Carol Brown (Tasmania, Australian Labor Party, Shadow Parliamentary Secretary for Families and Payments) Share this | Hansard source

I rise to speak on the Social Security (Administration) Amendment (Consumer Lease Exclusion) Bill. I would like to start by congratulating Senator Cameron for bringing this bill forward and for the work that he has done in formulating this bill and raising awareness of what is happening with people on very limited incomes who use Centrepay. This bill seeks to exclude consumer leases—or what are commonly called rent-to-buy or rent-try-buy agreements—from Centrelink's bill paying service, Centrepay. The intention of this bill is not to limit the choices of Centrelink clients; the purpose of this bill is to stop companies pushing Centrelink customers—many of whom may experience financial difficulties or be particularly vulnerable—into agreements that financially exploit them.

Centrepay was introduced in 1998 to help Centrelink clients budget by paying rent and utility bills through deductions from their fortnightly payments. The central purpose of Centrepay is to act as a budgeting and financial capability tool. Centrepay is undeniably a very useful service which helps people prioritise and meet certain critical expenses. However, the impact of allowing consumer lease providers to access Centrepay is that they are able to be paid as a priority without Centrelink clients being able to allocate money for essentials like food and transport. In fact, while utility bills still account for around a third of Centrepay deductions, household goods leases now account for 14 per cent of all deductions, and this number is only growing.

People turn to these consumer leases because they cannot afford to buy household goods outright or cannot access financing and credit. But, ultimately, these consumer leases are one of the most expensive ways for people to buy household goods, with interest rates far beyond that are usually charged by credit cards and in-store credit arrangements. In Senator Cameron's contribution to this bill he articulated very well for senators the actual rates that are being charged and the outrageous profits that are being made.

A Consumer Action Law Centre report, The hidden cost of rent to own, found consumer leases cost at least twice the normal retail price of most goods—usually three times and often more. I would encourage anyone in this place who is not aware of this issue to contact the Consumer Action Law Centre to hear about the people they have assisted—for example, the grandmother who paid nearly $3,000 over several years for a vacuum cleaner, or the single mother who signed up for a consumer lease and was then inundated with offers until over $120 was being deducted from her income support through Centrepay, leaving her unable to pay other bills.

The common element to all the stories is that people simply do not know that there are other options. People are not choosing this—they do not know that they have a choice, or they are being forced into using Centrepay. Many of the companies are taking advantage of the fact that there is a view that there are limited options for people on low incomes who are wanting to purchase household items. While financing options for low-income earners are undeniably limited, they are not limited to these types of agreements which carry exorbitant interest. There are other options out there, and I would highlight the great work of some organisations—in her contribution, Senator Moore mentioned Good Shepherd and microfinancing providers like the NILS network of Tasmania, in my own home state.

The Good Shepherd microfinance, through its no-interest loan scheme, offers no-interest loans of up to $1,800 for the purchase of essential household goods. The NILS network operates across 609 locations through 257 community based organisations across the country. In comparing the two options, Mr Adam Mooney from Good Shepherd, said:

If you want a fridge that costs $650, for Radio Rentals their average contract will see you pay three times that, around $1,800.

That is from $650 to $1,800 dollars. He continued:

For us, you take out a no interest loan from one of our 600 locations and you pay $650 over 18 months, rather than $1,800 over two, three years. So there are alternatives out there.

There are alternatives out there, and these are the options that should be promoted and supported for people to use. Consumer advocates such as the Consumer Action Law Centre and financial counsellors, including their peak organisation, Financial Counselling Australia, have regularly reported that significant numbers of people are coming to them in financial stress as a result of entering into consumer leases using Centrepay.

There is an ever-increasing number of financial service providers in the market looking to take advantage of and to exploit people who have low incomes and are under some financial pressure. Consumer leases should be excluded from Centrepay for the same reason that payday lenders are. On this point, CEO of the Consumer Action Law Centre, Gerard Brody, has said:

It makes no sense that businesses charging three to five times the retail price of household goods have access to Centrepay. We don't let high cost credit products like payday loans deduct from Centrepay. It's time to end the free ride for consumer lease providers.

As far back as 2007, the Micah Law Centre has noted that consumer leases are not genuine leases, but 'loans in lease clothing'. In a 2013 paper published in the Australian Business Law Review, Melbourne University law school academics found that inconsistency in the regulation of consumer credit and consumer leasing is creating loopholes through which consumer credit contracts can be passed off as consumer leases. The government should not aid or be seen to support arrangements that make a profit from exploiting people in our community who are financially vulnerable.

Some of the companies involved in providing consumer leases have been found to be engaged in a number of questionable practices. Earlier this year Make It Mine, a consumer leasing business that specialises in white goods, computers and other electronics, was found to have breached consumer credit laws by the Federal Court. This is an organisation that was making use of Centrepay. The court found that Make It Mine failed to inquire about whether the rental rates were affordable for more than 20,000 customers between April 2011 and March 2013. This is a pretty basic requirement under responsible lending obligations, but Make It Mine customers only had to sign the leasing contract for the deductions to begin. These customers were not informed about the details of the agreement, they were not told the actual value of the goods that they were leasing and they were not even told how much interest they would be paying. Centrelink recipients make up a significant portion of the customers of organisations like Make It Mine, and a vast number of them use Centrepay to make the payments.

In March of this year an investor report found that another consumer leasing company, Radio Rentals, generates about half of its nearly $200 million revenue through Centrepay deductions. Mr Brody from the Consumer Action Law Centre highlighted how staggering this figure is, and said:

But to see … such a high proportion of their revenue being paid from people who are Centrelink recipients, they are people on welfare payments and this business is sustaining itself on that, is astounding.

Radio Rentals advertisements specifically target people on Centrelink payments. I am sure that many of us here would have seen the Radio Rentals ad where a customer proclaims: 'I'm on benefits and I have got a fair go.' But this is not a fair go—this is a trap. These companies are essentially high-interest lenders for the purchase of consumer goods. Allowing them to access Centrepay deductions gives the mistaken belief that they are supported by the government, allows them to target people who may be financially vulnerable and gives them priority over other essentials that people need to purchase, like food and transport.

I acknowledge here today the steps taken by Senator Payne to address this issue. However, on this side we feel that these fall well short of what is needed and will have negligible results. In May of this year the minister announced that the government would be restricting the type of consumer leases customers can pay for using Centrepay, to 'increase protection for vulnerable Centrelink customers.' This is a step in the right direction, but it will only achieve small protection for vulnerable Australians from the unfair costs and questionable behaviour of consumer leasing. In response to the minister's announcement, Mr Brody from the Consumer Action Law Centre said:

Access to Centrepay simply dulls the incentive for consumer lease providers to lend responsibly— it gives them priority access to people's social security income.

Today's announcement captures the small unregulated sections of the market, but it's business as usual for the providers who cause the majority of the problems.

It simply is not enough. I also welcome the government's review of the credit laws which cover both payday lenders and consumer lease companies. However, this review is not due to report back until the end of 2015. This is simply too long to wait when we have the opportunity to take action on this specific issue now.

If the minister is serious about increasing protection for vulnerable clients, then all consumer leases need to be excluded from Centerpay. Those who oppose this bill might say that this is really a decision of the person entering into the agreement. That it is really the decision of the person choosing to use Centerpay but as I said earlier, that simply is not the evidence we have. This is not what is happening. People are not being given the opportunity to make informed decisions.

This bill will not stop people freely walking into a consumer leasing company and signing up to rental contracts they may not be able to afford. However, it would stop the government, through Centrepay, facilitating the growth of a business that is now clearly preying on financially vulnerable people and creating poverty traps. We should not allow government processes to assist businesses which seek to make such outrageous profits. I urge the Senate to support this bill.