130 Little Collins Street
Melbourne Victoria 
Australia, 3000
Telephone:	+61-3-9251 5271
Facsimile:	+61-3-9251 5241
jim@victas.uca.org.au

Consumer Credit
The Treasury
Langton Crescent
PARKES ACT 2600

Email: consumercredit@treasury.gov.au

Submission by the Synod of Victoria and Tasmania, Uniting Church in Australia to the Review of the Small Amount Credit Contract Laws Final Report
17 May 2016

The Uniting Church in Australia, Synod of Victoria and Tasmania welcomes the opportunity to make a submission to the Review of the small amount credit contract laws, Final Report. 

The Synod has a number of community service agencies that provide financial counselling services. It also incorporates UCA Funds Management which currently excludes payday lending and some consumer leasing businesses from investment under the Synod’s Ethical Investment Policy.

The Synod recognises that small amount credit contracts meet a need for credit from consumers that experience financial exclusion.  However, it shares the concerns of others that the practices and compliance shortcomings that are evident in the sector are causing some harm to its customers.

Significant funds are being transferred to consumer leasing businesses through Centrepay, with $23.6 million being transferred to 251 companies in January 2016.

The Synod notes the on-going unethical and unlawful behaviour of some SACC providers and lessors of household goods. For example, on 23 March ASIC reported that Nimble had been required to refund over 7,000 customers more than $1.5 million after ASIC had concerns that Nimble was failing to meet its responsible lending obligations. ASIC found that Nimble failed to consistently recognise where customers had obtained repeat loans from SACC providers within a short period of time. According to ASIC, even where repeat loans were properly identified, Nimble did not take sufficient or appropriate steps as required by law before providing a loan to the customer.

The Synod supports Recommendation 1 in terms of the 10 per cent cap of the consumer’s net income as the total amount of all SACC repayments. However, the Synod strongly urges that the Government implement the option from the interim report that would have reduced the establishment fee for subsequent loans for a returning customer from 20 per cent to 10 per cent. This would help reduce the current incentive for SACC providers to encourage repeat borrowing. The argument in the final report that lowering the establishment fee for subsequent loans with the same SACC provider may “encourage consumers to take out subsequent (and potentially larger) loans with the same SACC provider is an argument that keeping charges higher on SACC customers is for their own good to encourage them not to seek repeat loans by making loans less affordable. By such an argument no safeguards against overcharging would be provided to SACC customers.

The Synod notes the final report acknowledges that SACCs are an expensive product compared to other credit products (p.21), and one accessed by people who cannot readily access cheaper mainstream credit products. The final report also acknowledged that the vast majority of SACC providers charge the maximum fees that the law allows, suggesting a lack of price competition. This should be another reason why the establishment fee for subsequent loans for a returning customer be reduced to 10 per cent, as well as ideally reducing the existing establishment fee cap and the monthly SACC fee. As noted on page 25 of the final report the APR for a SACC can be as a high as 350 per cent for a  six week SACC based on a $500 loan with fortnightly repayments. Given the lack of competition on price between the majority of SACC providers and the lack of take up by customers of no interest loans, where they are offered, this is clearly an area of market failure where government intervention to protect vulnerable people from exploitation is justified.

The Synod supports recommendation 2 to remove the rebuttable presumption under s131(3A) of the Credit Act.  

The Synod supports recommendation 3 to maintain the ban on credit contracts with terms less than 15 days. It also supports recommendation 4 that direct debit fees be incorporated into the existing SACC fee cap.

The Synod supports recommendation 5, to combat the practice of some SACC providers to front load repayments.

The Synod is disappointed with recommendation 6 that opposes the establishment of a national database of SACCs

The Synod strongly supports recommendation 7, that no 4 per cent fee can be charged for a month after the SACC is discharged by its early repayment. The Synod supports that if a customer repays a SACC early, the credit provider under the SACC cannot charge the monthly fee in respect of any outstanding months of the original term of the SACC after the customer has repaid the outstanding balance and those amounts should be deducted from the outstanding balance at the time it is paid.

The Synod strongly supports recommendation 8 that SACC providers be banned from making unsolicited SACC offers to current and previous customers.

The Synod strongly supports recommendation 9 that SACC providers not receive a payment or any other benefit for a referral made to another SACC provider.

The Synod supports recommendation 10 that SACC providers only be permitted to charge a default fee that represents their actual costs arising from a customer defaulting on a SACC up to a maximum of $10 per week. However, the Synod is concerned about how this will be implemented to ensure that only the actual costs arising from a customer defaulting can be charged, and noting the Panel itself had trouble obtaining specific evidence of a SACC providers’ reasonable default costs (page 42). The Synod is concerned that SACC providers may exaggerate the costs of default.

The Synod agrees with the final report that the failure to pay a default fee should not constitute a default that accrues further default fees.

The Synod welcomes the proposed introduction of a cap on the total amount of the payments to be made under a consumer lease of household goods made by recommendation 11. However, the proposed cap does not go far enough, with lessors of household goods being able to charge up to an 82% annualised percentage rate (APR). The maximum allowable cost should be set at 48% APR.

The Synod supports recommendation 12 that the base price for new goods be the recommended retail price or the price agreed in store, where this price is below the recommended retail price.

The Synod supports recommendation 13 that the cost (if any) of add-on services and features, apart from delivery, should be included in the cap. The Synod agrees that the delivery cost should be limited to the reasonable costs of delivery of the leased good which appropriately accounts for any cost savings if there is a bulk delivery of goods to an area. However, the Synod is concerned how the calculation of the delivery cost will be done and how the cap will be enforced on implementation.

The Synod supports recommendation 14 that the cap should apply to all leases of household goods including electronic goods.

The Synod supports recommendation 15 that lessors be prohibited from requiring consumers to pay more than 10 per cent of their net income in rental payments under consumer leases of household goods, so that the total amount of all rental payments (including under the proposed lease) cannot exceed 10 per cent of their net income in each payment period.

The Synod supports recommendation 16, but believes the Department of Human Services should implement the caps in recommendations 11 and 15 mandatory as soon as practicable for lessors who utilise or seek to utilise the Centrepay system, rather than just consider making the caps mandatory.

With regards to recommendation 17 the Synod agrees there needs to be a limit placed on what a lessor can charge for early termination of a contract, and that should be significantly less than all remaining payments for the term of the contract (unless the early termination is very close to the end of the contract term anyway).

The Synod strongly supports recommendation 18 that there should be a prohibition on the unsolicited selling of consumer leases of household goods.

The Synod supports recommendation 19 that SACC providers continue to be required to obtain and consider 90 days of bank statements before providing a SACC, and introduce an equivalent obligation on lessors of household goods. The Synod also strongly supports a prohibition on using information obtained from bank statements for purposes other than compliance with responsible lending obligations. The Synod supports the Panel’s recommendation that safeguards be put in place to ensure that consumers do not lose unauthorised transaction protection when giving access to their account information for responsible lending purposes.

The Synod supports recommendation 20 that SACC providers and lessors under a consumer lease are required at the time the assessment is made to document in writing their assessment that a proposed contract or lease is suitable.

The Synod supports recommendation 21 that lessors under consumer leases of household goods be required to provide customers with a warning statement, designed to assist consumers to make better informed decisions as to whether to enter into a consumer lease, including by informing consumers of the availability of alternatives to these leases. The Synod supports the recommendation that ASIC be given the power to require SACC providers and lessors under consumer leases of household goods to have to modify their warning statements to maximise the impact on consumers.

The Synod supports recommendation 22 that SACC providers and lessors under a consumer lease of household goods be required to disclose the cost of their products as an APR. The Synod also strongly supports the introduction of a requirements for lessors of a consumer lease of household goods be required to disclose the Base Price of the goods being leased, and the difference between the Base Price and the total payments under the lease.

The Synod strongly supports recommendation 23 that the existing civil penalty regime in Part 6 of the National Credit Code be applied to consumer leases of household goods and to SACCs, and, in relation to contraventions of certain specific obligations by SACC providers and lessors, provide for automatic loss of the right to their charges under the contract.     

The Synod strongly supports recommendation 24 that the Government amend the Credit Act to regulate indefinite term leases, address avoidance through entities that using business models that are not regulated by the Credit Act and address conduct by licensees adopting practices to avoid the restrictions on the maximum amount that can be charged under a consumer lease of household goods or a SACC, or any of the conduct obligations that only apply to a consumer lease of household goods or a SACC.

The Synod believes that leases should not be permitted to run for more than four years to protect people from leases being extended. The Synod is aware that some lease providers suggest that the person leasing the goods can purchase them at the ‘end’ of the lease for a nominal fee (for example $1), but then do not make it easy for the person leasing the product to make the final purchase of the goods in question. If the person leasing the product fails to understand how to make the final purchase, the lease provider simply rolls the lease over and continues to collect lease payments.

Credit Suisse pointed out that the Radio Rental that “Rent, Try, $1 Buy” product may be misleading in that the customer does not necessarily get to buy the actual product that they have been renting, but it may be a similar product. The Radio Rental website states in fine print (smaller font than the rest of the page): 
Goods available to buy using Rent, Try, $1 Buy are similar to rented good in age, dimension and features. $1 buyout is after payment of either 24, 36 or 48 (product dependent) months rental.
Customers are notified that their contract is coming to an end, but the customer must notify in writing Radio Rentals at least 30 days before the end of the contract that they want to buy the goods. The person then needs to go into a store after notifying Radio Rentals and pay the $1 in order to gain the “Rent, Try, $1 Buy” offer. Numerous customers reported that an additional month’s rent was taken out if they missed the required payment dates by just one day. Credit Suisse concluded that:
We believe that much of this contortion around executing on the $1 Buy component is to ensure compliance with Consumer Leasing regulations and ensure the contracts does not fall under Consumer Lending regulation. Thus the regulatory arbitrage is actually creating customer dissatisfaction in its execution.

Credit Suisse found that consumer leasing contracts continue on after the initial term, if the customer does not terminate them. The onus lies with the customer to take action. Otherwise, payments continue to be taken from the customer, with the contract being indefinite. So in addition to placing a four year cap on contracts, the legislation should be amended to mean a lease contract automatically terminates at the end of the agreed period with the customer and the onus is on the company to recover the goods.

Dr Mark Zirnsak
Director
Justice and International Mission Unit
Synod of Victoria and Tasmania
Uniting Church in Australia
Phone: (03) 9251 5265
E-mail: mark.zirnsak@victas.uca.org.au