Review into payday lending and ‘rent to buy’ strikes the right balance between consumer choice and consumer protections

Good Shepherd Microfinance commends the Small Amount Credit Contract Review panel for the comprehensive and fair-minded approach that has been taken throughout the process.

This final report strikes a balance between consumer choice and improving consumer protection, most strongly in terms of reform to the consumer lease market which has for far too long, been effectively unregulated.

We emphatically support the focus throughout the report towards a more nuanced and complex understanding of financial inclusion as more than simply access to credit at any cost. Financial inclusion does include access, but should not mean that people on low incomes are charged far more or treated unfairly.

Many of the recommendations that have been put forward by the Panel are simple and sensible improvements to the current regime, while some will require further consultation and exploration. We urge the government to harness the momentum that has been gathered throughout this process and take swift action, in particular to implement the changes to Centrepay as quickly as possible. This recommendation in particular will have an immediate and substantial impact on the lives of the most vulnerable in Australia, and ensure that they are charged prices that do not take advantage of their low income status.

The key points of our response include:

• Support for the new method for capping costs for both SACCs and for consumer leases, and extending affordability protections to all consumers. This means that consumers will only ever have a maximum of 20% of their net income dedicated to paying back these financial products.
• Support for SACC lenders and consumer lease companies to be included in the Comprehensive Credit Reporting (CCR) system in the future.
• The impact of mandatory disclosure would be enhanced by moving towards “verified consumer understanding”.
• Mandatory warnings for SACCs and consumer leases to include responsible referrals to government-supported safe and affordable alternatives.

We will also continue to call for the government to take further action to improve financial inclusion with regards to SACCs and consumer leases, including:

• Increasing funding for financial counsellors, as it is currently the case that distressed consumers in dire financial circumstances must often wait for an appointment with financial counsellors who are stretched to capacity.
• Increase the availability of safe and affordable alternatives.
• Implementation of Financial Inclusion Action Plans by lenders and lessors.
• Increase investment in inclusive finance initiatives across Australia.

In order to meet the demand for access to safe, fair and affordable microfinance loans, estimated by the Centre for Social Impact to be 325,000 additional consumers, an increase in Federal Government investment from $6 million to $100 million per annum in funding across the system would be required. This would also mean an increase in capital $30 million to $500 million, with a broader commitment from other sources.