Vulnerable consumers have been ignored by the Coalition government once more, after what advocates say is a failure by the nation’s politicians to crack down on predatory finance practices.
The sting is further enhanced by a lack of funding to vital community legal and financial counselling services.
Consumer Action Law Centre and Financial Counselling Australia slammed the Coalition, accusing the government of dragging its feet on reforming payday lending products with annual interest rates as high as 200 per cent, and exorbitantly priced consumer leasing products, after agreeing to do so more than two years ago.
In 2016, then-financial services minister Kelly O’Dwyer proposed a cap on the costs of consumer leases and limiting loan repayments to 10 per cent of after-tax income.
The reforms were shelved following “extensive lobbying by the payday lending and consumer lease sectors”, consumer advocates said.
“It is extremely disappointing and the key reason is the effectiveness of lobbying by the payday lender sector to really stymie the reforms,” Consumer Action Law Centre chief executive Gerard Brody told The New Daily.
“These are reforms that were approved by the Coalition government cabinet under Kelly O’Dwyer.”
The payday lending sector relies on “systemic irresponsible lending” to vulnerable, cash-strapped Australians, Mr Brody said.
“What tends to happen is that people get into a spiral of repeat lending. They might borrow for one purpose, such as to repair a car that’s broken down, but then the repayments are so high that when the loan period is over they’re enticed back to the lender to fill that gap,” he said.
Consumer advocates believe the government’s failure to act on what have long been known to be harmful financial products can only be attributed to the influence of powerful lobbyists.
“Government is preferring to respond to the lobbying from payday lenders rather than addressing the harm being caused by these providers, and in doing so they are ignoring recommendations from their own independent review and stymieing reform,” Mr Brody said.
Financial counsellors, community legal centres forgotten
In February, a Senate inquiry into “credit and financial products targeted at Australians at risk of financial hardship” further examined the practices of debt-management firms, payday lenders, as well as newer buy-now pay-later businesses, such as Afterpay.
Among the committee’s 20 recommendations were that the government increases funding for financial counselling organisations to “enable a substantial increase in the number of full-time employed financial counsellors across the country” as well as increasing funding for community and financial rights legal centres.
However, such measures were largely absent in the Coalition government’s 2019-20 budget.
In addition to the Senate recommendations, Commissioner Kenneth Hayne praised the “very valuable work” done by financial counsellors and legal centres in addressing the power imbalance between vulnerable consumers and big business in his final banking royal commission report.
“The legal assistance sector and financial counselling services … are a necessity to the community. They add strength to customers who are otherwise disadvantaged in disputes with financial services entities,” Commissioner Hayne said.
Such services rely heavily on federal and state government funding, and “frequently struggle to meet demand, which is increasing”, he said.
Despite promising to act on the banking royal commission’s findings, financial counselling services were ignored by Treasurer Josh Frydenberg in his maiden budget.
The Treasurer instead pledged $640 million in new funding for regulators and enforcement agencies to “restore trust in the financial sector” as part of the Coalition’s “plan for a stronger economy”.
Community legal centres received only a slight funding boost of an extra $7.5 million over three years.
The National Association of Community Legal Centres (NACLC) called on the government to “have a serious look at the level of funding” such services receive.
“There have a been a number of successive reports…highlighting rising demand for services and the need for additional funding,” NACLC chief executive Nassim Arrage said.
“[The budget] is another missed opportunity to not provide more significant funding increases in line with recommendations made by the Productivity Commission and others.”
Mr Brody criticised the government for failing to adequately respond to Commissioner Hayne’s findings.
Boosting funding for community legal and financial counselling services is essential for levelling the playing field between consumers and big business by “ensuring that people have advice and assistance when they need it after suffering detriment as a result of lenders and others in the finance sector”, Mr Brody said.
“I hope as the election period proceeds we will see announcements in those areas,” he said.