It is coming up to a year since the Minister for Revenue and Financial Services, Kelly O’Dwyer, announced that the Government had accepted the key recommendations of its Review of Small Amount Credit Contracts, setting the scene for a regulatory overhaul of the payday lending and consumer leasing markets.
Under the current rules total SACC (payday loan) repayments cannot exceed 20 per cent of gross income for Centrelink recipients. Small amount credit contracts are loans up to $2000 where the term is between 16 days and 12 months.
In line with the review recommendation, the cap is to be reduced to 10 per cent of net income each repayment period and apply to all consumers.
O’Dwyer said the Government would extend this protected earnings amount regulation to consumer lease charges.
And a rule requiring SACC providers to obtain and consider 90 days of bank statements before providing a loan will also be extended to lease providers.
Under current rules there is no limit on the price that can be charged for a consumer lease. The review panel said this resulted in high charges and it recommended that consumer leases be subject to a cap on total repayments.
The Government accepted the review panel’s cap formula, which is a multiple of the base price of the goods, determined by adding four per cent of the base price for each whole month of the lease term to the amount of the base price. For a lease with a term of more than 48 months the term will be deemed to be 48 months for the purposes of calculating the cap.
O’Dwyer said the Government would develop legislation and table it this year. But so far nothing has happened.
Last week got a reminder of the problems caused by payday lenders, when the Australian Securities and Investments Commission reported that it had banned a payday lender after a court found that companies he was associated with tried to conceal the nature of the loan transaction by entering into a bogus gem purchasing arrangement.
The lender did this so that it could get around the interest rate cap of small loans of 48 per cent.
In a submission to the review, ASIC said compliance with responsible lending obligations among SACC providers was low.
Given that the review was presented to the Government back in April last year and O’Dwyer’s repose was in November, it’s time the Government put some consumer protection legislation in place.