Bert Van Manen (Forde, Liberal Party) Share this | Hansard source

I thank the member for Indi for bringing this motion to the House. It's important when considering topics such as this to consider the effect of debt on families, singles, the elderly and everyone in between and, importantly, what can be done to protect them from going further and further into debt. That's where I agree with the sentiments echoed by the member for Indi in her contribution. There is no doubt that being in debt, particularly when it involves high-interest rates, can have a devastating effect on people, especially families who are already struggling. Often we see those people seeking to borrow more money to get them out of that particular situation. But, sadly, that's rarely, if ever, the right answer.

Borrowing has become a way of life for many of these people. Unexpected bills, increased living expenses and overspending can often lead people to make decisions that they would otherwise never make—such as going to visit a payday lender, who is offering fast and easy money, or renting a piece of household equipment such as a big-screen TV. A 2012 study estimated that 1.1 million Australians were, on average, taking out three to five loans per year and about 40 per cent of payday loan customers take out more than 10 loans a year. Lenders often schedule repayment dates to coincide with the borrower's wage or benefits payments, leaving people without adequate money to cover rent, food or other basic living expenses.

What we know for sure is that fast money, like that offered by payday lenders, is almost guaranteed to lead to a debt cycle. This is why the government established a small amount credit contracts review—to ensure consumers were protected and that lenders were acting within the law and not ripping people off. Currently, we are seeing examples of interest rates of up to 884 per cent on consumer leases and loans. The government wants to ensure that the regulatory framework strikes the right balance between protecting vulnerable consumers and minimising the regulatory burden on industry.

It is also evident that some of these services, particularly in the consumer lease space, are for some people their only access to finance to obtain goods that they need. That, in part, is because of some of the things they have gone through and the circumstances in their life. But one of the problems that I have seen in the hearings and the meetings that we've had is the issue of disclosure. Many of these people sign up to these contracts with little or no understanding of what they're actually signing up for, because the interest rates, fees and charges are not properly disclosed. For a personal loan contract with a bank or a major financial institution, there is a requirement that they properly disclose all fees, charges and interest rates in a clearly identifiable and easy-to-understand format. That requirement does not exist with consumer leases or payday loans. I've read a few of these consumer lease or payday loan contracts. You can't understand and properly identify what you are paying for. I have made that very clear to the minister in the consideration that is being given to how we deal with these particular issues.

The recommendations in the report include extending the contract's protected earnings amount, introducing a cap on total repayments and introducing a protected earnings requirement for consumer leases, as well as for payday loans. Implementing these recommendations to ensure protection for vulnerable consumers is what we are seeking to do. We want to ensure that we get the legislation correct so that not only consumers are protected but also those businesses that provide the service are protected.

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