The corporate regulator has launched legal action against two companies it has accused of charging excessive interest rates on loans taken out by vulnerable people to buy household essentials, including washing machines and mobile phones.
In lawsuits filed in the federal court on Tuesday, the Australian Securities and Investments Commission accused the two companies, Rent4Keeps and Layaway Depot, of disguising loans as rental contracts in order to avoid the 48% a year cap on interest contained in credit law.
The deputy chair of Asic, Sarah Court, said that 48% “sounds like a hell of a lot to be paying on anything” but was allowed under the Credit Act.
“What what these parties are effectively charging their customers is … 267%, 400% and 600%,” she said.
“Obviously, that makes money for those companies but that is to the significant detriment of those disadvantaged consumers.”
She said the companies were also “not upfront about what these charges are going to be”. For example, a fridge with a retail price of $365 could cost almost $2,500 over the course of a contract lasting a few years, she said.
“People have no idea of the amounts that they’re going to end up paying through the course of these arrangements and that’s another one of our concerns,” she said.
She said the rent-to-buy model was targeted at people on low incomes, including those on Centrelink benefits, and people in Indigenous communities.
“There is a significant proportion of the community that cannot get access to other credit and … their only recourse to be able to buy what are, in essence, essential goods … washing machines and fridges and the like,” she said.
The two lawsuits are Asic’s latest move in a campaign aimed at companies allegedly trying to evade the lending cap.
It is currently awaiting the result of an appeal in a case it lost against Cigno, a group controlled by the former rugby union player Mark Swanepoel and owned by members of the Swanepoel family.
Court said that if Asic cannot prevail in court over the issue “it would really be a matter for the parliament to decide whether it wants to bring in any changes that really squarely deal with these issues”.
Mark Holden, a solicitor with Indigenous legal service program Mob Strong, said “First Nations communities are often targeted by consumer lease companies who go door-to-door or set up shop in remote communities, sign vulnerable people up through their Centrelink payments and then collect payments that are often many times the market price of the goods.
“Sometimes the goods don’t even work.
“We are really glad to see Asic taking this action today and hope they continue to prioritise protecting the consumer rights of First Nations peoples.”
On its website, Rent4Keeps, which is run by Kevin Payne and his wife, Vikki Payne, claims it is “making a positive difference to people’s lives” and says customers can “rent-to-own” household goods including beds, washing machines and games consoles.
In its statement of claim, Asic accuses Rent4Keeps franchisee, Darranda – which is also controlled by the Paynes – of charging $1.9m to customers between 1 April 2019 and 30 June 2019.
Asic told the court this was over three times more ($1.28m) than it would have been entitled to under the rate cap enshrined in credit law, resulting in customers being overcharged an average of $2,400.
Layaway Depot, which on its website bills itself as “the easy way to own”, offers electronics including smartphones, computers and home audio speakers.
One customer paid $780 for “Neighbour Hater” speakers with a market value of just $200, paying an effective annual interest rate of almost 760%.
Company documents show that Layaway Depot’s directors are New Zealander John Hotchin and Kiwi-born Queensland resident Peter McConnochie.
Rent4Keeps and Layaway Depot have been contacted for comment.
