Families Go Without while Federal Government Delays
Good Shepherd Microfinance Chief Executive Officer, Adam Mooney, said the not-for-profit community service organisation was at the coal face of supporting thousands of people experiencing financial distress caused by excessive payday loan and consumer contract fees.
"Every day we see people who are unable to pay for basic essentials like medical bills, food and educational costs for their kids because they have excessive repayments for payday loans," Mr Mooney said.
"Some of the most vulnerable families in Australia are paying up to triple the price for a washing machine because of a high fee rent-to-buy style contract.
"We are calling for urgent action. The Federal Government agreed to and accepted the reforms delivered last year after the independent review into the small amount credit contract industry.
"It's time to act."
Mr Mooney said one of the key elements of the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2017 was limiting the repayments of small amount credit contracts to 10 per cent of a person's net income.
"About 25 per cent of the Australian population is unable to access credit or loans from mainstream banks and financial institutions, and it's these people who turn to payday loans and consumer contracts to get by," he said.
"We believe capping their repayments at 10 per cent of their income means that more people will be able to pay out their contracts and avoid any unintended financial stress. As an Australian Credit License holder, Good Shepherd Microfinance will apply this welcome reform to our Speckle program.
"Claims by some Federal MPs that imposing the cap will leave people on low incomes with nowhere to go when they need a loan are untrue and unfounded.
"Good Shepherd Microfinance's No Interest Loan Scheme (NILS) offers loans of up to $1,500 at more than 690 providers across the country. NILS is designed to reach people on low incomes who need to purchase essential items or services.
"We've also recently introduced our new Speckle loan program which provides online cash loans up to $2,000 at around half the cost of other small cash loans. Speckle loans are for people who are working and need to access cash quickly."
Mr Mooney welcomed Labor's bi-partisan support with Shadow Minister for Consumer Affairs, Tim Hammond, announcing this week that he would introduce the reforms to Federal Parliament if the Government continued to delay.
Mr Mooney said critical reforms included:
· Limiting total small amount credit contract repayments to 10 per cent of a person's net income (known as a protected earnings amount)
· Capping the cost of consumer leases to the base price plus 4 per cent of the base price per month for a maximum of 48 months
· Introducing a protected earnings amount requirement for consumer lease providers that limits total consumer lease repayments to 10 per cent of a person's net income, equivalent but separate to the requirement for small amount credit contracts.
Mr Mooney urged consumers to understand the total cost of a cash loan.
"Unfortunately, these loans come with high fees and many people struggle to meet the repayments which then incurs additional default fees," he said.
"Likewise, consumer leases that allow people to pay off household goods over the term of a contract force the borrower to pay back much more than they originally needed.
"A $600 washing machine, for example, ends up costing more than $1,200 over the course of the consumer lease contract – extra money many people cannot afford unless they go without meeting their basic needs."
Mr Mooney said it was not just people on low incomes that had difficulty balancing the household budget with 2.4 million people in Australia facing some level of financial stress each year.
"At some stage we all get unexpected bills - medical bills, a broken refrigerator or urgently needed car repairs – and these can upset any household budget," he said.
"Less than one in two of us have savings worth three or more months of income and only eight per cent of us could raise $2,000 from savings in an emergency."
Mr Mooney these reforms were only one step towards improving financial inclusion in Australia.
He called on the Federal Government to boost funding for NILS and to increase the availability of financial counselling, financial education and crisis support
Financial Resilience in Australia 2016. Centre for Social Impact and NAB.