materials.281 Together with FAA&MS, it was also raised that the prohibition may stifle innovation.282

2.159 There appears to be conflicting evidence from Cash Converters. Mr Budiselik appeared before the committee on behalf of Cash Converters and spoke in

275 Mr Tim Gough, Acting Executive Director, Financial Services Group, Australian Securities and

Investment Commission, Committee Hansard, 13 March 2020, p. 64.

276 HRCLS, Submission 26, p. 4.

277 FCA, Submission 15, p. 4.

278 Legal Aid Queensland, Submission 6, p. 5. See also Ms Guthrie, Committee Hansard, 13 March 2020,

p. 16; Ms Avramopoulos, Committee Hansard, 13 March 2020, p. 48.

279 Mr Gough, Committee Hansard, 13 March 2020, p. 65.

280 FID, Submission 35, p. 6; FAA&MS, Submission 40, pp. 27-31.

281 FID, Submission 35, pp. 6 and 37.

282 Mr Smiles, Committee Hansard, 13 March 2020, p. 43; FAA&MS, Submission 40, p. 27.

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favour of legislating for anti-avoidance.283 In contrast, Cash Converters submission stated the company 'does not support' the anti-avoidance provisions. 284

2.160 In terms of the drafting of these measures, Queensland Law Society made the general point that these provisions are 'complex and vague making it difficult for a person to be certain they do not fall foul of the civil penalty provision without undergoing unreasonable expense'.285

2.161 Piper Alderman brought to the attention of the committee the need to amend proposed section 323A, explaining:

…the current drafting of section 323A of the bill is in conflict with the intention stated in the Government's Exposure Draft Explanatory Materials (EM), being that section 323A should apply to non-regulated credit contracts. As currently drafted the section applies to regulated credit contracts.286

2.162 In the appendix to its submission Piper Alderman included two amendments that it supports and would rectify this drafting error; one amendment proposed by itself and the other by the CALC, both of which insert 'regulated' so that the proposed section reads 'from being [a] regulated …'.287

2.163 Further, some submitters and witnesses called for the anti-avoidance measures to go further and cover credit products more broadly. Mr Brody, from CALC, views the proposed anti-avoidance measures as 'narrowly construed'.288 Legal Aid NSW recommended sale by instalment contracts be included in proposed paragraph 323C(4)(a), noting their 'artificial distinction' with consumer leases and illustrating this through the case study of 'David' who went to his local consumer lease provider for a replacement phone and left with a two year $4052 lease for a phone valued at $822.50 and being told that he would give the phone to his partner but not understanding why.289

2.164 To limit avoidance, CCLSWA supports a SACC database regarding it as 'highly likely to have ensured compliance with responsible lending, where instead the clients were merely asked whether they had two or more SACCs on foot'.290

283 Mr Budiselik, Committee Hansard, 13 March 2020, pp. 23 and 26-27.

284 Cash Converters, Submission 2, pp. 10-11.

285 Queensland Law Society, Submission 28, p. 1.

286 Piper Alderman, Submission 7, p. 1.

287 Piper Alderman, Submission 7, p. [5].

288 Mr Brody, Committee Hansard, 13 March 2020, p. 6.

289 Legal Aid NSW, Submission 37, p. 3.

290 CCLSWA, Submission 29, p. 13.

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Committee view 2.165 The committee notes that views on the bill's provisions were polarised with consumer lease groups highly supportive of further intervention while industry stakeholders rallied against any increased regulation of their market.

2.166 The inquiry has highlighted to the committee, the strong correlation between Australians experiencing financial vulnerability or hardship, and the use of SACC and consumer lease products. Evidence previously considered by the Senate, and provided to this inquiry by consumer groups and industry stakeholders, reinforces that SACCs and consumer leases are often used by Australians on low incomes.

2.167 Evidence shows that many people on low incomes face additional cost of living pressures and in difficult circumstances, require access to some form of consumer credit. However, the committee heard that low income earners often participate in the credit market at a significant disadvantage; they are not competitive in accessing lower-cost credit products and consequently are compelled to access higher-cost products, such as SACCs and consumer leases, to support their needs—particularly in times of difficulty.

2.168 The committee notes that the costs imposed under SACCs and consumer leases are often significantly more than mainstream credit products. Even higher cost mainstream credit options, such as credit cards, are significantly cheaper than the costs charged under SACCs and consumer leases. The committee acknowledges the commercial reality that those with higher credit-risk ratings are charged more to access credit. The committee considers it appropriate that regulations are commensurate with this risk and that, at the same time, the regulation is sufficient to ensure consumers are appropriately protected.

2.169 Additionally, the committee is particularly concerned that those with the greatest need to access affordable credit are also those who often lack the financial awareness and understanding of the high total costs of SACC and consumer leases. Features of the SACC and consumer lease markets, particularly the high costs incurred by low income consumers and the financial harm which can result from the use of those products, suggests to the committee that SACC and consumer lease markets are not operating efficiently.

2.170 The committee notes the bill's provisions were strongly supported by consumer lease groups, and generally were not supported by industry stakeholders. The committee recognises that consumer groups and industry stakeholders approach the regulation of SACCS from different perspectives. The committee also recognises that the competitive landscape relating to SACCs is changing; increasingly those products are offered online, and they are in competition with buy now pay later (BNPL) products. The committee

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notes that as the use of BNPL increases, regulation will also need to adapt to help manage the risk of those new types of financial products.

2.171 Unlike SACCs, consumer leases are not subject to regulatory costs caps. The committee is particularly concerned that, according to the evidence, high cost consumer leases are causing consumers' financial harm. Consumer leases often impose total repayment obligations on consumers at multiples of the reasonable value of those products. The committee is aware that consumers may also be repaying multiple consumer leases concurrently, and not have enough money left over for essential living costs.

2.172 The committee also acknowledges that lessors incur costs for providing leased goods, however the committee did not consider that evidence compelling relative to the multiples being charged for leased goods. Given many consumers are often limited in accessing products at retail prices, and the leased goods are priced at a rate that appears disconnected from their value, the committee further highlights its concern that the consumer lease market is not operating effectively. Furthermore, the committee is particularly concerned regarding the ease to which consumer lease providers can continue to access consumers on Centrepay even after products have been paid for. Noting the evidence from the Services Australia and its inability to deal with such indiscretions, the committee is of the view that providers should be banned from accessing income support recipients through Centrepay.

Effective regulation relies on regulatory provisions which are commensurate with responding to the respective problem or harm incurred. In the case of SACCs and consumer leases, the committee considers that there is scope to improve the regulations so that SACCs and consumer leases are offered in a safe and affordable way.

2.173 The committee is cognisant of the fact that this is identical legislation to that proposed by government previously. As such, it has already been through a thorough consultation process. Moving forward, it is imperative to consider feedback and public submissions raised in the consultation period. The committee notes it is important the government strikes the right balance between enhancing consumer protection, while ensuring these financial products and services can continue to fulfil an important role in the economy.

Recommendation 1

2.174 The committee recommends that the government table its response to the

recommendations of the Senate Economics References Committee's inquiry

into credit and financial services targeted at Australians at risk of financial

hardship, prior to the bill being debated in the Senate.

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Recommendation 2

2.175 The committee recommends the government reports and builds upon the outcomes derived from the consultation period of the exposure draft, and with that, continue to diligently progress sensible reform and strengthen regulation in the area of small amount credit contracts and consumer leases.

Recommendation 3

2.176 The committee recommends that the Senate not pass the bill.

Senator Slade Brockman Chair

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Dissenting Report

Labor and Centre Alliance Senators

Introduction 1.1 The National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) replicates the exposure draft legislation that was released for consultation by the

government in 2017. This bill was the response to a review the government commissioned in 2015 to tackle the increasing exploitation of people who entered into small amount credit contracts and consumer leases. Stakeholders and the broader community responded to the draft legislation.

1.2 Since this time, instead of implementing these measures, the government has failed to act, delivering more business to payday lenders and consumer lessors at the expense of ordinary Australians. In the period the legislation stalled, hundreds of thousands of people have been exposed to financial products without adequate protection from harm.1 That is why Labor and Centre Alliance introduced the government’s draft legislation as a private senator's bill.

1.3 Evidence to this inquiry, and to previous inquiries, demonstrates that the current regulation of payday loans and consumer leases is failing. Payday lenders can charge equivalent interest rates of more than 200 per cent per annum, and there is no cap at all on the costs that can be charged by lease providers. Lenders continue to sign people up to loans or leases with unaffordable repayments, which cause people to wind up in a debt spiral. Struggling families are left entrenched in debt or poverty.

1.4 This bill directly addresses these challenges. It includes caps on the total payments that can be made under a consumer lease, better regulation of repayment and payment intervals, removal of fees for loans that have been fully paid, prohibition of door-to-door selling, anti-avoidance protections, and stronger penalties for wrongdoing.

1.5 The 2019-2020 summer bushfires and the COVID-19 pandemic have increased financial vulnerability, and rendered more Australians vulnerable to the promise of small amount credit contracts and consumer leases. Similarly, young people are increasingly concerned about their financial security and are

1 Stop the Debt Trap Alliance, The debt trap: how payday lending is costing Australians, November 2019,

p. 4.

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more likely to be taking on debt as a means of relieving immediate financial stress.2 Consumer protections are needed more than ever before.

1.6 This bill is a sensible, overdue approach that will take power out of the hands of predatory businesses and return it to consumers, providing significant benefits including better protection against unfair or exploitative practices. Comments in the committee report reflect the strong support of stakeholders working with consumers for this legislation.

Government ignores evidence presented to the Committee 1.7 Despite the substantial evidence presented in the committee report, government senators have failed to support what is, in effect, the government’s own bill. Consumer groups outlined ongoing and serious

concerns regarding small amount credit contracts and consumer leases. Despite substantial opposition from industry groups and businesses to some elements of the bill, even these groups found it possible to support some elements.

1.8 For example, CHERPA, the peak industry body for consumer leases in Australia, submitted that it is 'broadly in favour of federal regulatory change for the industry'.3 The committee report chronicles a litany of failures of the current regulatory environment, including harrowing examples of exploitation of low-income earners.

1.9 The government majority on this committee recommended that:

… the government reports and builds upon the outcomes derived from the consultation period of the exposure draft, and with that, continues to diligently progress sensible reform and strengthen regulation in the area of small amount credit contracts and consumer leases.4

1.10 While the majority report acknowledges the need for stronger regulation. Ultimately, it goes on to recommend against passage of the legislation. This reflects a gross failure by government senators to take responsibility for action. Since 2015, the government has known the harm caused by lax regulation in this sector. That is presumably why it drafted the bill currently under review. This bill does not reflect the work of the Opposition or Centre Alliance—it reflects the work of the government. Since this time, it has received further evidence of harm inflicted upon vulnerable consumers including two reports from this committee. Government senators have ignored the overwhelming evidence reflected in their own report and have abandoned Australian consumers for political convenience.

2 Consumer Policy Research Centre, COVID-19 and Consumers: from crisis to recovery monthly insights

report, July 2020, p. 13.

3 Committee Report, para. 2.66.

4 Committee Report, Recommendation 2.

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1.11 The majority report also recommends that the government table its response to the recommendations of the Senate Economics References Committee's inquiry into credit and financial services targeted at Australians at risk of financial hardship, prior to the bill being debated in the Senate.5 This report, much like the government’s legislative response to its 2015 review, is overdue. It should have been tabled within three months of the References Committee’s report being tabled in February 2019. The government should table its response, but its failure to meet its obligations to the Senate in this regard should not prevent this bill from being debated and passed.

Recommendation 1

1.12 That the government table its response to the February 2019

recommendations of the Senate Economics References Committee's inquiry into credit and financial services targeted at Australians at risk of financial hardship without delay, noting this response is overdue by over a year.

Economic impacts of COVID-19 increases urgency 1.13 This legislation was important before the pandemic. Now, with nearly a million Australians unemployed, and in the deepest recession in almost 100 years, the need for reform is only greater and more urgent. The well-

established harm caused by unscrupulous payday loan and consumer leasing practices could potentially affect hundreds of thousands more Australians.

1.14 The committee’s report highlights some of the serious impacts that the recent 2020 bushfire crisis and the current COVID-19 pandemic are having on many Australians. 6 In March 2020, stakeholders forecast the economic pressures stemming from COVID-19 would be a problem, and existing and new cohorts of vulnerable people would be susceptible to payday loans and consumer leasing in constrained financial circumstances.7

1.15 Financial Counselling Australia gave evidence that the COVID-19 pandemic will exacerbate existing risk and only increases the need for this legislation:

… the people we see or people who are going to lose their jobs and their savings go very quickly are going to be in really dire straits. And this will be something that will last longer than the period a coronavirus outbreak lasts.

5 Committee Report, Recommendation 1.

6 Committee Report, paras. 2.13-2.17.

7 Committee Hansard, 13 March 2020, pp. 5, 11, 18, 20, 50, 53 and 68.

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1.16 In response, they said:

We cannot allow people to be put at further risk [...] when we've got people who don't have any money and are being harmed by products that are legal but are harmful, there's something wrong about our priorities.8

1.17 These forecasts have been accurate. The ABC reported that financial counsellors have seen a spike in targeted messaging at their clients by payday lenders over recent months. Payday lenders have been exposed sending text messages offering 'COVID relief loans'. Clients of payday lenders have complained of aggressive texting and emailing during the COVID-19 crisis, sometimes two or three a day or even hourly. This can compound and aggravate financial distress, with evidence that some individuals in financial stress obtain multiple payday loans in an attempt to manage their debt.9

1.18 The Consumer Action Law Centre noted the lure of these products:

I think people will often act in the most simple, convenient way to deal with the hardship in front of them [...] when someone is faced with a stressful situation, when they're experiencing some form of desperation, they'll be attracted to what seems to be the easy option.10

1.19 The situation is set to worsen as government support measures are wound back, a concern shared by both government regulators and advocates, who have called it a 'ticking time bomb'.11 The Australian Securities and Investments Commission (ASIC) has said it expects a spike in payday lending as stimulus measures cease, and that 'consumers may become increasingly reliant on high-cost, short-term credit products that are aggressively marketed and may not be suitable'.12

1.20 Data compiled by the Consumer Policy Research Centre suggests more than 300 000 young people took out a consumer lease or payday loan in July 2020.13 Many industries with high rates of youth employment—such as retail and hospitality—bore the brunt of shutdowns. Casual employees often found themselves ineligible for JobKeeper. The effect is reflected in the demands for

8 Committee Hansard, 13 March 2020, p. 20.

9 Peter McCutcheon, 'Concerns over payday lenders offering coronavirus relief loans', ABC Online,

21 May 2020.

10 Committee Hansard, 13 March 2020, p. 5.

11 Peter McCutcheon, 'Concerns over payday lenders offering coronavirus relief loans', ABC Online,

21 May 2020.

12 Australian Securities and Investments Commission (ASIC), ASIC Interim Corporate Plan 2020-21:

Strategic priorities responding to the impact of the COVID-19 pandemic, p. 5; see also Matt Johnson, 'ASIC flags payday lending concerns once COVID-19 fiscal stimulus dries up', The New Daily, 29 May 2020.

13 Consumer Policy Research Centre, COVID-19 and Consumers: from crisis to recovery monthly insights

report, July 2020, p. 16.

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alternative sources of financial relief. Young people were three times more likely than the general population to have taken out a payday loan or consumer lease to make ends meet.14

1.21 These insights should be driving the Parliament to adopt protections against risky products in the marketplace. This bill gives us an opportunity to implement such protections.

Conclusion 1.22 The power of payday lenders and consumer leasing businesses must be curtailed. Passing this bill will reduce the vulnerability of people on low incomes to harmful financial products and put in place better protections for

consumers.

1.23 The committee’s report reflects the substantial evidence in favour of change. It describes the effect of the bill and lays out both the technical arguments for change, and also presents a compelling case for reform with details of the impact on individuals let down by the operation of the law as it currently stands, including those who fall victim to unscrupulous behaviour by businesses in these industries.

1.24 Government senators on this committee had the opportunity to meaningfully respond to the overwhelming evidence presented to this inquiry. Disappointingly, they have chosen inaction.

1.25 Their inaction will have consequences for vulnerable Australians. The time has come to deliver small amount credit contracts and consumer lease reforms. There should be no more excuses or delays.

Recommendation 2

1.26 That the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) be passed.

Senator Alex Gallacher Senator Jenny McAllister

Labor Senator for South Australia Labor Senator for New South Wales

Senator Stirling Griff Centre Alliance Senator for South Australia

14 Consumer Policy Research Centre, COVID-19 and Consumers: from crisis to recovery monthly insights

report, July 2020, pp. 13 and 15.

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Appendix 1

Submissions and additional information

1 The Salvation Army 2 Cash Converters 3 Bucaan Community House 4 Office of Shane Rattenbury MLA 5 Australian Finance Industry Association 6 Legal Aid Queensland 7 Piper Alderman 8 Choice

9 Ms Marissa Payne 10 Anglicare Australia 11 Mr Josh Willie MLC 12 Good Shepherd Australia New Zealand 13 Anglicare Tasmania 14 TasCOSS 15 Financial Counselling Australia 16 Maurice Blackburn Lawyers 17 NSW Council of Social Service 18 Care Financial Counselling and the Consumer Law Centre 19 Stop the Debt Trap Alliance 20 CHERPA (Consumer Household Equipment Rental Providers Association) 21 NILS Network of Tasmania Inc 22 Kingston Neighbourhood House 23 Australian Retail Credit Association 24 WA Government 25 LawRight 26 Hume Riverina Community Legal Service 27 Lead Market Austalia 28 Queensland Law Society 29 CCLSWA 30 Consumer Credit Law Centre South Australia 31 Ms Lisa Garlick 32 Financial Rights Legal Centre 33 National Credit Providers Association 34 Cash Stop 35 Finance Industry Delegation 36 MyBudget 37 Legal Aid NSW 38 Financial Counsellors' Association of NSW (FCAN) 39 Consumer Action Law Centre

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40 Joint Financiers Association of Australia and min-It Software  40.1 Supplementary to submission 40

41 Law Council of Australia 42 qcoss

Answer to Question on Notice 1 Services Australia Answers to Questions on Notice Q1,Q5 and Q7 at the public hearing in Melbourne on Friday, 13 March 2020 2 Treasury Answers to Questions on Notice at the public hearing in Melbourne

on Friday, 13 March 2020 3 Services Australia Answers to Questions on Notice Q2,Q3,Q4 and Q6 at the public hearing in Melbourne on Friday, 13 March 2020 4 Services Australia Answers to Questions on Notice Q10,Q11,Q12 and Q13 at

the public hearing in Melbourne on Friday, 13 March 2020 5 Services Australia Answer to Question on Notice Q9 at the public hearing in Melbourne on Friday, 13 March 2020 6 Australian Securities and Investments Commission Answers to Questions on

Notice at the public hearing in Melbourne on Friday, 13 March 2020 7 Services Australia Answer to Question on Notice Q8 and Q14 at the public hearing in Melbourne on Friday, 13 March 2020

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Appendix 2 Public hearings

Friday, 13 March 2020 Stamford Plaza Hotel Melbourne

Consumer Action Law Centre

Financial Rights Legal Centre

The Salvation Army

Australian Council of Social Service

Consumer Credit Legal Services WA

Financial Counselling Australia

Cash Converters

Cash Stop

National Credit Providers Association

CHERPA (Consumer Household Equipment Rental Providers Association)

Finance Industry Delegation

Joint Financiers Association of Australia

Good Shepherd Australia New Zealand

NILS Network of Tasmania Inc

Services Australia

Department of Social Services

Australian Securities and Investment Commission

Department of the Treasury