ASIC today released a report that found that consumer leases can be a very expensive option for consumers seeking to access common household goods, and that the market for consumer leases is failing many low income consumers.
Consumer leases are a contract for the hire of goods under which the consumer will pay more than the cash price of the goods and where the consumer does not have a contractual right or obligation to purchase the item. Fixed term consumer leases with a term greater than four months are regulated under the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act). Unlike credit contracts such as payday loans, consumer leases are not subject to price caps.
A 2014 report by IBISWorld estimated the value of the leasing industry in Australia as around $570 million for rentals of electronic goods (including televisions, stereos, DVD players and computers) and household appliances (including fridges, ovens, microwaves, toasters and blenders).
ASIC compared the cost of leases from two sources: the advertised prices on leasing 544 products through nine lessors, collected by the Royal Melbourne Institute of Technology (RMIT) in April 2015 on behalf of ASIC; and a review by ASIC of 69 leases provided by two lessors since 2014 to consumers in receipt of Centrelink payments.
ASIC found the market for consumer leases is delivering poor outcomes for many consumers. For similar household goods, ASIC found large price variations both across different lessors and within individual lessors for different consumer segments. In both cases the consumers that are more likely to be charged higher amounts are Centrelink recipients, despite being on lower incomes.
More specifically, ASIC found:
- the highest price charged by a lessor, expressed as an interest rate, was 884% (for a clothes dryer).
- that consumer leases can cost as much as five times the maximum amount permitted under a payday loan, where a cap on costs applies.
- that consumers receiving Centrelink payments are being charged much higher prices than the prices advertised by lessors.
‘As there is no cap on the amount lessors can charge, we found that some consumers can end up paying very high costs.’ ASIC Deputy Chair Peter Kell said.
‘Of particular concern is that the most financially vulnerable consumers in Australia are paying the highest lease prices for basic household goods. For two year leases, half the Centrelink recipients in our study paid more than five times the retail price of the goods.’
The amounts charged by different lessors for the same goods vary significantly
| Product and lessor | Retail price | Total fortnightly rental payments | Amount charged above retail price | Interest rate |
|---|---|---|---|---|
| 5 kg dryer (lessor 1) | $429.00 | $488.80 | $59.80 | 25.88% |
| 5 kg dryer (lessor 2) | $449.00 | $1,582.88 | $1,133.88 | 85.33% |
| 5 kg dryer (Centrelink recipient) | $345.00 | $3,042.00 | $2,697 | 884.34% |
Note: The maximum fortnightly rental payment in the RMIT market survey is the payment at the 75th percentile.
ASIC is also reviewing the conduct of some lessors for compliance with their responsible lending obligations under the Credit Act.
‘ASIC is reviewing a number of larger lessors, to see if they are making reasonable inquiries to ensure the consumer can afford the lease and that it meets their needs, particularly considering how high the total cost of a lease can be. Relying on consumers being able to make payments as long as they are in receipt of Government benefits is not a substitute to making these inquiries,’ Mr Kell said.
ASIC has taken a series of enforcement actions against lessors for failure to comply with responsible lending requirements over the last few years, including banning directors, cancelling licences and obtaining refunds for customers.
‘We will consider further enforcement action if necessary,’ said Mr Kell.
‘We also recommend consumers shop around, as there are often cheaper options available for obtaining goods. Consumers can compare the total cost of a consumer lease using ASIC’s ‘Rent vs buy’ calculator, available on ASIC’s MoneySmart website. The website also provides helpful tips on alternatives to consumer leases, such as layby, no interest loans or Centrelink advances’.
ASIC will provide a copy of this report to the panel looking into the effectiveness of the law relating to small amount credit contracts (SACCs), in accordance with section 335A of the National Credit Act. The terms of reference include consideration of whether any of the provisions which apply to SACCs should be extended to regulated consumer leases. The panel is due to report at the end of this year.
