On 7 August 2015, the Government announced a review of the small amount credit contract laws contained in the National Consumer Credit Protection Act 2009 (the Credit Act) and comparable consumer leases.
The Government asked the Review Panel (the Panel) to examine and report on the effectiveness of the law relating to small amount credit contracts (SACCs), and to make recommendations on whether any of the provisions which apply to small amount credit contracts should be extended to consumer leases.
The interim report, just released, sets out the Panel’s initial observations in key areas and canvasses potential policy options. The interim report does not make recommendations nor does it provide the final view of the Panel.
Observation 1 One of the key outcomes of regulation in the financial sector should be the facilitation of consumers onto a path of financial inclusion rather than exclusion.
Observation 2 The responsible lending obligations do not appear sufficient to prevent financial harm to consumers who use SACCs. Additional consumer protection specific to SACCs seems to be required. ASIC enforcement of the responsible lending practices of SACC providers should be a priority.
Observation 3 High levels of repeat borrowing appear to be causing consumers financial harm. The structure of the SACC cap and industry costs appears to promote repeat borrowing and the rebuttable presumptions do not appear to have limited repeat borrowing.
Observation 4 The limit on the amount that a SACC provider can recover in the event of default is an important safeguard for consumers. However, in some circumstances, the fees charged on default appear to be charged in a manner that significantly disadvantages vulnerable consumers.
Observation 5 Some SACC providers do not appear to be giving consumers any benefit or discount when they make early repayments or pay back the loan in full before the due date. These practices may result from the SACC cap being based on a fee, rather than an interest rate.
Observation 6 The high cost of consumer leases appears to be causing consumers financial harm. While there are technical differences between credit contracts and consumer leases, these differences do not appear to justify consumer leases being excluded from the consumer protection regulations that apply to other forms of finance under the Credit Act.
Observation 7 During consultation, stakeholders noted that a large proportion of the cost of consumer leases can be attributed to add on products. There is little transparency regarding the nature or cost of these services and the value that they provide to consumers. It may not be clear to consumers that these features are available when they enter into a lease, or that they extend beyond the statutory guarantee under the Australian Consumer Law.
Observation 8 If a cap were to be introduced on a restricted category of consumer lease, it should be designed in a way that limits the risk of avoidance. Although extending a cap to all leases and broadening the scope of the Credit Act to include indefinite term leases are matters outside the terms of reference of the review, government may wish to consider the implications for those leases outside the scope of this review.
The interim report is an opportunity for stakeholders to comment on the observations and options presented including whether they would be workable in practice and if one option is likely to be more effective than another. This is an opportunity for stakeholders to provide additional data and evidence to support alternative views. Further views are sought, along with cost/benefit analyses, on these observations and options.
The responses to the interim report will be used, in addition to the submissions and feedback already received, to formulate final recommendations.
Submissions are requested by 22 January 2016
