Consumers Federation calls for crackdown on predatory loan practices.
Sparked by government inaction on reforming the short-term loan market, consumer groups have united to lobby for reforms.
Consumer lease and short-term loan operators have been accused of preying on the vulnerable.
Consumer leases are commonly known as ‘rent-to-buy’ arrangements. Small amount credit contracts are commonly known as ‘payday loans’.
Consumer group CHOICE cites the example of Norma Wannell, a retired 65-year-old, as just one example of how the industry works. Ms Wannell was walking through Radio Rentals with a friend and decided to buy two vacuum cleaners, one handstick and another barrel, with a combined retail price of $991, but over the course of her contract, she would have to pay three times more at $3900.
She signed the contract to earn her friend a referral credit and the confusing paperwork did not clarify the terms of the deal or the total amount she would end up paying.
The Radio Rentals business model, where a product is financed, is a consumer lease. Together with payday loans, they make up small amount credit contracts (SACCs).
The Government completed a review of small amount credit contracts (SACCs) in November 2016. The report made 24 recommendations in an effort to "protect consumers from descending into a spiral of financial exclusion".
Despite bipartisan support for the recommendations, the Government is yet to bring forth any legislation to change the way the short-term loan market works.
Consumer advocacy groups including CHOICE, Consumer Action Law Centre, Financial Counselling Australia, Financial Rights Legal Centre, Consumer Credit Legal Service (WA) and Good Shepherd Microfinance have united to call on the Federal Government to clean up the industry.
The Consumers Federation of Australia wants to introduce legislation limiting lease repayments, prohibiting monthly fees for early repayments and banning unsolicited payday loan offers to current or previous customers.
Gerard Brody, chair of the Consumer Federation of Australia, said it was time for the Government to take action to reform the industry, which has long been accused of unscrupulous lending practices.
“These industries prey on people on low incomes or in tough spots, trapping them in high-cost products even though they may be struggling to pay for the basics like rent or food,” said Mr Brody.
The Consumers Federation of Australia also wants the Government to fund no-interest loan schemes offering affordable loans between $300 and $1200 for essential goods and services and medical procedures.
Katherine Temple, Senior Policy Officer at the Consumer Action Law Centre told YourLifeChoices that the Government needs to make implementation of these reforms a top priority.
“There is bipartisan support for reform so there is no reason for delay,” she said.
“We particularly support the review’s recommendation to cap repayments for payday loans and consumer leases at 10 per cent of a person’s net income. This reform would provide much-needed protection for vulnerable and low-income people who are targeted by these businesses.
“Our lawyers and financial counsellors are receiving calls every day from people getting ripped off by these products. Our clients can’t afford to wait any longer for change.
“Consumer leases and payday loans are extremely expensive, and do nothing to help people in financial trouble. The poor are paying more, and it’s not right.
“These businesses are profiting from poverty and desperation.”
Why do you think the Government is dragging it's heels? Should it act now and clean up this predatory industry?
Join YOURLifeChoices, it’s free
- Receive our daily enewsletter
- Enter competitions
- Comment on articles