Social Security (Administration) Amendment (Consumer Lease Exclusion) Bill 2015 Bills

I also rise to address the Social Security (Administration) Amendment (Consumer Lease Exclusion) Bill 2015. I would like to address this in three key ways. Firstly, I want to talk about what Centrepay actually is, which is the mechanism that is being discussed. Secondly, I want to talk about the problem that the bill seeks to address. Thirdly, I want to talk about what the most effective approach is to actually mitigating the risk and the poor consequences and outcomes that Senator Cameron raises. I do this because my background, as you know, Mr Acting Deputy President Sterle, is that of an experimental test pilot, so I have seen many cases where people identify a problem and launch into what they think is a fix. But, if you do not identify what the crux of the problem is, what system needs rectification and what the possible unintended consequences are, you can spend a lot of time and effort but not address the problem you are seeking to fix. So I think it is important that we look at these factors.

What is Centrepay? It is a deduction service that is offered to customers of Centrelink by the Department of Human Services. It is free for recipients of Centrelink payments. It means that people can have payments for things like bills, utilities and other costs deducted from their Centrelink payments to meet those ongoing expenses, and then the residual Centrelink payments are deposited into their accounts. So it helps people to manage their funds, particularly people who, because of their own life circumstances and their ability to manage, or because in some communities there is an expectation that ‘what you have is mine and you should share it’, find it very hard to maintain control of their own income. Because of those social or familial pressures, Centrepay can be an invaluable tool to them.

Centrepay was used to transfer more than $2.1 billion deductions last financial year, so it is of substantial size in terms of its transactions. It is widely acknowledged as a very valuable service by the sorts of community organisations that get alongside people who are struggling in this area. It is used by around 600,000 people who are in receipt of Centrelink payments, and they represent about nine per cent of the total Centrelink customer base.

One of the things it does is link businesses who have met the policy and terms of Centrepay with these consumers. It does not operate carte blanche; it has a process whereby businesses have to agree to abide by certain policies and terms, and conditions in some cases, to be linked up and be able to receive those payments. So it is a fairly well-developed system.

The system has been developed over time, particularly in the area of consumer leases. The Department of Human Services has conducted a review of the system to change the way it works and to provide more information to more consumers—and I will get onto that a little bit later—but it has also excluded consumer leases that are not regulated by the National Consumer Protection Act 2009, and that is important. One of the roles of the Parliamentary Joint Committee on Corporations and Financial Services, which I chair, is to oversee ASIC, the corporate regulator, and one of the benefits that a regulated scheme brings is that people have to comply with the requirements of, and get approval from, ASIC in terms of how they run their business. For schemes that are not regulated, there is not that same oversight or that same framework to comply with, so this review has already excluded those kinds of businesses from the Centrepay model.

Importantly, this bill also expands the alternatives to consumer leases, and these are things like low-interest loans or no-interest loans, savings plans and lay-bys. That means that, when people are attracted by one of those lease-to-buy options because they need whitegoods or some service in their house, they know, ‘I can buy those goods more cheaply with a low-interest loan or a lay-by plan than through that rental scheme.’ There has been a lot of effort put into making those alternatives available and appropriately regulated, and making sure people are aware of them. The changes in the bill to the Consumer Protection Act and to Centrepay are to make more of those alternatives available to people, which then help them to make informed choices about their options when procuring household items they need for day-to-day living in a way that is ethical and fair in terms of the impact on them.

You need to bear in mind, Mr Acting Deputy President Sterle, that many of the people we are speaking about are excluded from normal avenues of credit, whether credit cards or store accounts, because they may be unemployed—and, in some cases, the unemployment is intergenerational. I certainly know from my time as the member for Wakefield in the other place, when I represented some communities in the Peachey Belt area, that there were a lot of long-term unemployed people. The work there of groups such as Anglicare and others who sought to get alongside people and help them with their financial literacy and understanding was critical in helping them to bridge these gaps between what the rest of us take for granted and what is available to them.

The new Centrepay policy and terms categorise goods and services that are eligible deductions and list a number of things that are specifically excluded so that people are only using the system for things that are important. The Centrepay terms do not rely on social security law to exclude particular goods, and I encourage those who have a deep interest in this to go and have a look at the Centrepay policy and terms.

This is where I think we move from looking at what Centrepay is to looking at mechanisms to bring about change. We have described Centrepay, and it is good. The problem with consumer leases, which is fairly well known—and I applaud Senator Cameron for his concern for people—is that somebody can make rental payments over a number of years for an item that might cost $600, but the amount they end up paying can be around the $1,100, $1,200 or $1,300 mark. Clearly, they pay far more for the item because they do not have the option of getting that up-front capital. It is a well-defined problem. But the mechanism to bring about change is not the act, because, if we exclude even regulated consumer lease options from this system, there are a few things that can happen. One is that the leases that are then made available to people will often not be regulated. So people who are under pressure to have a fridge or a washing machine in the house will still go to companies who have no obligations either through ASIC or, indeed, under the policy and terms of Centrepay to provide additional information to these people about alternative credit sources such as the low-interest loans et cetera or to operate in a fair and ethical manner. People will then be using the residual money they have from their Centrelink entitlement to pay for these items. So we are actually reducing the protections for them if we exclude the regulated consumer leases from Centrepay in this legislation.

If we were to try and do things in a different way through Centrepay, as opposed to ASIC—and I will come back to ASIC in a minute—then we would look at Centrepay’s policy and terms. Under 7.3 in the policy and terms, any company that has an agreement to use the Centrepay system has to comply with the policy and terms and any additional conditions which are placed on it. So, we are talking about a regulated scheme which already has the calming effect of ASIC requirements and then the additional requirements that can be placed on the policies and terms. If we look at section 8.1.b, it says that Centrepay can approve an application to be part of this scheme either in its standard policy and terms or it can approve it with additional conditions. This is one of the options that would be far more precise in achieving the outcome that Senator Cameron is looking for, if we find that the other mechanisms are not having the desired effect—and, as I say, I will come back to those in a minute. The policy and terms and additional conditions could be a mechanism to say, ‘If you want to be part of the Centrepay scheme’—and, for companies, that is obviously an attraction, because there is a lower risk profile for them if they are receiving these payments under agreement where Centrepay is an intermediary—’then Centrepay could use additional conditions to set caps on interest or other options.’ So there are ways that those sorts of conditions could be used to deliver more protection to the consumer than just by eliminating these kinds of things from the legislation altogether.

It seems a self-defeating object, to my mind, to say that we are concerned that people are being exploited, therefore, remove these products altogether, as opposed to saying, ‘Let’s use the system to provide additional protections for people so that what they are asked to sign up to is equitable, fair and ethical for them.’ The policy of the Centrepay system itself, under a regulated product, provides the sort of protection that we should be aiming for, as opposed to just excluding it and putting it out in the free market.

Part of the reason I say that is that the people who are responsible for regulating these products are ASIC. ASIC are responsible for the regulation of consumer leases under the National Consumer Credit Protection Act 2009. They undertake a range of research and activities to promote business compliance with the act, and they also provide a number of educational materials for the consumer. When it comes to education, I am very aware, having been the member for Wakefield where I have gone into schools and seen that in the foyer there are no written hand-outs. The schools have given up providing them to parents because they have realised that in some cases some parents cannot actually read. They will not admit it, and they do not get the information. So, for that cohort, no amount of brochures that highlight information is going to protect them. What these schools have done is put information onto an audio—so, it is a video or a power-point presentation with audio. They find that the parents will stand around and have a cup of tea that is provided. The whole object is to provide an environment where you convey information. So there are ways that we can convey information to people.

Part of ASIC’s remit is educating consumers. They have their MoneySmart website and system, where they try to provide financial guidance. What we are seeing is that people like Centrepay are linking through to that information. So, in the increasingly online environment, people are being pointed to the fact sheets that are produced by ASIC around MoneySmart. ASIC have a whole section just on consumer leases, which explains how the leases work and the terms. It highlights the fact that, at the end of a lease, you might actually not own the item, despite the sometimes misleading advertising; you can be responsible if the item is damaged or stolen; and the terms and conditions can be complicated and they may need to seek additional support. They highlight the fact that leasing may not be the best way to buy something, the fact that there is often no cooling-off period and the fact that you may be better off with lay-by or low-interest type schemes. They also help people to working whether they can actually afford these repayments—so there is budget planning. They also point people to things like the no-interest loan scheme, which offers specific purpose loans for things like fridges or washing machines. There is the Good Shepherd Youth and Family Service, who can link people up with providers of these low-interest schemes. So there is a range of information available there.

By keeping these schemes within the Centrepay system, we can do things under its terms and conditions. For instance, if you as a business want to attract customers and want to have the security of using the Centrepay system then you need to provide them with this information. ASIC provides links to additional explanation, and advocacy and support groups in the community can use that information to help inform consumers. With the regulated schemes, ASIC takes action to make sure that schemes do comply. I am the first to admit—and it is the whole reason we have ASIC—that there are people who do the wrong thing. I look at ASIC’s website and see that in February this year ASIC took action against five different companies—Goldhype, the Smart Link Rentals group, Keep Easy rentals, Rent To Keep, the RentEzi appliance rentals and the Wanted Rented group. They are obviously all aimed at getting people into this scheme as an easy and quick way for them to get something. As a result of ASIC’s actions, over $230,000 has been refunded to 115 consumers, the majority of whom were in this cohort. They were people on Centrelink benefits who had entered into contracts with these lease providers.

Under the outcome that ASIC has imposed on these businesses, the businesses have agreed to collect only the cost price of the rented goods and to refund any amount that has already been received from the consumer over that amount. They have also agreed to transfer ownership of the goods to the consumer once the cost price has been paid and to stop offering regulated consumer leases. In other words, ASIC has said, ‘Your conduct has been so poor that not only are we going to make you fix up the problem with your existing customers but you are no longer going to be offering leases in this space.’ So ASIC is fixing the problem with companies like that but, by then saying, ‘You cannot offer regulated products,’ it means that Centrepay will no longer be offering the product.

So the whole intent of Senator Cameron’s bill in this case does not achieve anything, because the system has already worked to exclude those people. People would get more protection by still coming through Centrepay with Centrepay’s terms and conditions and regulated schemes than they would by going into a marketplace where people who have been prevented from providing regulated lease options are operating.

In June this year we saw another action by ASIC against a firm called Amazing Rentals. ASIC required that that company stop operating. The area where they had most noncompliance was in Darwin. ASIC said, ‘You have to cease operating in Darwin for a minimum of 12 months.’ That company had to terminate all the consumer leases that had been entered into at the Darwin store between October 2011 and May 2015. They had to cancel the payment arrangements in relation to those leases and transfer ownership of the goods to the consumers. They had to refund to consumers all credit charges and the difference between the retail and lease costs and they had to pay a total of $10,000 to some of the advocacy agencies that supported people—the North Australian Aboriginal Justice Agency and the Top End Women’s Legal Service, who provided support to consumers in this case. They also had to engage an independent and external compliance expert to conduct an assessment and report to ASIC on Amazing Rentals’ policies and procedures to ensure compliance with credit compensation in relation to responsible lending documentation obligations and make any recommendations about required changes.

To come back to my starting point, Centrepay is a useful system. It supports 600,000-odd people, about nine per cent of Centrelink recipients in the country. It has been recognised by ASIC as a useful system. There is a problem with leases that charge people far more than a product is worth, but the answer is not to exclude regulated leases from the Centrepay system, for the simple reason that we want people to be using regulated leases because that allows ASIC to take the kinds of actions I have just outlined that they have taken against six companies this year alone. But also importantly it brings it under the Centrepay system, where there is the policy, the terms and the additional conditions that they can apply, which will provide more protection, not less, to the consumer.

For those reasons, whilst I commend Senator Cameron for his concern for the people involved, I believe that the Centrepay system is worthwhile and that excluding regulated consumer leases is not the best way to provide protection to consumers, and so I will not be supporting the bill.