Good morning everyone – thanks so much for being here.
And thanks, also, to the Consumer Action Law Centre for putting on this event.
You know, since I became Small Business Minister in July, I’ve seen a lot.
I’ve travelled — from Geraldton in WA to Gympie in Queensland. I’ve met some great people. And I’ve been inspired by the spark, the ‘can-do’ attitude, of so many of Australia’s small business owners.
That’s something I’ve spoken about many times. And rightly so.
But my brief is broader than that. It’s quite large, in fact. And today I want to talk about one my other responsibilities — consumer affairs — and the small amount credit contracts, or SACCs, which I have just taken over responsibility from Minister O’Dwyer.
SACC Review
It’s an important issue. It’s one I know you all have strong opinions about. After all, it’s about protecting financially vulnerable consumers from a spiral of debt.
And things are moving on this front.
Now, as most of you know, back in 2015 an independent review of the laws surrounding SACCs was established. And what made it particularly notable was that it was also an opportunity to look at consumer leases.
This made sense. The customer base for both products is, after all, very similar.
For instance, these customers tend to have low or irregular incomes, poor credit history, and face difficulties accessing mainstream credit.
What’s more, we know that both SACCs and consumer leases cost a lot more than mainstream credit.
Government’s response
This was all made clear when the review panel reported to the Government in March last year.
The report flagged the high levels of repeat borrowing in Australia, noting that the average SACC customer takes out 3.64 loans each year — and some have more than one at a time.
And when it comes to consumer leases, the charges are comparable to interest rates of up to 884 per cent.
That’s incredible! It’s why the review made a series of recommendations, and it’s why the Government has committed to implementing the vast majority of them.
Now, I should point out that the review stressed the importance of striking a balance — the right balance — between protecting consumers and still allowing access to these products.
That’s worth underlining.
Of course we must protect consumers. You’ll hear no arguments from me about that — or from my colleagues in Government.
But that said, we also need to keep in mind that over-regulation is deeply damaging.
It costs profits.
It costs investment.
It costs jobs.
However, if regulation is done well it can make things easier — and better.
So it was pleasing to see the review panel put forward recommendations that, as I said, strike a balance. And before accepting the measures, the Government consulted with industry and consumers so everyone had a ‘say and a stake’.
With that in mind, let me briefly run you through some of the key measures we’re proposing.
Retaining existing price caps
Firstly, we’ll keep the existing monthly price caps on SACCs — which are currently a 20 per cent establishment fee and a 4 per cent monthly fee maximum.
However, we also want to extend the protected earning regulation so it covers SACCs provided to all customers.
To break that down, at the moment people who receive 50 per cent or more of their income from Centrelink have a cap of 20 per cent of their total income being used on SACCs.
But under our proposal, this’ll be lowered to 10 percent. And it’ll apply to everyone.
It means consumers across the board will be protected from getting into SACCs they simply can’t afford.
It also strikes a good balance.
Average weekly earners, for instance, can still access up to five $500 SACCs in a 12-month period.
And we’ll be helping SACC providers to comply with these rules with a safe harbour arrangement whereby they can rely on a consumer’s bank statement to determine the 10 per cent amount.
Cap on the cost of consumer leases
Another measure will be putting a cap on the costs of consumer leases on household goods.
As most of you know, right now there’s no limit. Providers are free to charge what they like.
So we’re proposing a 4 per cent cap on the total amount of the monthly payments made under a consumer lease.
This, we believe, will prevent financial harm to vulnerable consumers; it will give them a fair go.
Protected earning amount requirement
Now, another problem area flagged in the review was that responsible lending provisions, as they stand, are insufficient to prevent harm from consumer leases.
So to address this, the Government is planning to adopt a protected earnings requirement for consumer lease providers of household goods.
In practice, this amount will be set at a rate so no more than 10 per cent of a consumer’s net income can go towards lease payments.
That said, I’m well aware that it’s pretty unusual to regulate how much a consumer can put towards a particular type of finance.
But we also know that a similar requirement for SACCs has done the job in protecting vulnerable consumers.
I should also add that people on very low incomes will still be able to lease essential goods. Whether it’s a fridge, or a washing machine, or a microwave, they’ll be free to lease these – at the same time, or separately.
Next steps
So those are key measures, or headline-grabbers.
We’re expecting to progress them later this year — everything going well — and they’ll take effect 12 months after the legislation passes Parliament.
And because the reforms are so wide-ranging, we’ll have another review of SACCs and consumer leases after the legislation’s been in place for three years.
Australian Consumer Law Review
Now, before I finish I want to quickly mention one more thing: the Australian Consumer Law Review.
As you’d be aware, consumer affairs ministers — including me — will receive the final report from this year-long review in a couple of days.
I’m very much looking forward to it.
The review has taken a broad and comprehensive look at the consumer law. And I think we’ll see some good ideas come out of it — ideas I’ll be discussing with my fellow ministers when we meet later this year.
I also know that the Consumer Action Law Centre met with the Review secretariat three times, and made three submissions to the review.
Let me thank everyone involved for those thoughtful contributions. And thank you, also, for your ongoing advocacy for consumers.
Concluding remarks
So with all of that said, it’s clearly a big year for consumer policy in Australia.
There’s a lot on; a lot happening. And I think we’ll see some good outcomes — or at least the beginnings of them.
As I said at the start, striking the right balance is important when it comes to consumers.
I want to see them protected. But as Small Business Minister, I don’t want to strangle business owners in red tape.
That doesn’t help anyone. It’s a lose–lose situation.
However, as our proposed changes to SACCs and consumer leases show, the right balance is possible. And that’s what I’ll be working towards as we charge deeper into 2017.
Thank you, everyone, for having me.