Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697633700598.pdf (Australia)
National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 Contents About Good Shepherd Australia New Zealand ..................................................................................... 4 Executive Summary ................................................................................................................................................... 5 Recommendations .................................................................................................................................................... 6 Introduction ..................................................................................................................................................................... 7 Key Concerns with Schedule 1 ........................................................................................................................... 8 Key concerns with Schedule 2 6 .................................................................................................................... 11 Conclusion ..................................................................................................................................................................... 14 References ..................................................................................................................................................................... 15 GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 2 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 Good Shepherd Australia New Zealand February 2021 Key contact: Laura Vidal Head of Social Policy Good Shepherd Australia New Zealand Lead Author: Lily Gardener Policy and Advocacy Adviser Co-author: Dr Madeleine Ulbrick Senior Policy and Advocacy Adviser GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 3 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 Statement of Recognition Good Shepherd Australia New Zealand acknowledges the Traditional Custodians of the lands and waters throughout Australia.
We pay our respect to Elders, past, present and emerging, acknowledging their continuing relationship to land and the ongoing living cultures of Aboriginal and Torres Strait Islander Peoples across Australia.

About Good Shepherd Australia New Zealand Good Shepherd Australia New Zealand was established to address the critical, contemporary issues facing women, girls and families.

We work to advance equity and social justice, and to support our communities to thrive.
We aspire for all women, girls and families to be safe, well, strong and connected.

For over 30 years Good Shepherd has partnered with community organisations and peak bodies, local, state and federal governments, and universities to work collaboratively and in place based settings to improve outcomes for vulnerable people.

Our service provision focuses on safety and resilience, economic participation and microfinance.
Good Shepherd delivers services across Australia specifically for victim/survivors of family violence including but not limited to case management, family support work, counselling and accommodation.

Throughout all of our programs, including financial counselling and capability building we have identified that domestic, family and sexual violence is a pervasive factor of vulnerability and is often the reason for seeking support.
A central part of our purpose is to challenge the systems that entrench poverty, disadvantage and gender inequality; we do this through a range of research, policy development and advocacy activities.

Acknowledgements We thank the practitioners from Good Shepherd client services who shared their practice wisdom with us and which we have referenced in this submission.
Their insights from working with women, girls and families enhance our understanding of the need for strong responsible lending obligations and regulation of small amount credit contracts and benefits of financial services.
GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 4 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 Executive Summary Good Shepherd Australia New Zealand welcomes the opportunity to provide a submission to the Senate Economics Legislation Committee’s inquiry on the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 (the Bill).
We strongly oppose the Bill and urge the Government to reconsider passing the Bill for the following reasons: 1.

Schedule 1 of the Bill weakens responsible lending obligations and is contrary to the findings and recommendations of the 2019 Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (‘banking royal commission’).
Additionally,  The Bill will not provide sufficient protections for vulnerable consumers and will limit access to redress;  The risks associated with intimate partner debt abuse, an already extremely common and extraordinarily difficult issue to resolve, will be increased under measures introduced in this Bill.

The proposed Bill increases opportunities for perpetrators and makes it more difficult for victim/survivors of economic abuse to resolve issues.

2.
2.

Schedules 2 6 of the Bill introduce inadequate protections in small amount credit contracts (SACCs) which have been subject to previous inquiries1.

These inquiries have documented that the under regulation of SACCs and consumer leases are of growing concern.
The proliferation of these products in the market and the targeting of vulnerable and low income people with no capacity to pay back loans is concerning, and is an ongoing issue for many of the people seeking support from Good Shepherd Australia New Zealand.
In previous submissions, Good Shepherd has expressed support for laws that will ensure a balance between consumer choice and consumer protection; and safeguard people on low and middle incomes who choose to access credit through these channels from becoming financially stressed.
See for example: Inquiry into the National Consumer Credit Protection Amendement (Small Amount Credit and Consumer Lease Reforms) Bill 2019 (No.2): https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/NCCP ABSACCCLRNo2 GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 5 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 Recommendations Good Shepherd recommends that the Federal Government: Recommendation 1: Reconsiders passing the Bill.
Recommendation 2: Strengthens laws that govern debt transmitted through coercive relationships to prevent, protect, and provide redress for victims of economic abuse where a perpetrator has used debt to exercise coercive control over a partner in the context of a violent relationship.
Recommendation 3: Pass amendments that ensure a balance between consumer choice and consumer protection and safeguard people on low and middle incomes who choose to access credit through these channels from becoming financially stressed.
GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 6 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 Introduction The National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 (‘The Bill’), before the Senate Economics Committee, proposes to relax consumer protections and legal rights for borrowers.
The Bill, if passed, will have dire consequences for people experiencing financial stress.

Good Shepherd is concerned that the Bill contradicts Commissioner Kenneth Hayne’s first recommendation in the Banking Royal Commission Final Report that existing responsible lending laws should be retained2.
The abolition of responsible lending obligations will have disastrous outcomes for people experiencing financial hardship, especially women who are more likely to live in households below the poverty line than men.

Good Shepherd’s financial counsellors advise that their clients survive on advances from Centrelink (Good Shepherd, 2019).

People are often going into debt for basic needs that should otherwise be met by income support payments.
The payment is entirely inadequate and not enough to cover day to day living costs including rent, food, and travel expenses (Good Shepherd, 2019).

Our data suggests that there has also been a rise in borrowing to pay utility bills (Good Shepherd Microfinance, 2018).

In response to the pandemic, the Federal government introduced a temporary $550 per fortnight supplement to many (although not all) income support payments, which for most recipients effectively doubled their income.
Initial data from a Good Shepherd, Swinburne University, Australian National University, and the Centre for Excellence in Child and Family Welfare study shows that the supplement meant people could purchase healthier food for their household, pay off debt, purchase school related items for children, buy some necessary but expensive items (such as appliances), visit the doctor or dentist, and refill lapsed medication.
Many also said they were able to put some away as savings for when they need (Maury et al, 2020).

The Federal government has begun reducing the supplement and re introducing mutual obligations and other requirements.
There is broad agreement across the political spectrum and a range of business leaders that the pre COVID payment level is too low, and as a result of the inadequate payments people are forced to 2 Recommendation 1.1- The NCCP Act: The NCCP Act should not be amended to alter the obligation to assess unsuitability (Hayne, K. (2019), Royal Commission in the Banking, Superannuation and Financial Services Industry, Recommendation 1, p. 20) GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 7 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 look at alternatives such as small amount credit contracts, and other high risk consumer leases.
The provisions in the Bill relating to small amount credit contracts (known as payday loans) and consumer leases will not effectively protect people from predatory conduct.

Women escaping family violence and experiencing financial hardship are at a much higher risk of accessing predatory loans.
This has also been reported by Good Shepherd practitioners who state that they often find that women experiencing family violence and financial hardship have used a number of predatory loans to bridge the gap during times of financial hardship.
While there are some mildly positive elements of the proposed Bill, such as a ban on unsolicited sales and legislation to require no penalties for early repayment of loans, these protections are substantially different to what was advocated for in previous submissions where there were consistent calls for reform to make the system safer for consumers.

Key Concerns with Schedule 1 The Bill in its current form is not designed to provide consumer protection from an individual consumer standpoint.
Removing responsible lending monitoring and enforcement from the national corporate regulator (ASIC) and placing this responsibility with a regulator, Australian Financial Complaints Authority (AFCA), that has no monitoring or enforcement powers will result in untold consumer harm and financial detriment.

The Bill will not provide sufficient protections for vulnerable consumers and will limit people’s access to redress.
Good Shepherd strongly believes that removing laws relating to irresponsible lending will result in consumers having fewer rights to enforce at the AFCA.

Good Shepherd is concerned that the removal of laws requiring financial service providers to meet responsible lending standards will allow a return to the misconduct identified in the banking royal commission.
Weaker lending standards result in the intractable indebtedness of consumers, and women fare markedly worse due to their disproportionate share of caring responsibilities (Good Shepherd, 2020).

The Bill seeks to reduce assessment and verification obligations and enables lenders to explicitly rely on information provided by borrowers unless there are reasonable grounds to disbelieve the information provided.
This is a significant GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 8 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 Key concerns with Schedule 2 -6 Good Shepherd is concerned that the Bill does not adequately protect vulnerable consumers from the risk of predatory lenders.
The Bill contains weakened versions of key reforms recommended by the 2016 Small Amount Credit Contracts Review3 (SACC Review).

This increases the risk of harm caused by excessively expensive payday loans and consumer leases.

While it is positive to see that the Bill explicitly outlines preventing consumer leases being sold door to door, it is worthwhile exploring the ease and availability of SACCs and consumer loans online and ensuring that anti avoidance protections extend to the online domain.
Good Shepherd’s practice experience reveals that the convenience and ready availability of payday loans and rent to buy schemes online makes them attractive for consumers.

Women are most likely to use online methods to obtain loans quickly, conveniently and confidentially.

Many lenders are exploiting this with considerable investments in sophisticated online platforms.

Only 5.6 per cent of payday loans originated online a decade ago; that figure reached 85.8 per cent in 2019 (Stop the Debt Trap, 2019).
Based on household data, women are more likely to live in households below the poverty line than men (Good Shepherd, 2019).

As such, women’s financial security is a cornerstone of the activities undertaken by Good Shepherd and through our services there have been noticeable patterns of financial behaviour that women engage in.
Research commissioned by Good Shepherd in 2018 and conducted by Digital Finance Analytics (DFA) on ‘Women and Payday Lending’ offers unique insights into the role and impact of payday lending in Australia, how women are using these products and what the specific drivers are (Good Shepherd Microfinance, 2018).

This research indicates three discrete groups of women using payday loans including single women, single parents, and families.
Single parents have the highest poverty rates at 32 per cent and children in single parent families have a poverty rate of 39 per cent.

They are more than three times as likely to live in poverty as children in couple families (Good Shepherd, 2019).
3 Commonwealth of Australia, (2016), Review of the small amount credit contract laws: https://treasury.gov.au/sites/default/files/2019-03/C2016-016_SACC-Final-Report.pdf GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 11 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 Single women and single parent families are most likely to opt for payday loans to get themselves out of financial distress, and often have concurrent loans (Good Shepherd Microfinance, 2018).
Analysis of women’s payday lending habits show they use these loans to pay for car expenses, utility bills and other one off items.

Good Shepherd supports the two key recommendations from the previous SACC review to: 1.

2.

Introduce ‘protected earnings’ and; ‘Amount caps’ for both payday loans and consumer leases.

These measures are critical to protect people from falling into spirals of debt.
The Bill before this inquiry seeks to double these caps for people whose income is not predominantly from Centrelink, to 20% for payday loans and leases this could result in an employed person having up to 40% of their net income deducted by payday lenders and consumer lease providers.

Good Shepherd shares concerns with the Consumer Action Law Centre about the proposed extra charges in the consumer leas cost cap.
While the SACC Review recommended a 4% monthly cost cap for consumer leases calculated on the retail price of the leased good, the Bill allows 4% monthly fees calculated on the base price plus delivery and installation fees.

Also contrary to the SACC Review recommendations, the Bill permits consumer lease providers to charge an extra 20% establishment fee on leases, on top of the cost cap that was recommended by the SACC Review.

This increases rather than prevents harm.


Further cause for concern in the Bill is the proposal stipulating that a person would have more protections for a loan of up to $2,000, than for a loan of $2,001 to $5,000.

Good Shepherd is concerned that this might create an incentive for payday lenders to upsell potential borrowers to a higher loan.

If the loan is for more than $2,000, the lender cannot be prosecuted for irresponsible lending and the borrower cannot take them to court for irresponsible lending.
We reiterate our call for the government to ensure that the unsafe, unfair, and predatory practices within the payday and short term credit lending market be curtailed so that small amount credit contracts do not increase the financial hardship of already vulnerable consumers, especially women.
GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 12 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 Conclusion Good Shepherd thanks the Senate Economics Legislation Committee for the opportunity to provide a response to the inquiry on the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020.
We note there have been consistent calls for reform to make the system safer for consumers.

Good Shepherd also draws the Inquiry’s attention to the need for stronger laws that govern debt transmitted through coercive relationships to prevent, protect, and provide redress for victims of economic abuse where a perpetrator has used debt to exercise coercive control over a partner in the context of a violent relationship.
Good Shepherd strongly opposes the Bill and cautions against any weakening of consumer protections.

Good Shepherd welcomes further opportunity to provide evidence and expand on any of the points raised in this submission.

GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 14 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31 References Good Shepherd Microfinance.

(2018).

Women and Pay Day Lending.


Retrieved from https://goodshepherdmicrofinance.org.au/assets/files/2018/02/Women and Pay Day Lending 2018.pdf Good Shepherd Australia New Zealand.

(2019).

Submission on the adequacy of Newstart and related payments and alternative mechanisms to determine the level of income support payments in Australia.

Senate Community Affairs References Committee.


Retrieved from https://goodshep.org.au/wp content/uploads/2020/12/good shepherd australia new zealand_senate inquiry into the adequacy of newstart submission_2019.pdf Good Shepherd Australia New Zealand.

(2020).

Submission on the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No.

2).

Senate Economics Legislation Committee.


Retrieved from https://goodshep.org.au/wp content/uploads/2020/12/gsanz submission nccp amendment bill.pdf Kearns, J., Major, M., & Norman, D. (2020).

“How Risky is Australian Household Debt?”.

Reserve Bank of Australia Research Discussion Paper RDP 2020 05.

Retrieved from https://www.rba.gov.au/publications/rdp/2020/pdf/rdp2020 05.pdf Maury, S., Levine, J., Lasater, Z., Vidal, L., & Ulbrick, M. (2020).
“Understanding the impacts of COVID 19 on vulnerable Australians: Insights from Good Shepherd Australia New Zealand.” Good Shepherd Australia New Zealand, Melbourne.

Retrieved from https://goodshep.org.au/wp content/uploads/2020/12/GSH031 COVID 19 Report DP5.pdf Stop the Debt Trap.

(2019).

The Debt Trap: How payday lending is costing Australians.

Stop the Debt Trap Alliance.

Consumer Action Law Centre.


Retrieved from https://consumeraction.org.au/wp content/uploads/2019/11/Payday Lending Report FINAL UPDATED WEB 1.pdf Quantum Market Research.

(2020).

Debt Management Firm Research.

Consumer Action Law Centre.


Retrieved from https://consumeraction.org.au/wp content/uploads/2020/12/CALC_Debt Management Firms Research_Report_7Dec20.pdf GSANZ Response to Nat ona Consumer Cred t Protect on Amendment (Support ng Econom c Recovery) B 2020 15 National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020Submission 31