Submission to SACC Review

Financial Rights Legal Centre submits that the SACC regime under the National Consumer Credit Protection Act 2009 (“The Credit Act”) has failed to protect consumers from the harm inherent in pay day lending and other high cost short term contracts. While there has been some containment of costs, it has been insufficient to stop extensive financial damage to vulnerable consumers. Worse, harmful repeat borrowing has increased significantly against the stated intention of the amendments which came into force in 2013. This form of financially detrimental lending is also spreading into wider demographics, effectively undermining extensive efforts at increasing financial literacy by normalising borrowing for consumption purposes. We recommend to the Review that strong action must be taken to address these issues.
Based on our extensive casework experience with the payday lending industry we believe these loans should be banned. The payday lending industry has repeated and systemically demonstrated that:

• it has a culture of avoidance of the law
• it relies on repeat borrowing
• there is systemic non-compliance with the responsible lending laws

We have no confidence that the industry will ever comply with the law in any meaningful way so consumers are adequately protected.
In these circumstances, the only effective way to protect consumers is to ban the industry through an interest rate cap (as has been enacted in a number of countries and states in the USA). This would be achieved by applying an all-inclusive cost cap of 48% or less and enacting adequate avoidance provisions.

Major Recommendations

• All credit facilities in Australia should be capped at an interest rate of 48% (or less) with no establishment fee allowed (and default fees limited to the reasonable cost of recovery). This would negate the need for the complicated SACC regime.
• ASIC must be provided with more adequate and more stable funding than it receives now.
• There should be an automatic remedy of a refund of all fees and charges for any substantive breach of the Act.

As an alternative to the first recommendation above:

• There should be a hard limit of only two permissible SACCs per 12 month period.
• The Henderson Poverty Index (HPI) plus a minimum margin should be required as the universal benchmark for all SACC providers.
• There should also be a ban on concurrent SACCs, refinancing a SACC, and increasing the limit on a SACC.
• The costs cap should be further reduced to 10% establishment fee and 2% monthly fee.
• The protection for consumers who receive 50 per cent or more of their income under the Social Security Act 1991 should be changed to a cap at 5% of a Centrelink recipient’s gross income.
• The Credit Act should include a broad anti-avoidance provision, including the ability to take preventative steps rather than only react after harm has occurred.
• SACCs providers must be required to disclose an APR comparison rate in advertising and contractual disclosure.
• That ASIC either ban the advertising of payday loans or, at the very least, introduce strict and specific regulations established for payday loan advertising on television, radio, social media and online.
• SACCs providers should be prohibited from directly marketing to their customer base because of the high risk of dependency on these types of loans.

In relation to consumer leases:

• All consumer leases the meet the definition of ‘finance lease’ should be considered comparable with credit contracts and there should be greater consistency in the regulatory requirements. All finance leases and be subject to a 48% interest cap. Otherwise, as a second best option, a specific SACC regime for comparable leases should be enacted with effectively similar protections, with the 48% cap applying to all other contracts, similar to the credit regime.
• There should be additional disclosure requirements for all consumer leases including the purchase price of the leased good, the amount the consumer will pay in excess of the purchase price, the APR, and the cost of other services financed through the rental payments.

There are other recommendations contained throughout the submission.