Time to regulate ‘credit-in-disguise'

Neon sign advertising payday loans

Consumer leases are ‘credit-in-disguise’ and should be subject to the same regulations as payday lending, says Good Shepherd Microfinance in its submission to the Small Amount Credit Contract (SACC) review.

The submission also calls for a limit on the cost and length of consumer leases, also called ‘rent to buy’ deals, the introduction of mandatory positive credit reporting for payday lenders and consumer lease companies, and the expansion of ‘protected earnings provisions’ to all people on low incomes.

Chief Executive Officer of Good Shepherd Microfinance, Adam Mooney, said limiting repeat payday loans (one default loan or more than two loans in the past 90 days) needed to be a priority.

“Our microfinance workers see the harm caused by payday loans and consumer leases every day - they’ve been seeing it for years. Minimising repeat borrowing across the industry is crucial to protect vulnerable consumers,” said Mr Mooney.

“Many of our clients have previously juggled a combination of multiple payday loans and ‘rent-to-buy’ contracts. We need measures that include consumer leases in repeat and multiple lending provisions. The simplest and most effective way to do this would be through mandatory positive credit reporting.”

“This would mean that current and past loans and defaults are logged, giving lenders a simple way of checking an applicant’s loan and repayment history. It would enable responsible lenders to make an informed decision about whether someone can afford a loan, and make it easier to identify lenders who are ignoring responsible lending laws.

“We’d also like to see the protected earnings provision, which ensures no more than 20 per cent of a Centrelink recipient’s income is directed towards loan repayments, expanded to cover all borrowers with low incomes,” said Mr Mooney.

Good Shepherd Microfinance’s submission also recommends that consumer leases be removed from the Centrepay direct payment system, the cost of contracts be capped at the same level as payday loans, that lease terms be capped at 18 months, and that the overall cost of the contract and government funded safe alternatives, such as the No Interest Loan Scheme and StepUP, be disclosed and prominent in any marketing.

The submission renewed Good Shepherd Microfinance’s call for payday lenders and ‘rent to buy’ companies to refer eligible customers to safe, fair and affordable alternatives. NILS provides individuals and families on low incomes with access to loans of up to $1,200 for essential goods and services such as fridges, washing machines or car repairs.

“We’ve also recommended small amount credit providers develop a Financial Inclusion Action Plan. These plans would identify and implement measures that improve customers’ economic wellbeing such as referrals to NILS,” said Mr Mooney.

Good Shepherd Microfinance is developing a Financial Inclusion Action Plan (FIAP) program in partnership with Ernst & Young, Centre for Social Impact and Australian Government Department of Social Services. This program will support business, government, community and academic institutions to develop their own plans and advance financial inclusion in Australia, especially women.

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