Financial Counselling Australia has welcomed today’s announcement by the Assistant Treasurer, Senator Sinodinos about options to address problems with short-term leases of less than four months and indefinite leases with no fixed end date.
Currently these leases are not regulated by the national credit laws. As a consequence, some lease providers have structured their contracts to avoid the stronger obligations of these laws, including the requirement to lend responsibly. Consumers with disputes about short-term or indefinite leases are also unable to access independent external dispute resolution services, such as the Financial Ombudsman Service or the Credit Ombudsman Service.
“It is important that regulatory gaps for consumer leases are filled”, said Fiona Guthrie, Executive Director of FCA. “Apples need to be compared with apples. Consumer leases need to be regulated by their substance, not form and treated in the same way as equivalent forms of credit.”
“Short term and indefinite consumer leases are often a high cost product and targeted at consumers who cannot afford mainstream finance”, said Ms Guthrie. “These consumers should be entitled to the same levels of consumer protection as other Australians.”
There are a number of problems generally with the consumer leasing industry. While the consultation has identified regulatory gaps relating to short term and indefinite leases, there remain other serious concerns with other forms of consumer leases that need to be addressed. These include:
- Many consumers enter into contracts to rent goods, thinking they will own the goods at the end of the contract. In fact, a consumer lease cannot give them that right. This is often confusing for consumers and at worst, misleading.
- Consumer lease providers are not required to disclose the cash price of the goods, the total cost of the lease contract or the interest rate in advertisements. Instead, consumer lease providers emphasise the weekly cost of the lease in advertisements.
- Consumer leases are a very expensive form of credit. An analysis by the Consumer Action Law Centre found that by the end of the contract, consumers will have paid two or three times and sometimes more than the cost of the goods. Although the current consultation will not address the inherently high cost of leasing contracts, there is a need for clearer disclosure to encourage consumers to shop around for other potentially cheaper forms of credit.
- Consumer lease providers have been given access to the Centrepay system, a bill-paying system for people in receipt of Centrelink benefits. Centrepay acts to prioritise payments of some expenses over others, including food. Access to Centrepay by lease providers has effectively underpinned large parts of the industry, as it provides a strong “guarantee” of repayment. Perversely, it also acts as a disincentive for the industry to comply with the responsible lending obligations of the credit laws.
Anyone who is in financial difficulty can contact a free and independent financial counsellor on 1800 007 007 or visit www.debtselfhelp.org.au.