gerard brody
TRANSCRIPT
Fringe finance – alternatives to
borrowing from banks
1 March 2017
Gerard Brody
CEO
www.consumeraction.org.au
About Consumer Action
Financial Counselling
Legal Practice Policy
What will this presentation cover?
o Videos – stories & impact
o Regulation – now
o Current practices – how do they measure up?
o Regulation - future
o Can fringe lending be fair and responsible?
Julie’s story
Rent-to-Buy & Consumer Leases
https://www.youtube.com/watch?v=F6-KTXl7LsY
Types of short term loans
How much does it cost?
Contract for the hire of goods
No right or obligation to purchase
Costs more than the cash price
Specifies a term that is more than 4 months
No cap on costs
Consumer lease or sale by instalments
“Medium-amount credit contracts”
Car loans
Lines of credit / continuing credit
Other personal loans
Other loans
Is the credit fair & responsible?
Requires assessment that credit is suitable
Lender/lessor makes reasonable enquiries about the borrower’s:
financial circumstances
requirements and objectives
Lender/lessor must verify financial information
In addition: licence obligations – act honestly and fairly
*NB: specific laws re payday loans
Current practices – how do they
measure up?
Range of current lending practices in fringe lending market sector
Does your business use them? See if they sound familiar
Does your business comply with an obligation to act honestly and fairly (licence), or the obligation to lend responsibly?
Current practices – benchmarking
Calculating loan applicant’s expenses and/or rental costs by reference to prescribed percentage of their income
where actual expenses more than this
Calculating loan applicant’s expenses on basis of poverty benchmarks alone
Need for buffers
Cash Converters enforceable undertaking
Refunds of $10.8m
Penalty of $1.35m
Current practices – default & other
fees
Dishonour fees – imposed each time direct debit payment not made
Late payment fee
Default fees – daily recovery fee
Reschedule fee – charged each time repayment is rescheduled
Collection transfer fees
Prepaid card fees
Doubling-up of fees? Unconscionable?
Current practices – same-day
lending
Current practices – same-day
lending
s128 NCCPA & ‘credit day”
…The objective of this beneficial legislation is to ensure that within a reasonable time (the statutory time) before the credit day, the credit provider has undertaken the reasonable inquiries and reasonable verification steps required … rather than making the assessment at the last minute on the credit day itself.
Justice Greenwood, ASIC v Channic
Current practices – junk add-ons
Problem with larger fringe loans (car loans)
Consumer credit insurance
Gap & tyre and rim
Motor vehicle warranties
Where premium financed, is need for insurance & warranties considered as part of responsible lending (requirements & objectives)?
Informing consumer interest will apply?
Paying for products not wanted or needed
Demand A Refund!
Current practices – poor lending
assessments
Systemic failures
Verifying consumers’ stated living expenses, income & cash at bank
Entering into unsuitable loans – where evidence showed insufficient income after expenses and loan repayments
Failure to provide statutory information around repossession rights and rights to return vehicle
$77m cost to business
$14.6m in remediation payments
$7.6m in interest rate reductions
$50m loan write offs
$5m to community benefit funds
Future regulation: SACC Review
What is it?
Independent of small amount credit contract laws (includes consumer leases) – August 2015
o March 2016: SACC Review Panel hands down Final Report to Government
o April 2016: Final Report tabled in Federal Parliament and made public
o May 2016: further round of consultations in response to Final Report
o November 2016: government response –supporting majority of recommendations
Future regulation: SACC review
What is being implemented:
o Protected earnings amount extended to all borrowers, capped at 10% of income
o 90 day rebuttable presumption removed
o Requirement for equal repayments over loan term
o Ban on unsolicited offers to current or previous borrowers
o Cap on costs to consumers for leases (including add-ons)
o Regulate early termination fees on leases
o Documenting suitability assessments
Can fringe lending be
responsible?
o Payday lending to be $2b industry in 2018 –highest growth area in personal lending
o Simply servicing a demand?
o Demand increased through advertising and accessibility?
o Increased focused on ‘stressed’ rather than ‘distressed’ – alternatives available
o Attitudes – only 1 in 10 Australians think costs charged by payday lenders reasonable, and 77% support further restrictions
o High-cost – failure of competition?
About us
Consumer Action Law Centre
Level 6, 179 Queen Street
Melbourne VIC 3000
www.consumeraction.org.au