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The Hon. D.G.E. HOOD (17:12): Obtained leave and introduced a
bill for an act to amend the Consumer Credit (South Australia) Act 1995. Read a first
time.
The Hon. D.G.E. HOOD (17:13): I move:
That this bill
be now read a second time.
Today I introduce a Family First bill to rein in the predatory
lending practices that are hurting families that are the most vulnerable in
our community. At the current count there are approximately 20 different
short-term lending organisations operating in South Australia levying charges on clients
resulting in effective interest rates ranging from 350 per cent up to 1,900
per cent per annum. Struggling families are forced to roll over 30 day loans
from these organisations an average of eight to 10 times because they simply
cannot repay them in full.
This bill will curb the practices of payday and other
short-term lenders in the state. Victoria,
New South Wales and the ACT
already cap the interest rates of their lenders at 48 per cent, although some
lenders use extra fees and charges to break this cap artificially. The Family
First bill will cap interest rates in South Australia
at the 48 per cent level but also, importantly, limit other fees and charges
so that this cap cannot be exceeded and so that South Australian families
have the highest level of protection within Australia.
A draft version of my bill has gone to a wide range of
stakeholders, and I have met with the General Manager of Cash Converters as
well as other institutions for their input. Frankly, I was taken aback by the
depth of emotion against predatory lending from welfare groups and other
consumer groups helping the disadvantaged in our community. Let me read the
reply I received from Ms Margaret Davies from the Salvation Army Community
Support Service regarding a draft version of this bill that I sent to her.
After noting that she welcomes the Family First move to put predatory lenders
onto the political agenda, she states:
These services appear to be accessed by the vulnerable members
of our society who are marginalised and excluded from main stream credit
providers. In my experience, our clients access pay
day lenders during times of desperation to pay off existing debts. Their
anxieties around the urgency of the debt means they do not fully research the
product they are being offered.
She goes on to state: In my
opinion, once a client enters into a contract with a pay day lender, it is
extremely hard to discharge the loan.
Captain Brad Watson of the Salvation
Army, who regularly counsels people dealing with the consequences of payday
lenders, writes as follows:
We are first-hand witnesses of the cruelty of struggling
families trapped into insecure loans with up to 900 per cent per annum interest
charged. Reports from around the state suggest that some operators charge 1 , 300% per annum. Short-term lending is seen by many
financially illiterate and otherwise struggling families as a quick means of
escaping financial crises. Unfortunate ly, a cyclical
trap is created that is very hard to break. While the Salvation Army offers
interest-free loans in the Marion
area to help people break this cycle, we would also like to see the
underlying issue of exorbitant and unconscionable interest charges addressed.
Jeremy Brown, the director of Marion Life Community Services
and state chair of the Emergency Relief Services, was also kind enough to
reply to my request for comment, as follows:
Many of our clients have been caught in a trap by payday
lenders with interest rates, fees and charges all very high. There seems to
be a loophole in that limiting interest rates alone does not prevent very
high fees and charges attached to the contract. We are aware of bikies and
other groups involved in criminal activity that have entered the payday loans
business.
Clearly we as a legislature have an obligation to fix this
broken system that preys upon the most vulnerable. Before I go further I will
take a step back and highlight the comments made by the former minister for
consumer affairs, the member for Wright, in her media release of 21 October
2007, entitled 'Days are numbered for payday lending rogues'. It was acting
upon recommendation 4 of the Economic and Finance Committee inquiry into the
provision of consumer credit, which concluded that month. She also
foreshadowed measures during estimates on 21 October 2006. The release
states:
The state government this week decided to develop legislation
designed to crack down on unscrupulous operators in the payday lending
industry. Minister for Consumer Affairs...said the intention of the new laws
was to provide a range of protection s for vulnerable people seeking
short-term credit, including improving a maximum interest rate cap that
encompasses fees and charges.
Family First wholeheartedly endorses that approach by the
minister, but unfortunately nothing has happened. That promise was made on 21
October 2007, but where is the promised legislation to crack down on these
payday lenders and impose a maximum interest rate, as promised in the press
release? The government made a commitment to introduce similar legislation to
the bill I am introducing today, but we still have not seen it many months
later, indeed well over a year later. It confuses me more that, just a month
after the minister's commitment on 20 November 2007, the member for Mawson
presented a petition to the House of Assembly that read:
...signed by 4,562 residents of South Australia requesting the house to
urge the government to abandon the proposal to cap interest rates, inclusive
of fees and charges, so South Australians can continue to have a choice in
the marketplace for financial solutions.
So, on the one hand we have the minister proposing reform and,
on the other hand, one of the government's own backbenchers openly campaigned
against it through a petition. I am surprised that the media did not pick up
on it, but in any event the promised initiative has not appeared.
I am grateful that the opposition has introduced legislation
supportive of interest rate caps in the past. On 15 November 2006, the member
for Flinders introduced a bill providing for a 48 per cent cap, which
unfortunately did not pass. Payday lenders are currently operating in a legal
no man's land. These loans do not come under the consumer credit code, the
banking code so called, because the loans are for less than 62 days. They
tend to be loans for four weeks or thereabouts. They often do not charge
interest but, instead, high fees and charges in many cases, which is why a
bill that caps not just interest rates but also fees and charges is vital.
There is no specific interest rate applied to the amount loaned, but the fees
and charges are so high that they represent very high effective interest
rates.
There is no need to prove in many cases that you can repay the
loan in order to get a loan, so in many ways these loans sound like the US sub-prime
crisis on a smaller scale all over again. The only way one can pay back the
loan is by direct debit in many cases, but there are often default expenses
and bank charges because people do not have the money to make the repayment
in the first place, so a cycle of debt takes place.
In short, these types of loans hurt families and the most
vulnerable in our community, which is why Family First introduces these
protections today. I have been encouraged by the comments made by the member,
albeit over a year ago, and equally by the member for Flinders of the
opposition. It seems that both sides of parliament have similar views on
this, yet somehow we have not been able to get anything done. This bill will
be agreed to by both sides as it is in line with what both sides have said,
and for that reason I trust that it will gain support from both sides of this
chamber and ultimately the parliament.
Debate adjourned on motion of Hon. B.V. Finnigan.
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