Restrictions on payday loans and rent-to-buy schemes? On the 26 February, legislation was introduced to the Commonwealth House of Representatives with the aim of amending the National Consumer Credit Protection Act 2009; the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2018 (henceforth, ‘the Bill’).
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The stated goal of the Bill is to help “Australians get a better deal from Small Amount Credit Contracts (commonly known as payday loans) and consumer leases (known as rent-to-buy schemes)”.[1] Today we summarise the provisions contained in the Bill.
Background
In light of growing concern with exploitative lending practices, and recommendations from the Independent Review of the Small Amount Credit Contract (SACC) Laws (2015), the Commonwealth Government committed to passing legislative reform of payday loans and rent-to-buy schemes in 2017.[2]
While an exposure draft was released and consulted on late last year[3], no Government legislation has been forthcoming. In light of this, the Bill has been introduced as a private members bill by opposition Labor MP, Tim Hammond. It replicates the provisions contained in that exposure draft.
Key Provisions in the Bill
Key provisions in the Bill as introduced include:
- a cap on the total payments that can be made under a consumer lease.[4] The permitted cap would be the sum of the base price of the goods hired under the lease and 0.04 multiplied by the base price for each whole month of the consumer lease, to a maximum of 48 months;
- protected earnings.[5] The bill enables regulations to be set which will establish a protected earnings amount on SACC repayments for all consumers;
- removal of the presumption that a SACC is unsuitable if the consumer entered into two or more SACCs in the last 90 days or is in default.[6] The protected earnings amount is seen as a more useful mechanism for protecting consumers.
- a requirement for small amount credit contracts SACCs to have equal repayments and payment intervals.[7] This is a response to a concern that some SACC providers have been ‘front-loading’ repayments early in the term of the loan and requiring lower repayments later on. This has allowed the SACC provider to extend the term of the loan and thereby gain extra monthly fees;
- where a consumer repays the loan early, a prohibition on SACC providers from charging monthly fees for the residual term of a loan;[8]
- a prohibition on door-to-door selling of leases at residential homes, except by prior arrangement with the resident of the property;[9]
- anti-avoidance protections; and increased penalties.[10] An avoidance scheme is one designed to prevent a contract being a SACC or consumer lease regulated under the Credit Act;
You can read more about the Bill at https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6057. As this is not Government legislation it remains to be seen whether it will have enough support to pass through Parliament, or whether the Commonwealth Government might introduce its own Bill.
[1] See Explanatory Memorandum and Statement of Compatibility with Human Rights at https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6057.
[2] See https://www.theguardian.com/australia-news/2017/mar/02/inaction-on-payday-loans-allowing-lenders-to-exploit-vulnerable for a good summary of the issue.
[3] See https://treasury.gov.au/consultation/c2017-t229374/.
[4] See Schedule 1, items 58, 64 and 65, section 175AA (all section references are to the Bill).
[5] See Schedule 1, items 19 and 21, subsections 133CC(1), 133CD(1) and (2).
[6] Schedule 1, items 5, 7, 13 and 15, subsections 118(3A), 123(3A), 131(3A) and 133(3A).
[7] Schedule 1, item 21, section 133CE.
[8] Schedule 1, items 42, 44, 45 and 66, subsections 31C(1)-(4), 82(2) and (3).
[9] Schedule 1, items 62 and 64, subsection 179VA(1).
[10] Schedule 1, items 37, 38, 50, 51, 52, 53, 58, 60, 61, 63, 64, the Guide to Part 7-1,Division 1A, and sections 323A, 323B, 323C, and 323D of the Act, subsections 171(1) and (1A), section 172A, subsection 175AA(3), section 179.
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