Fair Trading Amendment (Cash Loan Machines) Bill 2019
The object of the Fair Trading Amendment (Cash Loan Machines) Bill 2019 is to prohibit cash loan machines from being installed or kept on any premises. These machines are a scourge on our communities. Before I discuss the substance of this bill I will give some context on predatory payday loans and these machines. Low‑income people have little capacity to absorb financial shocks including unexpected illness, replacement of broken appliances or even an unexpected parking ticket. Payday lenders prey upon people who have fallen on hard times, offering them small amount credit contracts and trapping them into a cycle of debt.
These are not good value loans by any stretch of the imagination. They are loans cloaked as leases to avoid caps on costs under the national credit laws. Payday lenders are actively finding loopholes in our national law to exploit people, fleece them of their pay cheques or pensions and collect hundreds, if not thousands, in fees. They are called "loan sharks" for a reason—they are outright predators. These loans are anything but helpful to families and individuals in need of quick financial assistance. Payday lenders have comparison interest rates anywhere between 111 per cent and 407 per cent. On top of this they have sneaky fees and charges. Attempts have been made at a Federal level to regulate payday loans, but time and again this has been held up by the current Federal Government.
In 2015 a review of small account credit contracts [SACCs] recommended a number of changes to these loans. They include: imposing a cap on the total payments that can be made under a consumer lease; requiring SACCs to have equal repayments and equal payment intervals; banning monthly fees on the residual term of a loan where a loan is repaid early; preventing door-to-door sales of SACCs; introducing broad anti-avoidance protections to prevent SACC loan and consumer lease providers from circumventing rules and protections; strengthening penalties; and preventing payday lenders and rent‑to‑buy schemes from giving loans or taking repayments where the repayments of all of the customer's payday loan exceed 10 per cent of their net income, which is known as the "protected earning amount".
These companies are always coming up with new and sneaky tactics to fleece people of their cash. In New South Wales we are particularly worried about the accessibility of the new instant cash loan machines, which work like ATMs; however, in reality they provide small amount credit contracts with high fees that target low‑income earners. These machines are located largely in tobacconists stores in low socio-economic areas in New South Wales. They offer loans of between $500 and $1,000, with the limits increasing each time a user accesses the machine. We have identified the location of these machines in stores in the suburbs of Berkeley; Cessnock; Lake Macquarie; Minto; Raymond Terrace; San Remo, which is in the electorate that I represent; Woy Woy; and Wyoming.
I am extremely worried about the ease with which people can access small amount credit contracts, including via these machines and via apps on their phone. These are not good value products: They are poor value products that are predatory in nature. These machines look like ATMs; however, they operate as payday lenders. They require identification and bank details for users to receive an instant cash loan, the amount of which is then direct debited from the user's bank account. While payday lenders maintain they take a consumer's personal circumstances into account, I find it hard to believe that a machine that asks only a few questions would be able to take into account a person's living situation and whether they had the ability to pay back the loan.
The fees for these loans are egregious. Some of the loans require a 20 per cent establishment fee and, for late payments, a 4 per cent monthly fee and a daily fee of $6. First-time employed customers can access up to $600 and Centrelink benefit customers can apply for up to $300. Existing customers can access up to $950. Payday lenders use sophisticated software to detect when users receive payments such as Centrelink payments, and time the direct debits in line with these payments. Loans are for a maximum of eight weeks only. That is why I commend this bill to the House today. While others will try to justify the existence of payday loans by arguing that they provide a service to the community, New South Wales Labor is proud to stand up and call for an end to these machines. The intention of the Fair Tradition Amendment (Cash Loan Machines) Bill 2019 is very clear: It is to ban these machines from our State so that they do not prey on members of our community. The object of this bill specifically is to prohibit cash loan machines from being installed or kept on any premises. The bill will amend the Fair Trading Act by inserting Part 4C "Cash loan machines" after Part 4B. Proposed section 58O sets out a prohibition on cash loan machines, stating:
(1)A person must not cause or permit a cash loan machine to be installed or kept on any premises.
A maximum penalty of 100 units will be applied. It goes on:
(2) In this section:
Cash loan machine means a machine used:
to approve a small amount credit contract between a user of the machine and a credit provider, and
for the withdrawal of cash by the user under that contract.
credit provider has the same meaning as in section 204 of the National Credit Code.
National Credit Code means the Code set out in Schedule 1 to the National Consumer Credit Protection Act 2009 of the Commonwealth.
premises includes a hotel, club or other premises licensed under the Liquor Act 2007 or the Casino Control Act 1992.
I emphasise to this House that this includes the whole State, including licensed venues. It continues:
small amount credit contract has the same meaning as in the National Consumer Credit Protection Act 2009 of the Commonwealth.
I commend some of the fantastic organisations that have been campaigning in this area, some of which have been campaigning over many decades. Without their fantastic advocacy work, this bill could not have been introduced today. First, I acknowledge the work of the Financial Counsellors Association of NSW [FCAN]. What a great job it does to assist the most vulnerable. This problem was first brought to my attention by Graham Smith from FCAN, who has chaired FCAN for the past three years and has a significant history in the community sector. He currently works in the Cessnock electorate and is only too familiar with how vulnerable people are in that community and how they are being preyed upon by these shocking loan sharks. His many decades of service includes working in the public housing sector in remote Northern Territory and Western Australian Indigenous communities, and running community development programs.
Mr Smith is a confidant and I enjoy his counsel on matters such as these. He raised this issue with me and also with the media. He has serious concerns about these machines and their potential to harm disadvantaged communities across this State. He has passionately pursued this issue in the media and I am pleased to present this bill, which is a legislative mechanism to solve the serious concerns Mr Smith raised. I will touch briefly on the work of Consumer Action in the area of payday loans. Consumer Action, which is located in Victoria, works directly with people who have taken out payday loans. The organisation has lobbied the Federal Government to review the legislation. It has documented the experiences of people using these types of loans and the adverse impacts that these loans have had on their lives. As an example, Consumer Action has noted James's story, which highlights the vicious cycle of payday lending.
James says that in the past 12 to 18 months he had eight to 12 payday loans from a payday lender that also operates as a pawnbroker, but that he has lost count. James says that he was recently provided a loan from one counter, which he then used to pay off his pawnbroking loan at another counter within the same store. The payday lender listed his monthly expenses, excluding his rent, as less than $550 per month, based on a default calculation of expenses that equals just 15 per cent of the borrowers' income. James says that his monthly expenses are much higher and that he generally uses the loans for groceries and living expenses, such as his rent. He says that he had trouble paying back the loans and that he got caught in a cycle where he had cash flow problems. The default fees were significant, so when he defaulted on one contract about three or four times he was left with little money to make ends meet.
Consumer Action also told me Julie's story. Julie, a single mother subsisting on Centrelink payments, relies on multiple payday loans. In particular, Consumer Action found that dodgy structuring of loans added hundreds of dollars onto those fees. For example, the contract for a loan with a lender stated that the term of the loan was 16 months. However, the lender arranged for debits from Julie's account at a rate that ensured that the loan was repaid within four months. By restructuring the loan in such a way, the lender was able to charge Julie 16 months' worth of fees, but recover them in only four months. We must stop these kinds of shameless and underhanded tactics that put people down, drown them in a cycle of debt and impact so fully on their lives that they are unable to pay their rent, their bills or even afford groceries. This bill is an attempt to stamp out exactly this vicious cycle of debt. These machines are a scourge. Graham Smith said it best when he was quoted on the ABC as saying:
Unfortunately … these machines are targeting the most vulnerable in our community, people on benefits who are looking at a way of getting some quick cash that I don't think they can afford in the long run.
Mr Smith says that there are "two smoke shops" in Cessnock. He adds:
…in one shop there is one [machine] and in another shop there is two. Usually there is a queue out the door around Christmas time.
He goes on to say that these locations in low socio-economic areas are, by no means, a coincidence. He says:
It's an area of our society where people are struggling, and with electricity bills increasing, people have got less and less money, and going to one of these organisations and getting a loan can often be a deep financial trap.
I read out these words because they illustrate just that—the deep trap that these loans put families and individuals in. We cannot, and we must not, wait for Federal reform. It is our duty, through the power of legislation created in this place, to protect the residents of New South Wales. It is my strong view that it is time to act here, in the New South Wales Parliament, to ensure that we protect people from predatory behaviour by payday lenders. I commend the bill to the House.