‘Rent to buy’ – If fairness is a priority, this is the easy win for our politicians

‘Rent to buy’ – If fairness is a priority, this is the easy win for our politicians
n the lead up to the 2016 federal election, Good Shepherd Microfinance will examine six policy areas it would like to see addressed during the election campaign and by the incoming government. In the first of these articles, Andrew Knight, National Manager of Good Money, tells how the stories he has heard from clients convinced him of the need to regulate consumer leases.

Perhaps because politicians, journalists and advocates can quickly turn budget dollars into lists of ‘winners and losers’, public discourse on financial inclusion in the lead up to the election has largely focused on who’s getting what. The upshot being that it draws attention away from those policy measures that don’t easily fit the narrative.

One of the most impactful and cost effective ways to encourage financial inclusion is to take a close look at the products and services targeting people on low incomes and, as much as possible, ensure they’re not compounding their money worries. In consumer leases the incoming Government has a unique opportunity to improve such a product.

The microfinance workers at Good Money have long held concerns about the negative impact consumer leases are having on their local community, particularly on people with low incomes.

Often called ‘rent to buy’ deals, consumer leases involve renting a product for a few years, before you’re given the opportunity to purchase the product outright. What people often don’t realise is, by the end of the contract, they’ll have paid around three times the value of the product.

In dollar terms a ‘rent to buy’ deal will see you pay around $1,800 for a $650 fridge and take three years to repay. People on low incomes simply can’t afford to be paying such a premium for essential items.

Unlike credit contracts and phone plans, consumer lease companies are not required to disclose the overall cost of their contracts, making it almost impossible for customers to make an informed decision about whether the deal represents good value.

These concerns were given extra urgency by a recent Australian Securities and Investments Commission report which found people were being charged different rates for consumer leases depending on their income – people on low incomes and receiving Centrelink benefits were being charged more.

Last year the Australian Government extended the terms of reference of its independent review of Small Amount Credit Contract (SACC) laws to include consumer leases. The recently completed review was comprehensive, balanced, and made 12 recommendations that could significantly improve consumer leases and, therefore, the financial wellbeing of the people who use them.

Of particular note are measures that call for:

  • A new method for capping the cost of consumer leases
  • The introduction of an affordability measure that would ensure consumer lease payments never exceed 10 per cent of a client’s net income
  • Requiring lessors to disclose the base value of the product being leased and the total contract cost.

We’re calling for the major political parties to commit to implementing the recommendations of SACC review as soon as possible and for the incoming government to take immediate action to regulate consumer leases like other forms of credit.

I’m privileged to be able to speak with Good Money clients about their financial challenges, successes and aspirations. All too often they speak with regret about the time they tried ‘rent to buy’, and all too often they’re still paying the price. It’s these real life stories, more than any policy argument, which convince me of the need for action. It would be great to see similar real life stories, complete with ups and downs, replacing the binary winners and losers narrative and used to announce long overdue changes to the consumer lease industry.

By Andrew Knight
National Manager, Good Money

Andrew Knight

Good Money community finance stores offer safe and affordable financial services to people on low incomes in Victoria and South Australia. Good Money stores support customers to make sustainable financial decisions that lead to greater social inclusion and long-term financial self-management. Recent investment from the Queensland Government will see Good Money open stores in Cairns and on the Gold Coast in 2017.

Good Money is a partnership between Good Shepherd Microfinance, the Victorian, South Australian and Queensland Governments and National Australia Bank

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