The Albanese government will push ahead with a crackdown on payday lenders, with legislation to be considered by a Senate committee on Friday.
People who have been harmed by payday lending and consumer advocates are expected to give evidence to the Senate economics legislation committee, which will consider laws including a 10% cap on the proportion of household income that lenders could siphon off in repayments.
“Our objective is to get those reforms passed,” the assistant treasurer and minister for financial services, Stephen Jones, said. “More than ever with interest rates rising, inflation on the rise, we want to ensure that vulnerable consumers are protected.
“The previous government had nine years to reform the sector. We want to do it in our first nine months.”
Consumer groups said the high fees charged for payday loans and leases for goods such as fridges and washing machines meant they were almost never a good deal and were instead a trap for the desperate.
Irresponsible lending was rife in the sector, with credit providers routinely making “ludicrous and completely unrealistic estimates of a person’s expenditure”, a coalition of groups led by the Consumer Action Law Centre said in a submission to the committee.
“I speak almost every day with someone struggling with a payday loan or a consumer lease,” Kirsty Robson, a financial counsellor who works on the National Debt helpline, said.
She said people often had multiple payday loans. “I had a client the other day who has seven and he has a relatively high income, but he is in constant financial hardship because of how much these loans cost,” she said.
She said people went without essentials such as food to meet repayments.
“They’ll be paying so much of the income towards repayments, and then they’ll not be able to buy enough food, so then they’ll have to get another one and it’s just the constant back and forth,” she said.
“It seems like if this was a more powerful group of people, this kind of behaviour would never be tolerated.”
An overhaul of laws governing small-amount credit contracts was first proposed by a review ordered by the Turnbull government in 2016.
The then minister for financial services, Kelly O’Dwyer, accepted most of the review recommendations and Treasury produced draft legislation in 2017.
However, it never progressed through both parliament after the government coupled it with laws that would have watered down the responsible lending rules banks have to follow, which Labor did not accept.
“Kelly O’Dwyer got kneecapped by her own party,” Jones said.
The committee was also set to consider legislation to extend the Banking Executive Accountability Regime, or Bear, which was introduced by the previous government, to cover other financial institutions.
Under the proposed financial accountability regime, executives would face personal liability for failing to comply with directions from a regulator or deliberately contravening accountability regulations.
However, the Greens are expected to question why there is no penalty proposed for failing to take “reasonable steps” to protect consumers from harm.
“We’ve observed how similar provisions have operated in the UK and, reflecting on that experience, we think the bill before the parliament has got the balance right,” Jones said.
Jones is also dealing with the fallout from a review of the quality of financial advice commissioned by the previous government.
A consultation paper released in August proposed replacing the requirement to give advice in the “best interests” of consumers with one requiring “good advice”. This sparked a furious reaction from consumer advocates, who saw it as a way to return to the bad old days of last decade, when a series of financial advice scandals rocked the banking industry.
Jones said he would not preempt the results of the review, but the sector was troubled.
“The market for financial advice is cooked,” he said.
However, it was considered highly unlikely that Labor in government would agree to get rid of the best interests test because it campaigned heavily for it while in opposition, ultimately succeeding in a parliamentary coup in 2014 that knocked out regulations killing the test.
