Vulnerable Australians are agreeing to share their internet banking passwords so payday lenders can see their transaction history before lending them money, an inquiry has heard.
The practice is placing poorer Australians in breach of the terms and conditions of their transaction accounts, leaving them open to bearing losses in the event of unauthorised access to their bank accounts by third parties, financial counsellors have warned.
A new parliamentary inquiry has begun scrutinising the behaviour of payday lenders, buy-now-pay-later firms, and credit repair agencies.
The inquiry was established to quell concerns that payday lenders and other financial services targeted at Australians at risk of financial hardship had escaped the glare of the banking royal commission.
Fiona Guthrie, the chief executive of Financial Counselling Australia, told the inquiry on Wednesday that laws passed in 2013 to protect payday loan recipients had not prevented “widespread irresponsible lending”.
She said most Australians who accessed payday loans were being pushed further into financial hardship.
“The industry may say that’s been addressed, but that’s not our experience,” she said.
“And that’s not the experience of the regulator, who continues to have to take regulatory action against payday lenders and rent-to-buy companies.”
The Financial Rights Legal Centre told senators payday lenders were using third party service providers to access a client’s bank account details electronically, which was putting customers at risk.
It said under responsible lending requirements, lenders were supposed to look at a borrower’s recent bank statements.
But rather than getting a client to bring in a physical bank statement, they were asking customers to provide their online passwords to a third party so their bank accounts could be accessed remotely.
It was requiring customers to put themselves in breach of the terms and conditions of their transaction accounts.
However, an organisation representing some payday lenders has denied the highly-regulated industry has a problem playing by the rules, pointing instead to unregulated credit providers.
The chair of the National Credit Providers Association, Robert Bryant, said his heavily-regulated industry, which provides payday loans known formally as “small amount credit contracts” (Saccs), was not the problem. (Small amount credit contracts are contracts with a maximum credit limit of $2,000 and a maximum term of 2 years).
Bryant said many of the examples of irresponsible lending highlighted by Financial Counselling Australia pertained to unregulated credit providers and he was tired of his industry being misrepresented.
“The use of the word ‘payday lending’ has been very effective in drawing attention to everything that is bad in consumer credit: consumer leasing, pawn broking, buy-now-pay-later, and more,” he said.
“This is not the Sacc sector that we represent … this misrepresentation of our well-regulated industry is seen in every bad consumer lease story.”
He said regulations were front-of-mind for lenders subjected to them and the same rules should be extended to unregulated providers. He also rejected the suggestion his industry had a compliance problem.
The inquiry comes after Michael McCormack, who is now the Nationals leader, introduced legislation to federal parliament in 2017 aimed at ramping up payday loan protections, but which Labor and the Greens complain has stalled in parliament.
The draft laws will cap total payments on consumer leases and require all small amount credit contracts to have equal repayments and payment intervals, but it has been opposed by some industry players.
The Consumer Household Equipment Rental Providers’ Association says it supports capping the amount customers can be charged for leasing household consumer goods.
However, it opposes the proposal in the draft legislation to impose a maximum cap of 4% per month of the recommended retail price of a leased good, saying that is “far too low” and will shut down the consumer leasing industry “overnight”.
It says for a 12-month consumer lease contract, a company should be able to charge twice the value of a good. For a 24-month contract, the maximum cap should be three times the value. For a 48-month contract, the cap should be four times the value.
There are numerous costs to the lessor beyond just the cost of the goods being leased, including delivery, maintenance, and servicing costs, as well as GST, it argues.
On Wednesday, the president of the Consumer Household Equipment Rental Providers’ Association, Stephen King, appeared before the inquiry.
Labor senator Jenny McAllister asked him if he could justify charging someone four times the value of a fridge between now and Christmas 2022.
King replied: “I could justify it if you went for four years but we wouldn’t put you on a four-year contract unless there was a real need to do so.”
“In other words, if you really needed a particular product and the lease had to be extended over a four-year period to make it affordable … with a lower repayment value over a period time.”
With Australian Associated Press