Review calls for payday loans and consumer leases to facilitate financial inclusion

Review calls for payday loans and consumer leases to facilitate financial inclusion

Wednesday 20 April, 2016

Review calls for payday loans and consumer leases to facilitate financial inclusion

‘Rent to buy’ companies would be required to disclose the total cost of their contracts and abide by a new price cap if the Australian Government adopts the recommendations of its review into Small Amount Credit Contracts.

The recommendations have been welcomed by the financial inclusion organisation, Good Shepherd Microfinance, which believes the ‘rent to buy’ industry has been a law unto itself for too long.

Good Shepherd Microfinance CEO, Adam Mooney, said ‘rent to buy’ contracts are set up in a way that allows them to avoid many aspects of the credit law.

“‘Rent to buy’ have been able to charge huge amounts and camouflage the cost of their products. This is how these companies have gotten away with charging as much as $3,042 for a washing machine that retails at $489,” he said.

“We describe ‘rent to buy’ contracts as credit in disguise, and we’re pleased to see the reviewers seem to agree and have called for greater disclosure and a sensible limit on what these companies can charge.

“Importantly, the review’s starting point was that these laws should be designed in a way that promotes financial inclusion and prevents people on low incomes falling into a spiral of debt. This approach is absolutely aligned with our work to enable people on low incomes to achieve their own economic wellbeing.”

Mr Mooney said he recognised the need for consumers to access small amount credit contracts but emphasised the importance of ensuring these loans don’t trap consumers in a vicious cycle of debt.

“One way to address issues of repeat borrowing is establish a loan database which would allow lenders to see how many payday loans a customers has, or has had, in the last year, so they can ensure the borrower is not being over committed or taking out multiple and concurrent loans,” said Mr Mooney.

While the SACC review considered the national database, it did not recommend its implementation at this stage.

Good Shepherd Microfinance welcomed recommendations that would:

  • Stop payday lenders and ‘rent to buy’ companies making unsolicited offers to customers, which will reduce the number of people ‘rolling over’ loans; and
  • Require payday lenders to only charge a default fee that represents their actual costs arising from a customer defaulting.

Mr Mooney is calling on the Government to implement the review’s recommendations in full, and to continue to invest in financial inclusion and resilience measures that will complement these changes.

“We’re pleased to hear the Government’s plans to increase funding for the Australian Securities and Investments Commission (ASIC). Having a strong, well-resourced regulator is needed to ensure payday lenders and ‘rent to buy’ operators are playing by the rules.

“Through its investment in the No Interest Loan Scheme and the innovative Financial Inclusion Action Plan program, the Australian Government has shown a willingness to be a leader in tackling financial hardship. Adopting the review’s recommendations as soon as possible would be a logical extension of its actions to date,” said Mr Mooney.


For more information or an interview please call Dan Simpson on 0409 138 471 or email

About Good Shepherd Microfinance

Good Shepherd Microfinance is Australia’s largest microfinance organisation. It offers a suite of people centred, affordable financial programs and loans for people on low incomes. Its aim is to enable clients to realise their own economic wellbeing through appropriate financial services. Good Shepherd Microfinance’s programs have reached more than 181,000 people previously excluded from mainstream banking access, with repayment rates consistently above 94 per cent.

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