The poorest are being charged more
for basic goods – and it's moving welfare money into the pockets of big
businesses. Max Chalmers reports.
By the time clients meet Kat Lane
the decision to attain a household item has already spiralled into such a
financial disaster that other basic expenses, including groceries, have often
been put out of reach.
Principle solicitor at the Financial
Rights Legal Centre, Lane sees first hand what happens when opportunistic
vendors target people unable to afford outright a new washing machine, dryer,
or television, a tactic advocates are warning has become systemic.
It sounds dramatic, but Lane says
going without food is one of the most common outcomes she sees among clients
who have been trapped by ‘consumer leases’ – a financial product that allows
you to rent an item with regular payments rather than buy it outright – as well
as those caught in a cycle of debt after being issued a loan they can’t afford
to repay.
“These people have to go and get
food hampers to cover basic living,” Lane says. “We see that all the time.”
Consumer leases may not sound like
the scintillating stuff of a tabloid ‘dole bludger’ beat-up but,
as an Australian Securities and
Investment Commission (ASIC) report revealed last month, they’re
allowing taxpayer money to be funnelled away from the people who need it to
survive and into the pockets of for-profit businesses.
Here’s how it happens.
Firstly, under consumer leases the
customer ends up paying far more than the actual value of the good over time.
In the most extreme case ASIC found a lease being offered resulted in the
consumer paying 884 per cent interest on a clothes dryer. The dryer was worth
$345, but the person taking out the lease would have eventually paid a full
$3,042 over the course of the contract.
According to the Financial Rights
Legal Centre, many of their clients end up paying five to 10 times the original
value of the appliance by the time their agreement ends. They say
misrepresentation about whether they will own it at the end of the agreement is
common.
That’s bad enough. But worse is the
fact that under many of these arrangements the poor actually pay more.
“The same lessors charge
significantly different amounts for the same goods, in particular Centrelink
recipients were charged more than the advertised costs,” ASIC’s report said.
The report said previous experience
indicated a simple explanation for such practices: a lack of competitive
pressure paired with the desire of companies to extract as much profit from
each transaction as possible.
As ASIC Deputy Chair Peter Kell
noted when commenting on the Commission’s report: “Of particular concern is
that the most financially vulnerable consumers in Australia are paying the
highest lease prices for basic household goods. For two year leases, half the
Centrelink recipients in our study paid more than five times the retail price
of the goods.”
And still it gets worse.
Someone who wants to lease an item
can be signed up in a way that sees the payments flows straight out of their
Centrelink and into to pockets of the lessor each fortnight via Centrepay, an
otherwise helpful system ironically designed to assist people receiving welfare
budget essential payments like rent and utilities. When consumer lease
companies use the system it can be devastating; while the company is guaranteed
to receive its payment every fortnight, the person supposed to be benefiting
from the support is cut out of the process, meaning lease payments can continue
to be made even if they're struggling to afford food.
Meanwhile, there’s big money to be
made, with a 2014 IBISWorld report putting the value of the leasing market for
electronic goods and household appliances in Australia at over half a billion
dollars.
Earlier in the year it was revealed Radio
Rentals had raked in $90 million via Centrepay bills, close to half of its $197
total revenue, while an independent review of Centrepay
found that in 2011/12 $188 million worth of payments from the system went to
leasing, renting, or buying household goods.
The independent report into
Centrepay found the total of payments for leased household goods is increasing
in number and value.
In late September the company behind
Radio Rentals, Thorn Group, admitted in a statement to the ASX that
it had been forced to reimburse “a relatively small number” of customers after
continuing to receive money from their payments via Centrepay after their
contract for the leased item had finished.
In the statement Thorn said it
immediately implemented a process to ensure the situation could not happen
again.
Even aside from the problems with
Centrepay, those with consumer leases who are not using the system hardly find
themselves in a better situation.
As case studies from the Financial
Rights Legal Centre make clear, there are a range of other ways such
arrangement can short-change vulnerable people with nasty fees and conditions.
Here’s one example, made anonymous so as to protect the privacy of the client:
Ms X obtained a consumer lease for a
laptop from Consumer Lease Company while she was unemployed.
After 18 months, Ms X was suffering financial hardship (her lease account was in arrears) and she tried to return the laptop. Ms X was informed by an employee or Consumer Lease Company that if she cancelled the lease then she would have to pay a termination fee but if she continued to rent the item for three more months there would no more fees.
A month later an employee of Consumer Lease Company arrived at Ms X’s home and repossessed the laptop. No notice was sent to Ms X prior to the employee arriving at her house. Six months later Ms X received demand of payment for her arrears plus a termination fee of $986.66. The termination fee is equal to about 12 months worth of rental.
By this stage the Ms X had paid rental payments on the item equal to about three times the market value of the laptop.
After 18 months, Ms X was suffering financial hardship (her lease account was in arrears) and she tried to return the laptop. Ms X was informed by an employee or Consumer Lease Company that if she cancelled the lease then she would have to pay a termination fee but if she continued to rent the item for three more months there would no more fees.
A month later an employee of Consumer Lease Company arrived at Ms X’s home and repossessed the laptop. No notice was sent to Ms X prior to the employee arriving at her house. Six months later Ms X received demand of payment for her arrears plus a termination fee of $986.66. The termination fee is equal to about 12 months worth of rental.
By this stage the Ms X had paid rental payments on the item equal to about three times the market value of the laptop.
Because of a legal loophole, the
businesses profiting from these arrangements avoid the restrictions that apply
to the much-discussed payday loans.
“The payday lending market and the
[consumer] lease market are dominated by the big players,” says Lane. “They’re
huge in both industries.”
According to Erin Turner, Campaigns
Manger at consumer group Choice, consumer leases are one of many financial
products used to target vulnerable people and skirt the laws protecting them.
“There’s a whole business model
built on the premise that they win when the consumer loses. These kinds of
consumer lease models can certainly be that kind of business but they’re not
the only one,” she says.
A spokesperson for the Thorn Group
emphatically rejected the idea the group charged higher rates or targeted those
on low incomes.
“The ASIC report on consumer leasing
focuses on just two consumer leasing companies,” a spokesperson said.
“None of the practices highlighted
are representative of how Thorn Group and its subsidiary, Radio Rentals,
operates.”
“On average, Radio Rentals customers
pay around 2.6 times purchase price, with these other benefits additional, and
around 70 per cent of customers go on to own the goods they rent.”
While at times focusing in on two
specific companies, ASIC’s review also looked at advertised price data
collected by the RMIT on 544 products and nine lessors.
Labor Senator Doug Cameron has
emerged as one of the most outspoken MPs on the subject of consumer leases, pushing a legislative fix
and calling on the new Prime Minister
to take rent-to-buy groups off Centrepay’s list of approved businesses.
“The Minister for Human Services
Stuart Robert can immediately make a positive impact in his new portfolio. He
should sign a ministerial determination to exclude consumer leasing businesses
from Centrepay and end the rip-offs,” Cameron said in a recent statement.
“The consumer leasing industry is
based on a broken business model that preys on the financially vulnerable. The
Government is tacitly supporting the rip-off because the leasing companies
target Centrelink clients using the Centrepay service operated by the
Department of Human Services.”
Doug Cameron
Aside from this option, advocates
say another potential solution would be capping the effective interest a lessor
can charge on a product, as is the case with payday lending, limiting the
amount the company could extract beyond the actual price of the item.
The government isn’t on board with
Cameron’s legislation – which it says won’t actually exclude consumer leases
from Centrepay – but will look at the issue in a review of credit laws.
“My department recently strengthened
Centrepay, by restricting the type of leases that can be paid for through
Centrepay,” then Minister for Human Services Marise Payne told New Matilda in
the wake of the ASIC report.
“In addition, we are expanding the
service categories for which Centrepay can be used to support alternatives to
consumer leases, such as low-interest loans, no interest loans, savings, and
lay-by.”
While the government warns shutting
off arrangements like consumer leases could leave those at the bottom end of
the market without options to attain essential goods, Lane says the harm being
done under the current policy settings should outweigh those concerns.
Consumer advocates also point out
that those who find themselves unable to get a regular loan may be able to
access a no interest loan. A range
of community groups also offer financial counselling.
“The exploitation is quite
comprehensive,” says Lane. “And for the low income group, as the ASIC report
says, they’re paying more, they’re exploited more, and they’re the people who
can least afford it.”
newmatilda.com 6 Oct 2015
Some people are allowed to get away with cheating Centrelink (read the Australian taxpayer), while others are punished.
If you're a member of the 'brotherhood' you have a better change of getting away with defrauding Centrelink.
We have a fair few files on hand with evidence indicating a blind eye by Centrelink.
If Centrelink is turning a blind eye to criminal activity, the people responsible are defrauding the Australian taxpayer, which is still a criminal offence.
