Afterpay, payday lenders and 'debt vultures' to face Senate inquiry
Price at 3:39 PM today
https://www.smh.com.au/business/ban...s-to-face-senate-inquiry-20181016-p50a1b.html
Payday lenders, debt management firms and Afterpay will be the subject of a new Senate inquiry into parts of the finance sector that have escaped the scrutiny of the Hayne royal commission.
After a year of scandal for the country's biggest financial institutions, Labor has proposed the new inquiry into parts of the financial world that are often slammed by consumer advocates, and are either unregulated or subject to much less regulation than banks.
The Greens, independent Derryn Hinch and Centre Alliance senators Rex Patrick and Stirling Griff threw their weight behind the inquiry on Wednesday, guaranteeing it would have the votes to pass the Senate.
Under proposed terms of reference, the inquiry would look at the regulatory environment surrounding payday lenders, consumer leasing businesses, and what consumer group critics refer to as "debt vultures".
These are businesses such as debt negotiation firms or credit repair agencies, which are unregulated and target customers with debt problems, or those struggling to get finance from conventional sources.
Buy now, pay later schemes such as Afterpay - which consumer groups say exploits a loophole in lending laws - would also be put under the microscope.
Shadow financial services spokeswoman, Clare O'Neil, said the Opposition wanted to stop people entering a "spiral of debt" from expensive payday loans, and the inquiry would look at the financial counselling sector's capacity to service this part of the community.
“I have been speaking with Australians around the country who are victims of misconduct by financial service providers," Ms O'Neil said.
"It is clear to me that there are a range of providers whose conduct was not examined by the banking royal commission who provide financial services to vulnerable Australians."
Gerard Brody, chief executive of the Consumer Action Law Centre, said clients frequently had problems with multiple payday loans. Debt management firms often charged exorbitant fees, he said, and were subject to no regulation.
"If you think the banks, insurers and superannuation funds are ripping people off, they are nothing compared with the exploitative conduct of this sector of the marketplace," Mr Brody said.
Afterpay, which is not subject to responsible lending laws and has taken off in popularity, would also be examined, alongside work the Australian Securities and Investments Commission is doing in this market.
Mr Brody said it appeared that more customers were contacting the National Debt Helpline about Afterpay.
Fiona Guthrie, the chief executive of Financial Counselling Australia, said payday lenders and debt negotiation providers were a significant cause of problems for customers who sought the help of a financial counsellor. These tended to affect lower-income customers the most, she said.
Customers of buy now, pay later services such as Afterpay were also starting to raise some concerns to financial counsellors about this type of credit, Ms Guthrie said.
"If the royal commission has shown us anything, it's that we should not have harmful financial products," she said.
The inquiry comes as the Coalition is accused of sitting on its hands over legislation expected to tighten regulations on the industry.
The Turnbull and Morrison governments have made little progress in 1000 days since the Small Amount Credit Contract and Consumer Lease Reforms bill was first flagged. It sought to introduce a cap on leases equal to the base price of the good plus 4 per cent a month and only allow leases and short-term loans to account for 10 per cent of a customer's net income.
Former assistant treasurer Josh Frydenberg first released the terms of reference for a review of the legislation in August 2015. Four ministers over the course of 1046 days have had carriage of it since .
Stuart Robert, the new minister in charge of the sector, has been contacted for comment.
Greens Treasury spokesperson Peter Whish-Wilson said he welcomed Labor’s bid for a payday lending inquiry but hopes they are genuine about reform after Labor leader Bill Shorten watered down regulations for the industry when he was financial services minister.
"We certainly support an inquiry and we are going to make sure that it goes beyond politics and actually getting some solid reforms in place," he said.
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