The committee's approach to this inquiry
This inquiry occurred against the backdrop of the Royal Commission into
Misconduct in the Banking, Superannuation and Financial Services Industry. The
matters were referred to the committee in October of last year while the Banking
Royal Commission was conducting public hearings, and we are now reporting
shortly after the Commissioner, the Hon. Kenneth Hayne AC QC, has delivered his
The Banking Royal Commission provided a long overdue forum for the
public and policy makers to hear what had gone wrong in Australia’s mainstream
financial sector, and the impact that misconduct had on ordinary people’s
However, it only considered some of the ways in which ordinary
Australians interact with financial products. The Banking Royal Commission did
not contemplate marginal credit service providers such as payday lenders,
consumer leases, and debt advice firms. Although many Australians do not
interact with these products, they loom large in the financial lives of lower
income Australians and dominate the casework of financial counsellors and
This inquiry aimed to address this gap. There are obviously differences
between the resources, time and powers available to a royal commission and a
Senate inquiry. Nonetheless, this inquiry provided an opportunity to shine a
light on the conduct of those who target credit products and services at
Australians who are at risk of financial hardship.
Throughout the course of this inquiry the committee has been conscious
that the financial products it examined are not all alike. Like all financial
products, they exist on a spectrum of risk and potential harm. The business
models (and business practices) of different providers also differ
considerably. Some products, such as consumer leases and payday loans, are
clearly targeted at low income Australians who do not have access to other
credit products. The evidence before this committee (as well as the public
record of regulatory actions) shows that there are real issues with the
business models and business practices of providers in this sector. That is
plainly different from the risk posed by other providers, such as those in the buy
now pay later sector, whose products are marketed to a much broader range of
What these products all have in common, however, is the oversized risk
they pose specifically to Australians in financial hardship. The committee
heard from financial counsellors and credit lawyers about the financial troubles
that affect too many vulnerable Australians. The work that the financial
counsellors and credit lawyers do is important, and the committee takes their
evidence very seriously.
The reality of financial hardship in Australia
The committee received moving evidence about what financial hardship
looks like in Australia. Financial hardship impacts more than just a person's
Sue and Bob live in Broadmeadows (20 km north of Melbourne's
Central Business District), with their two children age 12 and 16.
Sue works full-time and earns $1030 per week. Bob is on
Newstart and receives around $200 a fortnight. He is unable to work after he
had a car accident while driving a company truck in September 2017 and injured
his back. He is unable to work and not receiving WorkCover, as at the time of
the accident, Bob was unlicensed.
Bob took out payday loans from MoneyMe, Wallet Wizard and
Sunshine Loans to pay for the registration of their two cars, as well as
covering utility bills and rent when money was tight. They could not afford the
loans but were desperate because they didn't want to be evicted or
disconnected. Repayments on the three loans is around $550 per fortnight, with
very high interest rates and fees meaning that they will be paying these loans
for a significant period of time.
They have not sought support from family as they feel
ashamed. Sue suffers from anxiety and Bob depression.
After paying rent and the loan repayments, the family is left
with $635 per week, well below the 2018 poverty line of $742 a week disposable
This is not an isolated instance. Independent research found that 2.1
million Australians are under severe or high financial stress. For low and middle income earners, this stress can have an immense impact on
the ability to service day to day living expenses such as rent, bills and
maintenance of household goods.
Some have tried to paint those in financial hardship as victims of their
own poor decisions. The evidence to this inquiry does not support this. As we
have heard repeatedly from financial counsellors and legal advice services
across the country, the average story of financial hardship is not that of
someone with tastes beyond their means. It is the story of someone who has
found themselves in a spiral of debt because they cannot bridge the gap between
their income and their basic needs, or save enough to absorb the ordinary
financial shocks that strike family budgets.
The intractable maths of low income earners' family budgets pushes them
towards the marginal credit products that were examined over the course of this
inquiry—products such as payday loans, consumer leases and, in the end, debt
management firms. Government can and should improve the terms under which these
products are offered. Products that are targeted at Australians at risk of
financial hardship should not be allowed to take advantage of their financial
However, the longer term solution has to be found in (a) raising incomes
and (b) expanding access to the mainstream financial products that offer better
value to those who can afford them. Inclusion in Australia’s financial system
is critical for a successful and robust economy and social framework. Low
income Australians should not be excluded from fair and appropriate access to financial
services, and not be relegated to the use of high cost and potentially harmful
The committee recommends that the government should have a strategy to
raise the incomes of low income Australians. This strategy should, at a
minimum, include protecting penalty rates and reviewing the adequacy of
government payments including Newstart.
Credit products targeted at Australians at risk of financial hardship
The worst case studies presented to this inquiry concerned marginal
credit products such as payday loans and consumer leases.
Consumer leases ostensibly offer rented goods. The reality is consumers
are often charged an inflated price to use the goods, and can pay the total
cost of the goods multiple times during the course of the agreement:
Unlike other credit providers, there is absolutely no cap on
the amount consumer lease providers can charge. An ASIC [Australian Securities
and Investments Commission] report on the cost of consumer leases for household
goods found a clothes dryer cost a Centrelink recipient the equivalent of an
884% interest rate.
The situation worsens for those who cannot repay their debts on time,
with the lessor able to repossess the goods. As the agreement is not seen as a
loan, there are limited protections for the individual under the National
Credit Code. Repossession can cause immense stress:
If the leased good is a car or an essential electrical item
(like a fridge or washing machine), repossession can mean further costs like
job loss, no stored food and visits to the laundromat.
Despite being sold as quick and cheap credit, in reality payday loans
are pushing people into a spiral of debt. Confusion around the operation of legislated
caps has led to incredible rates of interest being charged to consumers.
Due to the generous fee caps, these loans typically attract
comparison annual interest rates of between 112.1% and 407.6%. The vast
majority of payday lenders charge the maximum amount permitted by legislation,
as competition is generally ineffective in bringing down prices in this market.
Often these products appear not only to have been targeted at
Australians in financial hardship—they seem to have been designed to take advantage
of them. It is difficult to escape the conclusion that many providers’ business
models depend on vulnerable consumers who have limited awareness of other
product options, limited negotiating power, and limited propensity to complain
about improper or illegal behaviour.
This is not a revelation. Concern over high cost credit is a long
standing one. The government commissioned a review of the Small Amount Credit
Contract (SACC) industry in 2015. It found widespread problems throughout the
industry. In relation to consumer leases it found that '...the current regulatory
framework is not effective in promoting financial inclusion.' The exposure draft of legislation was developed in 2017 and Treasury undertook
a consultation process in relation to it.
There has been no apparent action since then. There has been media
coverage of the internal government tensions that may have contributed to this
delay. Irrespective of the cause of the inaction, its consequences have been
Since the Government released the SACC Review report in April
2016, Digital Finance Analytics estimates that three million additional payday
loans, worth an estimated $1.85 billion, have been taken out. This has
generated a net profit of about $250 million for lenders. Around one fifth
(about 332,000 households) were new payday borrowers.
These providers have gone largely unchecked for too long. The delay in
the introduction of the 2016 recommendations encapsulated in the exposure draft
bill and the failure to pass the subsequently introduced private member's bill
have allowed product providers to continue to offer products unsuitable to many
of their consumers.
The committee recommends that the National Consumer Credit Protection
Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2017
exposure draft released by Treasury be introduced, and passage facilitated by
The passage of the SACC legislation would address some but not all of
the known problems in the sector. The committee received evidence about a
number of discrete issues that also require remedy. Those issues include:
- breaches of the existing regulatory framework;
- the use of blackmail security;
- the regulation of medium amount credit contracts;
- the role of sales staff in offering credit; and
- the need for effective anti-avoidance measures.
Each of these issues is addressed in turn below.
The committee is concerned about ongoing noncompliance with the existing
regulatory framework for consumer leases and payday loans. Although providers
gave evidence that the issues in the sector were historic and not ongoing, that
is not consistent with the case studies and experiences presented by financial
counsellors and credit lawyers.
There are, for instance, real doubts about whether pay day lenders
comply with responsible lending obligations. As one financial counsellor
I see loans issued where there's clearly no capacity to repay
that loan. A lady I met last month had 30 Cash Converters loans in the last
four years. Three of those loans were issued after a Cash Converters loan had
been defaulted and not repaid, and 17 of those loans had been issued when she
had two or more loans in the previous 90 days, and that would indicate that she
has an incapacity to meet that loan, particularly when you look at her bank
statements that show several overdrafts...
It has been suggested that lenders push borrowers to accept shorter
contract terms despite this being against their interests:
It's about trying to get as many loans in as possible. The
establishment fee is much higher than the monthly fee...also...a lot of the market
is making its money on people falling into arrears and hardship, because it's
the penalty fees where you actually make all the money. So, to try and push
people into contracts that are very tough to service but that they don't fall
over on is actually an optimal business model.
The committee was provided with hundreds of examples of illegal
behaviour in small and medium credit and consumer leasing, suggesting
Greater scrutiny is needed as to how these products are sold, how they
are policed and the recourse that consumers have to make complaints or inquire
as to whether the product was inappropriately sold.
The committee recommends that the government provide additional funding
to strengthen the capability of the Australian Securities and Investments
Commission to police the small and medium credit contract sector and consumer
The committee recommends that the Australian Securities and Investments
Commission, the Australian Competition and Consumer Commission and the
Australian Financial Complaints Authority undertake a review to assess what
systems and mechanisms would counteract the chronic underreporting of
malpractice and how best to allow consumers to make complaints about the
behaviour of consumer lease and payday lending providers.
The committee is concerned by evidence that some providers would secure
a loan against an asset such as a car that is worth less than the value of the
loan but is essential for the borrower to have. As Legal Aid Queensland noted,
this form of security is:
...'coercive': the pressure's on them to continue to pay it,
because without it they don't get to work and they don't keep their job.
Lenders were able to circumvent restriction on blackmail securities by
moving borrowers onto medium amount credit contracts:
There is a prohibition in the current code around blackmail
securities, because in the past one of the things that was added as security to
these types of loans was—I think the classic we had was a Bananas in Pyjamas
doona cover. When the credit legislation became national, that was prohibited.
What was not prohibited was the taking of security on medium amount credit
loans. Blackmail securities were prohibited, but they still could take
security. What we've seen is people wanting to take a medium amount loan, which
is between $2,001 and $5,000. There are companies out there who are working out
if somebody has a car. The car is usually worth significantly less than the
value of the loan. They're securing it to try to make sure that that becomes
the priority loan to be paid, because usually people, particularly in regional
areas of Queensland where the public transport isn't as good, are needing that
car to get to work, so they'll pay that loan first, to the exclusion of
Medium amount credit contracts
The regulatory regimes for small and medium amount credit contracts
differ significantly in key areas. Evidence was presented of providers moving
clients from SACC products to medium amount credit contract products, where
regulation in some matters is less onerous:
Mr Wood: A lot of the lenders out there are pushing
the applicant to go above the $2,000, because the regulations, in their
opinion, are too tight on the small amount credit contract market. As Corinne
said, over the last 12 to 18 months a number of lenders have stopped offering
that product, and offer a line of credit because it's easier. It's less
regulated, in their opinion. So they can get someone on the drip, basically,
and they're just continually earning money that way.
ACTING CHAIR: As those businesses move into that
market strategy, are they targeting particular demographics?
Mr Wood: It's the younger generation, if you look at
their advertising. They're always down at the beach, they're relaxing, they're
having a drink and stuff like that. It's very much targeted towards the younger
A consistent and robust regulatory framework is needed across these
sectors to remove distortions between the different products and loan sizes.
The committee recommends that Treasury undertake a review to identify
necessary reforms to regulatory arrangements for medium amount credit contract
Sales staff and credit
The role of frontline staff in promoting financial products in
franchisee stores has the potential to lead to adverse consumer outcomes. There
is no justification for retail dealers being carved out of the National
Consumer Credit Protection Act 2009. Commissioner Hayne of the Banking
Royal Commission made a recommendation in this regard. It should be adopted.
The government should implement Recommendation 1.7 of the Royal
Commission into Misconduct in the Banking, Superannuation and Financial
Services Industry removing point of sale exemptions from the National
Consumer Credit Protection Act 2009.
Witnesses told the committee that providers of pay day loans and
consumer leases are structuring their businesses to avoid regulatory
In the situation of Cash Converters, when Queensland
introduced capping legislation, the Cash Converters outlet went from acting as
an agent for Cash Converters to a broker for the customer. So I think there are
reasons to be concerned that providers do take a very close and careful look at
the legislation and work out how they cannot be bound by it. I think a broad
based and substantive anti-avoidance provision that is clearly directed at
schemes or arrangements, something broader than contracts, is necessary.
The committee accepts this evidence and considers that the entire
consumer credit architecture would benefit from more robust anti-avoidance
It is possible that the product intervention powers previously
considered by the Senate Economics Legislation Committee may provide regulators
with sufficient powers to achieve this. Government should work with ASIC to
monitor the use of the product intervention powers and determine whether they
need to be supplemented further.
The committee recommends that the National Consumer Credit Protection
Act 2009 be amended to contain strong anti-avoidance provisions that are
capable of capturing both new, emergent credit-like products, and attempts to
disguise the nature of existing credit products.
Financial services targeted at Australians at risk of financial hardship
Unregulated provision of debt and credit repair services poses
significant risks to vulnerable Australians.
While regulated debt agreements can provide administrative support to
those who are going through the process of bankruptcy, the emergence of
unregulated predatory debt negotiation and debt management firms are impacting
those in financially vulnerable situations
There is limited data available about the size of the industry because
most operators do not require a licence. The Consumer Action Law Centre also
Given the lack of regulation and oversight, it is difficult
to maintain comprehensive information about this industry, with new practices
and business models constantly emerging.
Consumers are at risk of entering into agreements where the terms are
not clear, often resulting in unexpected fees for service.
The Salvation Army reports a $1600 set-up fee for a debt agreement that
involved only one debt.
Legal Aid Queensland offered the following example of a budgeting service:
The client and her friend signed the contract at the meeting
without the fees and obligations under the contract being properly explained.
These fees included a $45 charge to move their own money from the company’s
account back into their own accounts when they requested money for things such
as paying car registration. The client was of the view that she and her friend
had been pressured into signing a contract to purchase a product of no or
little value to them. When she tried to withdraw from the contract, the
budgeting service informed her that she was liable for a large establishment
The fee paid to the provider is often disproportionate to the service
delivered and can leave consumers worse off. In many cases, the fees and
contract structure are deliberately complex in order to mask the total cost of
Financial Rights Legal Centre explained that debt negotiators often
charge high fees for results which do not solve the consumer's problems:
We've seen quite a few that are a percentage of the amount
saved. If you have $150,000 in credit cards and they reduce it to $70,000,
they'll take 50 per cent, 40 per cent or 80 per cent of the saving or whatever
Witnesses provided first hand evidence of firms making deliberate
attempts to mislead consumers, or obscure the fees they will pay:
At this meeting, I was told there was a problem with their printer,
so I couldn't receive a hard copy of the contract. I was made to digitally sign
it on a tablet. I wasn't able to read it before I signed because it was over 40
pages long...At this meeting I again asked about the fees, and I was told there
are only two sets of fees: a fee to set up the agreement to liaise with the
creditors and a fee to use the budget. On checking the budget, I found there
were other fees embedded there.
Low financial literacy among consumers means many are unaware they are
dealing with a for-profit entity. Individuals who are using these types of
services could receive help from financial counsellors or community legal
services; and, again at no cost, they can have an independent ombudsman scheme
help resolve disputes with lenders, telecommunications and utilities providers.
The Australian Financial Complaints Authority (AFCA) suggested that debt
management firms prey on consumers' ignorance of the system:
If consumers actually bring a financial hardship matter to
AFCA then, whilst the matter is being considered by AFCA, the financial firm is
not able to—is excluded from—enforcing that debt. Yet we see situations where
debt management firms are actually charging fees, sometimes not insignificant
fees, to get the financial firm to stop the enforcement action...
While debt agreements are regulated by the Bankruptcy Act 1966,
debt services more broadly are largely unregulated.
The committee is concerned that a regulatory vacuum risks leaving
The committee recommends that the government implement a regulatory
framework for all credit and debt management, repair and negotiation activities
that are not currently licensed by the Australian Financial Security Authority,
- compulsory membership of the Australian Financial Complaints
Authority, giving clients access to an External Dispute Resolution scheme;
- strict licensing or authorisation by the Australian Securities
and Investments Commission or the Australian Financial Security Authority;
- prohibition of upfront fees for service;
- prescribed scale of costs;
- an obligation to act in the best interests of their clients; and
- banning unsolicited sales.
Other financial products
The buy now pay later sector is one of Australia's fintech growth
stories. Not only does the sector now account for a considerable proportion of
consumer credit, but this credit is being taken up by new and young customers
who have limited previous experience of managing credit.
This growth has largely outstripped the regulatory response.
Unlike other credit providers, these products are not covered by the National
Consumer Credit Protection Act 2009 (the National Credit Act) and providers
have no obligation to undertake credit checks or appropriate measures to ensure
their product is appropriate for the consumer's personal circumstances.
The committee considers that this regulatory gap should be filled.
Many Australians can use buy now pay later products with limited
financial risk. It seems likely that, as providers have suggested, many people
use their products as a budgeting tool. It is less likely, however, that the 23
per cent of people paying their buy now pay later account with a credit card
are using the service for budgeting. It is almost certainly not the case that individuals with multiple payday loans
are using buy now pay later products to budget.
The evidence from financial counsellors and credit lawyers suggests that
there is a real risk for a cohort of vulnerable Australians arising from adding
buy now pay later products to a mix of other credit products. For people in a
debt spiral responsible actions, even some protective design features, can lead
to unintended consequences. The committee heard, for instance, that some
individuals prioritise buy now pay later repayments over other forms of credit
specifically to avoid being cut off from the service for missing payments.
There is also a unique risk that arises by virtue of the age and
financial experience of the buy now pay later customer base. Eighty-five per
cent of customers of one provider, Afterpay, use a direct debit card, and have
a limited credit file. For many people, a buy now pay later product is their first credit product. We
should ensure that experience is a positive one.
The evidence by buy now pay later providers ZipCo and Afterpay to this
committee suggested that both were alive to these risks and willing to
strengthen the regulatory framework that applies to the sector. As Afterpay
We are confident the right regulatory balance can be struck
for new products such as Afterpay to ensure customers get the best outcomes
with the best protections.
There is no guarantee, however, that future entrants to the sector will
take a similar approach.
There is a clear role for regulators in ensuring that buy now pay later
is subject to proper regulation that will provide consumers with the same
protections they would enjoy with respect to products with a similar risk
The committee recommends that the government consider, in consultation
with the Australian Securities and Investments Commission, consumers and
industry, what regulatory framework would be appropriate for the buy now pay later
sector. This regulation should ensure that:
- before credit is extended, providers appropriately consider
consumers' personal financial situations;
- consumers have access to internal and external dispute resolution
- providers offer hardship provisions;
- products are affordable and offer value for money; and
consumers are properly informed, prior to entering into
agreements, about their terms and conditions.
The committee recommends that the buy now pay later sector develop an
industry code of practice.
It is important that government get the regulatory settings working for
consumers. Currently, ASIC does not have the powers to intervene as new
products emerge in the market and make interventions if a financial product
such as buy now pay later is not fit for purpose. Key players in the sector
have agreed that a product intervention power would strengthen the regulatory
regime for consumers.
The committee recommends that product intervention power currently
proposed in the Treasury Laws Amendment (Design and Distribution Obligations
and Product Intervention Powers) Bill 2018 legislation be extended to cover buy
now pay later products.
Online and digital marketing of financial products
The products examined over the course of this inquiry do not exist in
isolation. The interactions between consumers and the providers have become
more complex as digital technology develops.
The committee recognises that the delivery method for financial products
has changed since the advent of online and digital marketing. Consumers are
increasingly at risk of targeting by providers through methods that create an
imbalance between the consumer and the credit provider. For those who are
financially vulnerable this is of particular risk.
Dr Paul Harrison of Deakin University provided evidence as to how
providers are able to target those who are most likely to use these financial
This is because the provider has significant data analytic
capacity, they are able to adapt their offer as it virtually follows and tests
consumer responses and, through technology such as neural networking, is able
to anticipate consumer responses and intervene to lead the consumer to make
choices that suit business.
This form of advertising allows providers to target products to
individuals for whom the product may not be suitable or to whom the features of
the product are not transparent. In an age of continuous digital innovation,
regulatory guidance should be updated in order to ensure consumers are
The committee recommends that the Australian Securities and Investments
Commission review how financial products and services (including credit) are
advertised and issue an updated regulatory guide to how credit products
interact with consumers in an online environment.
Centrepay is a government billing and budgeting tool for Centrelink
recipients. It is intended to benefit Centrelink recipients.
The Department of Humans Services provided evidence of the quantum of
consumer leases used through Centrepay payment system:
...out of the $2.6 billion in 2018 run through Centrepay,
$255.5 million ran through consumer leases—so, about 9.8 per cent.
The benefit to consumer lease providers of being registered through
Centrelink is clear: automatic deductions reduce the default rate for
companies, while also allowing them to continue to charge the consumer for
products well above the cost of the product. Thorn Group, the parent company of
Radio Rentals, noted that 52 per cent of Thorn Group's consumer leasing
customers paid via Centrepay.
The benefits to recipients are less clear. ASIC noted that although
Centrepay lowered the risk of default on rental payments, the companies still
charged Centrepay customers more. Because Centrepay customers are on lower
incomes, the terms of their loans are longer, which also increases the final
The committee understands that the purpose of Centrepay is to support
recipients with payment of their expenses. Given the expensive nature of
consumer lease products, the use of this service is not in line with the
purpose of Centrepay. The payment structure of consumer leases can cost
consumers more in the long run and further entrench individuals in a spiral of debt.
As the Salvation Army observed:
This appears contrary to the original principles of
Centrepay, which we understand were to help people on low incomes with money
management. In our experience a consumer lease payment is more likely to cause
money management issues.
Far from helping Centrelink recipients budget, Centrepay deductions for
consumer leases can impact an individual's ability to pay for essential goods:
Financial Rights speak to many consumers who call us because
they cannot afford essential expenses such as rent and energy. It is only upon
delving into their financial situation that we discover a significant
proportion of their Centrepay payments are being diverted to pay consumer
The impact is particularly severe on marginalised groups:
Remote Aboriginal communities have been targeted by payday
lending and consumer lease companies through the use of Centrelink's Centrepay
The committee recommends that Centrepay should only be available to
entities that can demonstrate historic and ongoing compliance with relevant
regulations, and that provide products at a fair price and in a fair manner.
Centrepay is administered with little acknowledgement of the impact that
these products can have on consumers. While the Department of Human Services
acknowledges the impact of consumer lease products, they do not take into
account the potential for hardship through the use of Centrepay.
We do compliance audits on businesses to make sure that the
customer is giving consent before entering into the Centrepay arrangement. We
check to make sure that what the company is charging-the payment matches the
contract they've got. But we're not a regulator, so we don't regulate whether,
for example, they're in that circumstance.
The department indicated that product providers were only removed from
the system in limited circumstances including if ASIC had taken action to
remove a product licence.
The responsible lending obligations are really where the
Centrelink action would come in. ASIC obviously will make a range of decisions.
They may remove licences but they may not. So it may be that they find some
behaviour in the organisation, the organisation remediates that behaviour and
ASIC don't find any further behaviour. Then we wouldn't necessarily remove them
from Centrepay for that, because there is action underway from the regulator to
ensure that the business is complying.
The committee recommends that the Department of Human Services develop
the capability to review Centrepay data to identify clients who are at risk of
serious financial hardship and develop appropriate interventions, such as
referral to a financial counsellor.
The need to support and expand financial counselling services
The committee recognises the important work of financial counsellors
offering a free service to assist financially stressed households to manage
their debts and avoid further financial hardship.
During the course of the inquiry financial counsellors provided evidence
of the scale and impact of predatory financial products on their clients.
Financial Counselling Hunter Valley Project provided evidence that
showed the impact of pay day loans on an individual's livelihood.
These vulnerable consumers tend to develop relationships with
payday lenders and develop a reliance on this type of credit usually to their
detriment. While payday loans result in a short-term increase in funds, in the
following months the person's financial position worsens.
While financial counsellors across the country are delivering for their
clients, the demand for services is increasing without the adequate resources
or trained financial counsellors to meet demand.
Financial Counselling Australia highlighted that the demand for services
is exceeding supply and is leading to many clients being turned away.
This means that roughly 60% of people seeking assistance were
able to be accommodated and 40% were not. Another way of putting this is that
for every five who seek financial counselling, three people are able to access
it and two are turned away.
There is broad unmet need through the community for services. These
services have real impact on the lives and finances of families. Funding for
these services needs to be expanded.
The government response to tackling the effect of debt on consumers must
include both a regulatory regime for providers and appropriate support for
those impacted by provider conduct.
The committee recommends that the government increase the funding
available to financial counselling organisations to enable a substantial
increase in the number of full time employed financial counsellors across the
country. The funding should be directed to ensure there are sufficient
financial counsellors available in areas of need, including regional Australia.
The committee recommends that the government increase the funding
available to community and financial rights legal centres.
The committee recognises that financial counselling services are
impacted by inconsistent funding processes.
Financial Counselling Australia argued for both adequacy in funding and
consistency in the funding allocation process.
The continued theme is that funding for financial counselling
is almost always under threat. There is example after example of where
governments either cut funding completely or reduce it substantially. Some
State governments have defunded services in one budget and then reinstated it
again one or two budgets (or more) later, once they’ve realised the original
decision was short-sighted.
The uncertainty in the sector makes it difficult for agencies to plan
for and manage their services. Recent tender processes have continued to be
implemented in a chaotic manner and to the detriment of those who are relying
on financial counselling support.
Financial Rights Legal Centre and Consumer Action Law Centre highlighted
their concerns with the recent tender process on the National Debt Helpline:
...we consider the DSS tender process that has occurred this
year suffered from serious flaws, and the outcome of the process will
negatively impact the effective NDH service model. While the full outcomes of
the tender process have not been made public, Consumer Action Law Centre and
Financial Rights Legal Centre were informed in late October that our
applications were unsuccessful.
The committee recommends that future tenders for financial counselling
be conducted in a manner and to a timetable that gives service providers
confidence in the outcome, and allows them to continue their work without
Alternative financial products for financially stressed Australians
The committee considers the failure of trust in small amount credit
providers to provide appropriate and affordable credit as an indictment on the
poor practice in the sector. Excessive interest applied to, and predatory
behaviour targeted at, vulnerable people is forcing consumers into spiralling
The committee received evidence of alternative means of providing credit
to those in need of financing through microfinance such as No Interest Loans
Schemes (NILS) and Step-Up loans, which offer small loans at low interest.
These products offer a fairer alternative to pay day loans and consumer leases.
To date, the government has provided limited support to these credit facilities
which could have far reaching benefits for financially stressed Australians in
need of credit.
Good Shepherd Microfinance highlights the benefits of NILS:
No Interest Loan Scheme (NILS) offers people on low incomes
safe, fair and affordable loans for fridges, washing machines and furniture, as
well as education and medical expenses. Loans up to $1,500 are available from
178 community organisation at 628 locations across Australia. In the 2017-2018
financial year 27,392 NILS loans were written.
The provision of microfinance and low and no interest loans has scope
for expansion in Australia. The government should explore the scalability and delivery
potential of such programs.
The committee recommends that the government consider what tax and other
incentives could be used to encourage mainstream credit providers to offer low
interest products to vulnerable Australians.
The committee recommends that the No Income Loans Schemes and Step-Up
grant programs should be expanded, with longer funding cycles that are aligned
to the other grants in the Department of Social Services Financial Wellbeing
and Capability funding stream.
The committee recommends that the government should actively promote the
No Income Loans Schemes and Step Up programs through Centrelink offices, and
other forums where there is contact with people at risk of financial hardship.
The government should also consider whether information regarding these
programs should be included alongside the information regarding the debt
helpline on bills and other documents.
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