Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697636109682.pdf (Australia)
Committee Secretary Senate Standing Committees on Economics PO Box 6100 Parliament House Canberra ACT 2600 Australia 19 November 2018 Senate Economics References Committee Inquiry into credit and financial services targeted at Australians at risk of financial hardship BaptistCare thanks the Committee for the opportunity to lodge a submission with the Inquiry.
We have been increasingly concerned by a lack of action in response to the irresponsible lending practices of payday lenders and consumer lease providers which target those most vulnerable in our society.

BaptistCare is a leading not-for-profit Christian based care organisation that has been serving the aged and people living with disadvantage in NSW and the ACT for over 70 years.
In 2008 we teamed up with National Australia Bank, Good Shepherd Microfinance, and other partner agencies, to support low-income earners by providing small loans with no interest as part of the 'No Interest Loans Scheme' (NILS).

We also provide low interest loans, known as StepUp Loans and developed counselling services to teach our clients budgeting skills and financial literacy, empowering them to make informed financial decisions.

BaptistCare is now the largest provider of NILS in New South Wales.
We have provided more than $10 million in microfinance loans to people in need across the state since launching our Microfinance Loans Services.

Our microfinance program has changed the lives of over 7,000 people, with the largest portion of loan recipients being single parents supporting children.

Twenty five per cent of our microfinance loans have been provided to Aboriginal and Torres Strait Islander clients.
As an organisation committed to leading the way in the microfinance field and helping promote financial inclusion with fair access to credit for everyday Australians, we feel compelled to share our experience with the Committee.
Credit and financial services targeted at Australians at risk of financial hardshipSubmission 56 Our Position BaptistCare believes that every Australian deserves access to fair finance, but currently our financial system contributes to financial exclusion and disadvantage due to its inflexibility and lack of adequate protections for those who need it most.
As an organisation that works closely with individuals and families suffering from financial hardship, BaptistCare is all too aware of what happens when someone doesn’t have access to affordable financial products and support.

When a client has a poor credit history, or a string of bad debt and no spare cash, finding the funds for every day or emergency costs can lead to substantial hardship.
Fast-cash traps such as payday lenders and loan sharks lead to an unending cycle of debt, and often further trauma and wellbeing issues for the borrower and their family.

Many of the clients that access our microfinance services have previously accessed payday loans which have exacerbated their precarious financial position.
The overwhelming majority are also on some form of government pension or benefit:      32% receive a Disability Support Pension 21% receive a Single Parenting Payment 21% have had a microfinance loan previously 20% receive a Newstart Allowance 7% receive and Age Pension.

In the context of our experience and the experience of those we work with, our main concerns with payday lenders and consumer lease providers are as follows: 1.
The predatory and aggressive nature of marketing – targeting people in the lowest socio-economic groups, those with poor credit history and those who lack basic financial literacy skills and knowledge 2.

The location of many payday lenders in low income communities most vulnerable to bill shock 3.

Direct access to Centrepay for consumer lease providers – making it easy for providers to target those receiving a pension or benefit 4.
Price discrimination – exorbitant interest rates which equate to often more than five times the original value of the loan or the retail price of the product leased 5.

Some providers actually fall outside the SACC by not ‘charging interest’ such as Afterpay but, however, charge large penalties for late payments, etc 6.

The inaction of government, with policy-makers failing to introduce promised legislation following a Treasury review of SACCs in 2015.
It is our view that:       consumer protections should be strengthened, particularly for those who are vulnerable and facing financial exclusion harsher penalties and enforcement should be introduced for those providers who breach lending laws and engage in predatory and irresponsible lending practices greater efforts should be made to improve financial literacy and awareness of the alternative microfinance products available to people experiencing hardship, including referral programs an industry code of conduct should be adopted greater investment in fair finance should be made all payday lenders and consumer lease companies be ineligible to use Centrepay deduction services.
Credit and financial services targeted at Australians at risk of financial hardshipSubmission 56 Terms of Reference (a) the impact on individuals, communities, and the broader financial system of the operations of: (i) payday lenders and consumer lease providers People should be free to make their own financial decisions but irresponsible lending practices, and discriminatory products targeted at those on the fringes should not be tolerated.
We see the impact of payday loans and consumer leases every day at BaptistCare.

As NILS providers, we not only provide safe credit options for essential household goods and services, but engage with our clients in financial conversations.

In reviewing our clients’ financial circumstances, we find the majority of applicants have some sort of payday lending or “rent-to-buy” arrangements.
There is certainly a lot of people who are unaware of the “hidden” costs of such borrowing, but often many people feel they have no alternative.

In addition, these businesses also target their existing clients to take out more credit with them.

The products and the practices of providers are often harmful to borrowers and the damage goes way beyond the financial, often resulting in mental and physical wellbeing issues for borrowers and their families.
We know that disadvantaged groups, including single mothers and remote indigenous communities, make up the bulk of customers for these providers and that exorbitantly high fees and interest rates perpetuate a cycle of debt that traps these people in disadvantage.

As noted previously, consumer lease providers, such as Radio Rentals, are currently allowed to use Centrepay to receive payments, meaning a large share of its customer base will be receiving some form of government benefit.
Examples of disadvantaged clients who have been able to turn to BaptistCare for NILS support instead of having to use high-interest payday lenders 1.

Mary - vulnerable to limited affordable financial options Mary came to BaptistCare wanting to replace her faulty washing machine by applying for a No Interest Loan.

During the interview our staff observed in her bank statements a series of regular deductions to a high interest loan provider.
When asked the nature of these repayments Mary mentioned that her fridge had broken down in the past year and, with being refused loans through banks, she had no other option but to obtain a high interest loan.

Mary said, “Where else can I go?

I have no other option and until now had never heard of NILS.” A quick analysis of her loan contract revealed that Mary was going to pay more than double the value of the fridge in fees and interest.
Credit and financial services targeted at Australians at risk of financial hardshipSubmission 56 2.

Woman needs funds to pay for husband’s funeral We recently approved a No Interest Loan for a client whose husband had died unexpectedly.

She needed to come up quickly with funds to cover the funeral costs.

She was unable to obtain credit via traditional banking institutions and, had Non Interest Loan support not been available, would have needed to resort to payday lending.
BaptistCare’s No Interest Loan enabled her to cover the funeral expenses, as well as other support services in her time of need.

Importantly, she was able to give her husband the send-off she wanted and has not been put in a position of financial stress by having to use a payday lender.

3.

Woman escaping domestic violence A significant proportion of BaptistCare’s No Interest Loan clients have experienced some family violence.
The No Interest Loan scheme is able to offer up to $2,000 for people who have experienced family violence to access credit to relocate and set up a new home.

One of our recent clients successfully applied for a loan for a refrigerator, washing machine, television and bedding.

We provided a non- judgemental space to review her financial commitments and tailored her repayments to an affordable $57 fortnightly repayment.
She now has a lot of the “big-ticket” items she needs to call her new house a home, knowing that she will not be paying anything more back than the ticket price of the items.

Having the financial conversation and preparing a budget has made her more aware of how she spends her money.
(ii) unlicensed financial service providers including ‘buy now, pay later’ providers and short term credit providers, and The major concern with ‘buy now, pay later’ providers, such as Afterpay, is the ease of accessibility of this form of borrowing with customers able to apply instantly on their phone and instore.

The products are aggressively targeted at young people who are traditionally more likely to have lower financial literacy levels and less access to disposable income.
“No-interest” offers are also over-emphasised while excessive fees and charges associated with late payments are only included in the fine print.

(iii) debt management firms, debt negotiators, credit repair agencies and personal budgeting services; Please see front end of the submission for BaptistCare’s general comments.
(b) whether current regulation of these service providers meets community standards and expectations and whether reform is needed to address harm being caused to consumers; It is our view that current regulation and enforcement could be further strengthened to protect vulnerable consumers.
Credit and financial services targeted at Australians at risk of financial hardshipSubmission 56 Measures could include:  Full implementation of the Treasury review of SACCs in 2015  Stronger enforcement of existing protections required to deter breaches and more timely response to consumer complaints to ensure negative impact  All payday lenders and consumer lease providers are required to become members of AFCA  Marketing and advertising should be more closely monitored to prevent the targeting of disadvantaged groups  The industry should undertake self-regulation and commit to an industry code of conduct that promotes ethical lending practices  Caps on interest rates and fees should be further reduced  Referrals and access to financial support and fair finance should be improved  Payday lenders and consumer lease providers should not be able to automatically connect to Centrepay to facilitate repayments.
(c) the present capacity and capability of the financial counselling sector to provide financial counselling services to financially stressed and distressed members of the community; and Please see front end of the submission for BaptistCare’s general comments.
The current system requires reform to better protect Australians at risk of financial hardship from the negative impact of predatory, unlawful and irresponsible practices of financial services organisations that target those most vulnerable and trap them in a perpetuating cycle of debt.

However, regulation and enforcement is only one part of the solution.

Policy makers need to invest in initiatives that increase financial inclusion and improve financial literacy.
There need to be more fair finance options available to those in financial distress and greater awareness of the support, services and products available to them.

Thank you for the opportunity to participate in the Inquiry.
If you have any questions related to the content of this submission, or you require further information, please contact Ross Coleman, Service Development Manager, at Yours sincerely, Robert Ellis General Manager, BaptistCare Community Services Credit and financial services targeted at Australians at risk of financial hardshipSubmission 56