Small Amount Credit Contract and Consumer Lease Reform Gemma Mitchell Managing Solicitor Roberta Grealish Senior Solicitor

Disclaimer This presentation is for information only and does not constitute legal advice.

Introduction

Road ahead Payday loans Introduction & current law Problems with payday loans Responsible lending Case study Consumer leases Problems with consumer leases Changes in law Independent Review Government response Push for change National Day of Action Lobbying Quiz Time!

What is a payday loan? Payday loans are also known as small amounts credit contracts (SACCs) Payday loans are loans of up to $2,000 for periods between 16 days and 12 months. https://www.youtube.com/watch?v=lj9UDAB0rh4

Further resources are available on the CCLS website cclswa.org.au

Targeting the vulnerable Unemployment rate in Western Australia = 6.9% Highest level in 16 years Highest rate in Australia Source: http://www.abc.net.au/news/2018-04-19/wa-unemployment-rate-hits-16-year-high/9676932 Targeting highlighted in recent article by FCAWA EO, Bev Jowle: http://www.watoday.com.au/business/consumer-affairs/financial-counsellors-say-payday-lender-vultures-circling-in-wa-20180316-p4z4sy.html

Problems with payday lending High establishment and monthly fees High default fees Smaller loans can increase quickly Cycle of repetitive borrowing Multiple debts with multiple lenders Debt spiral

Responsible lending Responsible lending means that all consumer credit brokers and lenders must: Make reasonable inquiries about the borrower’s financial situation and requirements Verify the financial information the borrower provided to them Assess whether the loan would be not unsuitable for the borrower Source: Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) ; in particular ss 115 – 117 and 128 – 130.

Responsible lending for payday loans Additional obligations for payday lenders: Obtain bank records for past 90 days A payday loan will be presumed unsuitable where: The borrower is in default on another payday loan The borrower has had 2 or more payday loans in the past 90 days The borrower receives at least half their income from Centrelink and the repayments of all the payday loans they have including this loan would exceed 20% of their income Source: Section 133CC NCCPA; and Reg 28S of National Consumer Credit Protection Regulations 2010

Ordered to pay $12m for the breach: Found to have provided 118,000 inappropriate loans following an investigation by ASIC. Ordered to pay $12m for the breach: Repay fees of $10.8m Fined $1.35m as a penalty http://asic.gov.au/about-asic/media-centre/find-a-media-release/2016-releases/16-380mr-cash-converters-to-pay-over-12m-following-asic-probe/

All of the above facts were known to Christina’s lender Money Magic. 74 year old Indigenous Australian woman Lives in government housing Income = Centrelink pension and superannuation pension Expenses = 3 children + 8 grandchildren   All of the above facts were known to Christina’s lender Money Magic.

March 2012-October 2014 Christina received 19 separate payday loans Each subsequent loan refinanced the previous existing loan Borrowed amounts totaled $9,800 When she came to CCLSWA, she had made repayments totaling $12,300 March 2011-July 2013 Christina received 5 personal loans   Issues Christina could not afford the repayments without suffering substantial hardship Failed to consider supporting documentation before it approved and advanced the funds

Consumer Credit Legal Service (WA) Date Taken Out Amount Date Repaid Total Amount Paid 12/3/12 361 12/4/12 487.35 18/5/12 350 3/7/12 472.50 24/8/12 25/9/12 3/10/12 200 6/11/12 270 8/11/12 4/12/12 3/12/12 2/1/13 3/1/13 400 12/2/13 540 14/2/13 12/3/13 9/3/13 500 7/5/13 691.50 550 18/6/13 742.50 21/6/13 13/8/13 14/8/13 19/9/13 704.00 11/10/13 3/12/13 29/11/13 14/1/14 11/01/14 600 11/2/14 768.00 19/2/14 700 14/4/14 898.00 10/4/14 19/6/14 896.00 800 22/9/14 1088.00 13/10/14 960 - 580 at Nov 14 9771 12215.85 Consumer Credit Legal Service (WA)

Consumer leases Consumer leases are agreements for access to domestic goods, such as a fridge or washing machine, where consumers are locked into an agreement to pay off the good over several years, often with an offer to buy the good at the end of this term

Problems with consumer leases No cap on fees Poor disclosure of cost Irresponsible lending Exploitation of Centrepay https://www.facebook.com/7newssydney/videos/1606389446051849/?hc_ref=ARQhNAPl4vT5mcA1sJ9fFwU2Yi40Uwpzu_lLARrBDp_omtK61FiSNbPl-lVEVmIzlnM Consumers who access basic household goods through consumer leases are paying on average three times the retail value of those goods

Consumer leases: The current law Regulated under part 11 of the National Credit Code (NCC) Option/right to purchase the goods may = ‘sale by instalments agreement’ NCC s 9: ‘sale by instalments agreement’ = regulated credit contract What does this mean for consumers? Lessors are required to comply with provisions that are largely equivalent to the “responsible lending” provisions that apply to payday loan lenders Consumer Credit Legal Service (WA)

Christina 2 consumer loans with Easy Renters R Us 2013 – entered the first consumer loan (TV) 2014 – entered second consumer loan (computer) At this time Christina also had: General living expenses 1st consumer loan Payday loans and personal loans Computer TV Paid (to date) $2060 $900 Owes $800 $1400

Changes to the law: The SACC Review An independent review of the laws regulating payday loans and consumer leases was undertaken in 2015-2016. This resulted in 24 recommendations being made in a final report provided to the Government on 3 March 2016

Government response On 28 November 2016 Treasury released its response to the Review of the SACCs. An exposure draft to the NCC was released that included the proposed reforms.  The changes would apply to: SACCs (payday loans) Consumer leases for household goods

Recommendations: Payday lending Recommendation 1 – Affordability: 10% cap on protected earnings Recommendation 2 – Suitability: rebuttable presumption Recommendation 3 – Short term credit contracts: maintain ban Recommendation 4 – Direct debit fees: incorporate into cap Recommendation 5 – Equal repayments and sanction

Recommendations: Payday lending Recommendation 6 – SACC database vs CCR Recommendation 7 – Early repayment: no 4% monthly fee Recommendation 8 – Unsolicited offers: ban Recommendation 9 – Referrals to other SACC providers: recommend against Recommendation 10 – Default Fees: cap

Recommendations: Consumer leases Recommendation 11 – Cap on cost to customers Recommendation 12 – Base Price of Goods Recommendation 13 – Add-on services and features Recommendation 14– Consumer leases to which the cap applies

Recommendations: Consumer leases Recommendation 15 – Affordability Recommendation 16 – Centrepay implementation Recommendation 17 – Early termination fees Recommendation 18 – Ban on unsolicited marketing

Recommendations: Combined Recommendation 19 – Bank Statements for 90 days Recommendation 20 – Documenting suitability assessments Recommendation 21 – Warning statements inc. availability of alternatives Recommendation 22 – Disclosure: APR; Base price vs total price Recommendation 23 – Penalties: extend current penalties Recommendation 24 – Avoidance

The SACC Review: CCLSWA’s submission Based on our experience in hearing the stories of our clients who have faced issues with payday loans and consumer leases Many of our clients are in: severe financial hardship due to predatory lending situations that represent a clear trigger of a rebuttable presumption of unsuitability

Push for Change National Day of Action A number of groups including: Photo from the day – possibly of Gemma? A number of groups including: Choice Consumer Action Law Centre Financial Counselling Australia gathered in Canberra on 27 March 2017 to lobby for urgent legislative changes

Where are we now? October 2017 Michael McCormack, Minister for Small Business issues bill as a draft for comment Minister issues press release stating: “the Government will introduce legislation this year to implement the SACC and consumer lease reforms.” February 2018 Tim Hammond MP, Shadow Minister for Consumer Affairs announces that: “the Labor government will take the necessary action required to protect vulnerable consumers from predatory loan sharks and shonky rent-to-buy traps by introducing the Government’s own neglected legislation.” May 2018 The time for action is NOW!

Quiz Time! Kahoot.it

Questions? (08) 6336 7020 info@cclswa.org.au www.cclswa.org.au https://www.facebook.com/cclswa/ https://twitter.com/cclswa https://www.linkedin.com/company/10677715/ https://www.youtube.com/user/cclswa