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

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

3. Introduction

4. 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!

5. 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.

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

9. Targeting the vulnerable
Unemployment rate in Western Australia = 6.9%
Highest level in 16 years
Highest rate in Australia
Source:
Targeting highlighted in recent article by FCAWA EO, Bev Jowle:

10. 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

11. 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.

12. 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

13. 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

14. 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.

15. 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

16. 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
13/10/14
960 -
580 at Nov 14
9771
Consumer Credit Legal Service (WA)

17. 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

18. Problems with consumer leases
No cap on fees
Poor disclosure of cost
Irresponsible lending
Exploitation of Centrepay
Consumers who access basic household goods through consumer leases are paying on average three times the retail value of those goods

19. 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)

20. 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

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

22. 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

23. 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

24. 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

25. 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

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

27. 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

28. 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

29. 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

30. 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!

31. Quiz Time!
Kahoot.it

32. Questions? (08) 6336 7020 info@cclswa.org.au www.cclswa.org.au