After a late-night Senate sitting, Consumer Advocacy groups across Australia are celebrating the passing through the Federal Parliament of long overdue reforms that will protect consumers from falling into payday loans and consumer lease debt traps.
The Financial Sector Reform Bill 2022 has finally passed after 6 years of advocacy by the Stop the Debt Trap Alliance, a coalition of dozens of consumer advocacy organisations from around Australia, including financial experts, community advocates and service providers.
The reforms provide for vital enhancements to the national credit laws that apply to payday loans and consumer leases, that will reduce the risk of excessively high repayments with these products that lead people into a debt spiral.
Consumer Action’s CEO Gerard Brody congratulated the Albanese Government and all Parliamentarians for taking this important step.
“In the more than 6 years since we have been calling for these reforms, we have heard of the harm from thousands of Australian families needlessly pushed into debt by unaffordable payday loans or sold dodgy and expensive consumer leases.
“The passing of these reforms, in the aftermath of COVID and during a cost-of-living crisis, comes not a moment too soon,” he said.
Much of the new protections are due to come into effect six months after the legislation receives Royal Assent, however a new “anti-avoidance” provision will come into effect immediately.
“Avoidance techniques in the consumer credit sector have meant that reforms are always ‘whack-a-mole’”, said Mr Brody.
“This new anti-avoidance provision is ground-breaking—and we call on the regulator, the Australian Securities and Investments Commission, to immediately use it to tackle business models that repeatedly avoid the law through tricky contractual structures, such as Cigno Loans.”
As we saw through ASIC’s recent investigations, fringe lender Cigno has preyed upon consumers in financial hardship for years, signing people up to short-term personal loan arrangements using lending models that sought to fall within exemptions to national credit laws, charging consumers astronomical fees well above the maximum allowable under any form of regulated credit.
QUOTES from Stop the Debt Trap Alliance members:
Fiona Guthrie, Financial Counselling Australia CEO said
“The passage of these laws is really good news. Financial counsellors will be delighted that these reforms have finally made it through Parliament. It means that payday loans and rent to buy contracts will be much safer credit products.”
Mark Holden, Solicitor, Mob Strong Debt Help said:
“Many vulnerable First Nations consumers think these short-term loans and consumer leases will help them through hard times like leaving abusive relationships. Instead, they are sucked into these debt traps and end up in despair. The Federal Government sees this and has acted to help stop the harm these products cause to our community.”
Roberta Grealish, Principal Solicitor, Consumer Credit Legal Service WA said:
“We have been sharing our client’s stories illustrating the harm caused by these products for years and years, repeatedly calling for these reforms.? It is a welcome relief to consumer advocates to see this legislation finally pass, but more importantly, I know it will be a relief for people who will be spared the financial hardship and the repercussions that flow from the excessive costs associated with payday loans and consumer leases. “
CHOICE CEO Alan Kirkland:
“We welcome the Federal Government legislating these landmark consumer protections. With many people struggling to meet rising costs of living, it’s even more important to rein in rogue lenders that prey on people in financial hardship.”
Stuart Forster, General Manager of Community Services, Community Engagement, The Salvation Army said:
“Many of these commonsense changes have been being discussed for years. In taking action to better regulate these instruments, predatory lenders will be less able to take advantage of financially vulnerable people and plunge Australians into unmanageable debt.”
Women’s Legal Service Victoria’s Liz Stary, Senior Financial Counsellor says this will decrease harm caused to women impacted by family violence and economic abuse.
“We work with many women who are forced to take out payday loans and consumer leases to manage their safety and security and then these products end up hindering their financial recovery. Making it easier to access financial support for women escaping violence and increasing this vital support is the next step.”