Maria Vamvakinou (Calwell, Australian Labor Party) Share this | Link to this | Hansard source

Today I rise to speak on this motion because I feel it is very important that we as a parliament ensure that there are more efficient and responsive regulatory mechanisms in place to address the shortfalls and loopholes which have allowed the practice of what is commonly and quite rightly known as 'dodgy lending' to flourish in the broader Australian community.

I go to the heart of what this motion speaks to, and that is the issue of payday loans. These short-term high interest loans are designed to view people and families in desperate need of money or credit as a lucrative market upon which to feed and make profit. This is a $1 billion industry that has long served to commodify and target people on low incomes and their families by marketing their so-called assistance as emergency short-term loans, often taking merciless advantage of people's desperation.

These loan sharks, as they are often referred to, are known for charging exuberant interest rates and preying on vulnerable people who have no other means of accessing loan funding. It is important that regulatory oversight mechanisms are in place to significantly boost consumer protection, which can be achieved only through a single standard national regulation of consumer credit. It is not enough to talk about consumers without actually outlining who these consumers are. Consumers are actually people and they are those who are essentially very vulnerable—those who are experiencing entrenched disadvantage, those who are unemployed, single mothers and single fathers, vulnerable young adults, students, elderly pensioners and disabled people, all of whom can be found in communities across Australia and, in particular, can be found in great numbers in my electorate of Calwell.

That is why this motion acknowledges and, indeed, congratulates the federal government's National Consumer Credit Action Plan, because people in desperate circumstances need protection from unscrupulous lending. It was a Labor government which enacted the uniform consumer credit code into Commonwealth legislation and established a national licensing regime for providers of consumer credit and credit related brokering services. It was a Labor government that regulated margin lending and enhanced the enforcement powers required to make sure that licensees stick to responsible lending practices. I am also encouraged that it is this Labor government that will seek to implement phase 2 of the National Consumer Credit Action Plan that will include a focus on payday lending. The source of the problem is that the market base for these short-term loans is often people with poor credit due largely to their poor financial literacy. The federal government have supported programs which serve to enhance the financial capacity of the most vulnerable Australians because financial literacy is key to assisting people in such circumstances. One such program is the Saver Plus program developed by the Brotherhood of St Laurence and the ANZ Bank. I am pleased to say that this program operates out of my electorate of Calwell. Since 2007, 235 families have been in contact seeking assistance from this program. The success of this program lies in its ability to directly reach and engage with the community at a grassroots level. I have had an opportunity to speak to the people in my electorate who run this program and they often tell me that their workload has grown significantly and continues to grow. On the one hand that is a problem because it indicates that more and more people are getting into trouble; on the other it gives them an opportunity to reach and assist a group of people.

Nationwide, 7,000 families across 60 sites have benefited from this capacity-building program. This program recognises that it is not about waiting for families to reach crisis point before intervening to appropriate money from them; it is actually about ensuring that families are resilient enough to build and achieve their financial goals, and avoid falling into a cycle of disadvantage. Those who have greater financial literacy and money-saving methods are more likely to avoid having poor credit and, as such, are less likely to be affected by financial exclusion. Importantly, capacity-building programs such as the Saver Plus program increase the knowledge capacity of participants, who acquire the knowledge to identify hidden fees and exorbitant charges relating to a range of financial products, thereby exposing the traps and pitfalls of ultrahigh interest loans.

The government's agenda is to close the loopholes that provide what is known as wiggle room for lenders that all too often cause borrowers to default and be left in a cycle of increasing debt. Our welfare agencies often report severe financial difficulties. There has been an increase in demand from families and individuals in my electorate requiring help to manage their finances. My electorate is a vulnerable electorate, with places such as Broadmeadows experiencing higher than average rates of financial exclusion due to a variety of social and economic factors. The government's policy is designed to mitigate these challenging factors that have a direct impact on the wellbeing of families and the community at large.

The implementation of these reforms is not an isolated initiative put forward by the government. The government's multifaceted approach and commitment to tackling the root cause of financial hardship is clearly visible. In Broadmeadows, I recently had the opportunity, along with the Assistant Treasurer, the member for Maribyrnong, to launch the MoneySmart website developed by the Australian Securities and Investments Commission. This is all part of the federal government's National Financial Literacy Strategy. It is about ensuring that when people want to access credit and finance they do so with the knowledge required to make informed and efficient decisions. Along with the MoneySmart website, the Parliamentary Secretary to the Treasurer, the member for Lindsay, and I launched the 'Your shopping rights' fact sheet, which is about helping people make more informed savings and financial decisions without running the risk of falling victim to the sales pitch and the spin which often lead them to accumulating more debt than they can afford. The federal government are showing leadership on this issue through a comprehensive approach to providing a national policy direction for helping the most vulnerable in our community in a clear, consistent and coordinated fashion—one that reaches communities across Australia. The launch in Broadmeadows was a case in point because it is one of the most diverse electorates in the country. The fact sheet is designed to reach all communities in all their diversity because it is produced in a number of languages. It overcomes the language barrier for a lot of people, which is often the reason that they get into financial difficulty.

I want to quote a case study from the Saver Plus policy briefing by the Brotherhood of St Laurence. It is not a complicated example; rather its simplicity reflects the fact that it serves to address the impediments which ordinary people in my electorate face on a daily basis. It says: 'Sheryl is a single mother of two living in the northern suburbs of Melbourne and working part-time in a nursing home. Sheryl has said that Saver Plus gave her the opportunity to upgrade her family's old computer and to learn saving skills that she had lacked in the past. Sheryl developed a money plan and saved $50 each fortnight to go towards a new computer for her children. When Sheryl completed the program she used the funds to buy her children a new computer. "The most helpful thing I learnt from the program", says Sheryl, "was how to take care of my own financial situation and cut down on where I was wasting money. My children have picked up on my saving habits and instead of spending their weekly allowance immediately are saving it to buy those items they want instead of me buying it for them. It is teaching them the real value of money."'

This is a case in point, but it is reflective of an improvement in financial literacy coupled with the correct knowledge base of consumer rights and shows that that is what empowers families who are doing it tough. It is about intergenerational learning rather than an intergenerational cycle of disadvantage.

I want to finish by drawing the attention of the House to a Consumer Action Law Centre report titled Payday loans: helping hand or quicksand? The report, which was produced in 2010, makes a very important point. The report invites the reader to think about a statement which it quotes from a Cash Converters financial report of June 2006. The Cash Converters report gloats:

The vast bulk of our lending business is conducted with repeat customers who are familiar with the product and use the credit facilities from time to time to meet short term needs.

'Repeat customers' is code for celebrating the fact that the vast bulk of their customer base is made up of people and families consumed in a cycle of debt—a deliberate, calculated and crude strategy for attracting debt and default. It is with this thought in mind that I welcome the government's commitment to protecting families and to improving the operation of the consumer credit market in Australia. I also commend the work of the community organisations determined to work with the government to tackle this blight on our society that is guided by misconduct, exploitation and greed.

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

I thank the member for Calwell for her motion. As for what the member for Calwell has shared, in my electorate of Forde we have many people who suffer from the same financial difficulties. There are many reasons for that. The importance of this National Consumer Credit Action Plan is that it starts to put some guidelines and protections around those who are vulnerable in our community. I think there is also great value in having a single unified system across the country so that as people become more mobile in their lives and move interstate they understand what the laws and systems are.

One thing we need to be mindful of with these facilities is that for some of these people it is their only access to finance, and therein lies a great trade-off. For people who have poor credit histories or who are unable to access finance through the normal banking channels, how do they access finance to help meet those gaps in their daily needs? I acknowledge that some of the interest rates and fees are excessive, particularly on the interest rate side. But, given that a lot of these loans are quite small and there is a requirement for the providers to charge a fee to cover some of their costs, the total cost may appear quite high but these providers at some point need to cover their costs for providing the service. So we need to be careful, with these issues, that we do not preclude people who are in difficult and vulnerable positions from accessing amounts of finance to allow them to continue to meet their living expenses and cash flow requirements.

The member for Calwell touched on the Saver Plus program, and I know from experience of talking to representatives from the Benevolent Society in my electorate that it is a great success. I commend the government and ask the government to continue to support the program. In my role, I will certainly continue to support and advocate for that program because it provides a great benefit to families in my community. I will move on to one of the reasons why these people are looking for this sort of finance—that is, access to finance through the major banks or building societies. In that regard, we as a coalition have proposed a root-and-branch reform of the financial system, starting with a nine-point banking plan. It is designed to provide a competitive and sustainable banking system. If we can bring the poor and the marginalised in our society into the mainstream banking system, it will take away the avenues of business for these short-term payday lenders.

Some of the things that we are looking at in this nine-point plan are: that we call on the ACCC to investigate anti-competitive practices such as price signalling; that we want an investigation by APRA into unnecessary bank risks; talking to banks about reporting on bank interest margins; government support for small lenders; improved liquidity for mortgage backed securities; a complete review of the financial system; and further simplification of financial services reform to reduce costs and complexity. If we can reduce these costs and complexities for the mainstream banking system and building societies, maybe that will provide them with the option and the avenue to help the lower end of the community to obtain finance without having to deal with these so-called payday lenders. This is an argument that we as a coalition have been pursuing for some period of time. We call on the government to continue to look at that in greater detail so that these new options and avenues are available for the less fortunate in our society.

One of the concerns with this National Consumer Credit Action Plan is that the regulation that is proposed around this payday lending be kept simple and straightforward so as not to make it more expensive for these providers to provide their product. We do not want to see them put their costs up and we do not want to see them increase interest rates to continue to provide the services; otherwise, we would be defeating the purpose of these facilities.

As I touched on earlier, it is through a full root-and-branch review of our financial system that we are going to be able to deal with some of these issues in a more sustainable and long-term manner. It is through positive market based solutions together with considered regulation and the government removing itself from the market and returning to a more sound economic platform that we will create an economy where everybody can grow and prosper. We would be able to help people who are currently struggling through unemployment or lack of income who do not have the hours of work necessary to make ends meet. We must help them to truly be able to earn the income to manage their own financial affairs so that they do not have to deal with these short-term payday lenders. This issue will then start to go away as their product will no longer be required.

It is not through rushed or ill-considered legislation, which this current government has a habit of making, that we are going to solve these issues. We ask the government to listen, learn from the mistakes it has made with short-term, populist pieces of legislation, take advice from the industry and take input from the coalition and other members of the community on how best to deal with these very important issues.

Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

This government has done more in this area of law than perhaps any other government in the past 30 years. This government has done a superb job of reforming our financial markets and our financial services sector; importantly, linking both of those to consumer protection measures as well. This government is determined to give consumers better protection in credit markets, and that is exactly what we have done.

The National Consumer Credit Action Plan, phase 1 came into effect on 1 January and provides for licensing of all credit providers. It sets out new responsible lending requirements and it gives access to external dispute resolutions to all consumers of consumer credit. I think that ought to be the basis, the starting point, for any debate in this particular area because I am very much concerned about the confusion in this debate between a properly regulated operator in a market—people operating within the law and providing a legal product—and those who are basically loan sharks. There is a huge difference, a big gap, there and we ought not to get confused about which of those two types individuals or organisations are.

The changes that we are putting forward undoubtedly are good for consumers, but there is more to be done, particularly in the area of high-cost, short-term loans commonly known as payday loans. Again, I clearly make the distinction that there are those who operate efficiently and legally, are properly regulated and provide what is a desperately needed service. The high-cost, short-term loans are typically small loans of between $200 and $500 for individual people. They are designed to be paid back in a very short period, usually of two to four weeks. They attract a fee—sometimes a high fee—and an interest charge as well. Some of these interest rates can be annualised to equal more than 400 per cent, but annualising does not paint an accurate or even responsible picture of the actual cost compared with any other type of traditional loan—a home loan, a car loan or even a credit card—and what that means in real terms for a consumer.

I draw the attention of the House to the fact that somebody with a credit card debt of $5,000 who only pays off the minimum amount as required by their bank, regardless of the interest rate, will not pay it off for 50 years. Work out the annualised rate over 50 years and how much a person with a credit card would pay compared to someone, regardless of the annualised rate, who borrows $200 and pays it back in two weeks. There is an enormous difference in the impact that has on somebody's life. It is easy enough to get confused and populist in this debate about annualised figures of 400, 500 and 600 per cent but it tells us very little of the need or the type of credit that it actually represents.

It is important to recognise that properly regulated legal loans can be effective in helping individuals. Just like any other form of credit, if it is done properly it can be of great benefit. Nobody who has created wealth in this nation would ever say they did it on their own without a creditor behind them in the first place to give them the capacity to grow their business or to get on the table to start with.

The Consumer Action Law Centre, based in Melbourne, in its very good report Payday loans: helping hand or quicksand?,sets out a number of things. It says:

Many people using these loans are vulnerable.

That is true. Studies have shown that consumers generally have high-cost short-term loans in order to meet basic needs—for example, 21 per cent of them use them to pay bills, for car registration or repairs, for living expenses, including food, or even to pay their rent. But that is exactly the point. That is exactly where a payday loan can actually be of great advantage, because if there is no other means of credit to actually pay those essential bills, what happens? Does the power go off? Do people get tossed out of their home? So there is a place; there is a market. It is recognised by government. We have done more than any other government to properly regulate that area. What I am looking for is efficiency: let us get it properly organised, let us make sure we make a distinction between the loan sharks, the underhanded black market credit—which is actually very damaging to individuals—and those who properly access a market which is obviously recognised by its need in that particular report.

As I said earlier, there is a great distinction to be made by those who understand credit and the financial markets between what is a regulated operator operating within the law—banks and those types of loans—and those who operate outside the law. And they need to recognise that the people who access this type of credit actually have no other source. They cannot get a credit card and are probably better off not getting a credit card because the cycle of debt may be a lifetime cycle. There are a number of very good quality reports out right from decent operators in the market that demonstrate that these people are not turnstile customers. (Time expired)

Bruce Billson (Dunkley, Liberal Party, Shadow Minister for Small Business, Competition Policy and Consumer Affairs) Share this | Link to this | Hansard source

I rise to support the sentiment of the motion of the member for Calwell on the National Consumer Credit Action Plan. I commend the members for Calwell, Forde and Oxley for their contributions. It is true that this area of financial service is one that is not short of horror stories. There are a number of consumers that report very damaging impacts from participating in payday loan facilities and I concur with the general view that it is certainly an area of finance that does need a close examination and an understandable framework put in place that is nationally consistent. I think that objective is virtuous and I support that direction.

It is also worth adding to the comments of earlier speakers that this is a very legitimate area of financial service. It is a product that is well suited to particular people's circumstances. The idea that a short-term cash flow crisis emerges in a household is certainly something I am familiar with, although I have not had to resort to a payday lender. But sometimes an appliance unexpectedly turns up its toes or, in cases that have been reported more publicly, cars break down and need urgent repairs to make sure income continues to come into households. Even in the small business community, there might be a particular need for some equipment to generate income in the longer term. There are often very good and reasoned people participating in this financial service because it responds to their circumstances. It is also true, though, that this financial service can be unhelpful in many ways and, in a compounding sense, increasingly unhelpful for vulnerable families who end up pursuing payday financing as a way of addressing other debt-servicing requirements or who take out a payday loan to meet the financial responsibilities of another payday loan. That cascading process can lead to long-term financial harm and hardship.

I support the sentiment of the motion. We are very interested to see what the government actually produces. I am mindful that the government is already behind its own schedule in the state of New South Wales. There will be a need to put life back into its state based payday-lending regime, because the anticipated start-up date of the national scheme will not be met and there will be a need for a continuation of the patchwork arrangement that is currently in place. I will not be critical of the government for that, only because I am hopeful that that means it is doing its homework. I am optimistic that the justification for that is that the government is proceeding with some care given the way in which this legitimate financial service is characterised in some quarters as evil in every respect. I have put forward an argument that I do not think that is reasonable, but I have identified where there is considerable virtue in trying to put some reasonable parameters around the way in which this financial service in this industry operates. I hope the New South Wales government does not need to extend its arrangement too much longer. I am pleased that the government is engaging in meaningful consultation. I see that it is speaking with some international providers to get their insights. Cash Store Australia is probably the only listed payday lender around. I have spoken with Cash Store Australia and understand their commitment and willingness to engage constructively.

As the member for Oxley pointed out, it is not just the headline interest rate that is of concern—we have seen reports of that being anywhere from 300 per cent to over 1,000 per cent for loans of this kind—but there are also additional costs and charges. I am aware of some cases where you had to pay $25 to be told that you will be charged $25 for any correspondence that you receive from your payday lender. These bundled-up costs need to be clearly conveyed to consumers. With transparency and a clear understanding given to people considering this line of finance I think you will see a strengthening of the credibility of payday lending. The removal of surprises that are often financially punishing and the provision of a clear sense of what people are entering into will ensure that this legitimate financial service is not characterised in the way some would have it seen—that is, an area only inhabited by loan sharks. Some of the high fees and charges also suggest that competition is not quite what it could be, but I again agree that there is a need for a national framework to make sure that the industry is properly managed. There is a risk of heavy-handed regulation that might add to costs, but I am hopeful that the delayed start-up—

Sid Sidebottom (Braddon, Australian Labor Party) Share this | Link to this | Hansard source

Order! Thank you very much for your contribution and I thank all other speakers for their contribution. The time allotted for this debate has expired. The debate is adjourned and the resumption of the debate will be made an order of the day for the next sitting.