An Australian Securities and Investment Commission (ASIC) report into the ‘rent to buy’ contracts has exposed the industry’s exorbitant pricing and willingness to target people on low incomes.
People often sign up for rental contracts because they have limited access to other forms of finance and the fortnightly or monthly repayments appear affordable. What they don’t understand is that the cost of finance is equivalent to interest rates of over 250 per cent and in one case was found to be 884 per cent.
The most concerning finding in this report is that people on low incomes sometime pay more despite their financially vulnerable position – these are the members of our community who can least afford to be paying a premium for a fridge or washing machine.
“Microfinance workers across the country hear from people who have taken out these contracts on a daily basis. They’ll tell you that ‘rent to buy’ contracts are leaving many people in a spiral of debt,” said Adam Mooney, CEO of Good Shepherd Microfinance.
“Unfortunately, we’re seeing a disproportionate impact on women, many of them single mothers, who often turn to these products because they are excluded from mainstream finance.”
Good Shepherd Microfinance’s financial products and services support a person’s innate ability to improve their own financial situation, and over the longer term enable them to be financially included. This can only be achieved when financial services price products based on a person’s capacity to repay and the purpose of the item.
Mr Mooney said “we need a pricing model which reflects a person’s individual situation at a certain point in time. As a society, do we really think that it’s fair that the person who has the least amount of income is forced to pay the most for essential household items?”
Good Shepherd Microfinance is seeking to establish a framework which would see ‘rent to buy’ companies refer eligible customers to the No Interest Loan Scheme (NILS). NILS provides individuals and families on low incomes with access to safe, fair and affordable loans of up to $1,200 for essential goods and services such as fridges, washing machines or car repairs.
We’ve seen responsible lending frameworks introduced in other sectors and we hope the industry is willing to work with us and be an active participant in the upcoming Government review so we put some sensible policies and procedures in place.