Consumer leases are where a person signs a contract to lease a product, a common example being tablet computers that parents buy for children. Under the contract, the product must cost more than the spot price and the amount must be repaid over a period of more than four months.
The main difference between a credit contract to buy goods and a consumer lease is that with the latter, there is no right or obligation to buy the product. Usually, however, people end up with the article after a few years. Consumer leases are so designed because otherwise they would be regulated like a credit agreement and the borrower would benefit from a number of protections.
Three and a half years ago, on August 7, 2015, then-Deputy Treasurer Josh Frydenberg announced a review of payday loans (referred to as “small loan agreements” in law) and extended the terms of reference to consumer leases. The final report, published in April 2016, contained 24 recommendations.
In November 2016, then Financial Services Minister Kelly O’Dwyer proposed to implement most of the reforms, saying the legislation should progress in 2017. She proposed to introduce a cap on the costs of consumer leases. and limit refunds to 10% after income tax.
Following significant lobbying from the payday lending and consumer leasing industries, the Coalition put the reforms aside.
But the fight continued. Consumer advocates gathered in Canberra to organize a national day of action for fair finance. Then, in February 2018, Labor’s Tim Hammond presented the government’s own legislation for them to Parliament, saying: ‘We are concerned about recent reports that Conservative backbenchers in government are now pushing the government to drop or water down this legislation. ‘
Again, the law has gone nowhere.
Last month, in February 2019, Madeleine King of the Labor Party reintroduced the bill in Parliament, but again it has not moved forward.
This government does not intend to act. This month, Deputy Treasurer Stuart Robert, the minister responsible for this type of loan, was questioned in the National Consumer Congress when reforms approved by his own government’s cabinet would be enacted. He replied that his government had just received a report on the issue of a Senate inquiry and therefore needed to be examined further. This conveniently whitewashed the history of the 2.5 years since Kelly O’Dwyer looked at his cabinet colleagues and promised to implement the recommendations of the 2016 report.
In the meantime, payday lenders and consumer leasing companies continue to thumb their noses at the limited protections that exist. The regulator, the Australian Securities and Investments Commission, has taken numerous actions against these lenders, but the damage they are causing is only intensifying.
These lenders market aggressively, using text messages, emails and other forms of unsolicited marketing to harass the most financially vulnerable. Pledging credit seems like a solution for many, but it only hides bigger issues – including inadequate income support, stagnant wages, casual jobs, and ever-rising electricity prices.
The government has a chance to finally do the right thing and present this legislative reform to Parliament when it sits on Monday. Any of us could suffer from an illness or lose our jobs, but the predatory products of payday lenders and leasing providers are not a solution. That’s why we need effective legislative reform, to protect the community from harm – and end the corrosive effects of industry lobbying.
Gerard Brody is the CEO of the Consumer Action Law Center. Elizabeth Minter is the Communications Manager for Financial Counseling Australia.