Consumer Credit Legislation

Senator WILLIAMS (New South WalesNationals Whip in the Senate) (11:59): I rise to contribute to the debate on Consumer Credit Legislation Amendment (Enhancements) Bill 2012. Short-term lending is necessary when people are in serious financial trouble and it is there to help them out. But sadly, in some cases people dig themselves into a deeper hole. As Senator Xenophon asked: why are people desperate for short-term loans or, as we know them, payday loans? Sadly, some have a gambling addiction. Others simply cannot get through with the cost of living. Mr Acting Deputy President, I want to bring that point to your attention—that is, the cost of living.

We heard the Greens' Senator Hanson-Young state her case today, but the cost of living is one of the biggest complaints I hear when I talk to people. It is mainly around rural and regional areas of New South Wales, but it is also right across the state and the country. Amazingly, the carbon tax is adding to that cost of living! This will mean more people will be in a desperate situation, seeking payday loans, short-term loans, to pay their bills, whether they be electricity accounts or the registration on their car. Those monthly bills come forward all the time and are never ending. That is where we see the most need for payday loans.

We need control over credit lending. The Senate Economics References Committee is currently inquiring into post-GFC banking practices, and my colleague Senator Bushby, who is here, is the capable chair of that committee. We have been getting information about low-doc loans and how they have been approved. We have had witnesses saying that information was falsely put on application forms—whether by the brokers, the bank or whoever—and that they have been putting in cash flows of people applying for the loans as $75,000 or $80,000 a year in income when in fact they were pensioners. This is of concern, and no doubt when the committee, very capably chaired by Senator Bushby, hands down its recommendations on 31 October those lending practices will attract a lot of attention.

As I said, people become desperate. I remember a couple of months ago talking to my colleague Senator Cormann about the cost of these payday loans. Senator Cormann gave an example. He said, 'If I lent you $100 today and you paid me $101 back tomorrow, would that be fair?' I said, 'Yes, that sounds fair enough.' But, of course, if you paid $101 back tomorrow on a $100 loan, that is a 365 per cent interest rate, which we would all think is a very high interest rate.

The point I make about this legislation is that the committee has done its job and done its job well. Minister Shorten simply had it all wrong, hence the big backflip by the government to get it right. The government has acknowledged the flaws in the original bill it presented to parliament last year by amending the legislation from its original form. The government was forced back to the drawing board by the unanimous recommendations of the Parliamentary Joint Committee on Corporations and Financial Services. The committee, including government members, recommended that the government revisit the payday lending changes and undertake further consultation with industry. This is most important and I commend that committee for its cross-party recommendations. Obviously the government had it very wrong before with what it was proposing. We are pleased that, under pressure, the government has agreed to increase the caps for small amount credit contracts, shorten the terms for small amount credit contracts from 24 months to 12 months so as to restrict the time that interest is being paid, and increase establishment fees from 10 per cent to 20 per cent and interest rates per month from two per cent to four per cent for small amount credit contracts. Those are important changes.

There will also be allowed an additional $400 fee to be charged for mid-tier loans between $2,000 and $5,000, the removal of the multicontract prohibition on lenders under certain circumstances and a commitment to prohibit loans with a term of 15 days or fewer. In other words, all short-term loans must be more than 15 days. These changes represent a significant concession to both industry and opposition concerns with the original bill, and strikes a much better balance between the bill's two key objectives—namely, to provide appropriate consumer protection so that consumers are not simply being blatantly ripped off, whilst making sure that short-term lending remains available, accessible and as affordable and competitive as possible.

I see so many people get in so much trouble with credit cards. I have had credit card debts myself during my life, and when you get your statement you think, 'How much can I afford to pay this month?' Of course, 20 to 22 per cent interest is charged for late payments and for the full amount not being paid. You ask yourself the question: 'Why is the interest rate so high?' I think the answer to that would be because of the level of bad debts that those who issue credit cards have to make up for. Sadly, we do not live in a country or a world where people are perfect managers of credit. That is simply not the case. Many are vulnerable.

Sadly, many have gambling problems. They will get access to money and think, 'I can double this money down at the club'—or at the racetrack, the TAB, online or wherever they choose to gamble. Everyone in the nation can now gamble online. It is an addiction, a disease. That is why we need credit control to protect those who are vulnerable and who cannot manage money. We see it all the time.

A lot of bank issues come to my office, and we say to people: 'You are in trouble now. You have mortgaged your home. You have borrowed this to invest in that. Why did you borrow the money in the first place? Can't you see that you didn't have the cash flow to pay for it?' They say that they trusted some clever adviser who said to invest in it and get a great return. Sadly, that ends up in misery in many cases. People can be irresponsible when it comes to borrowing money, especially the younger generation. I lecture my children. I always say, 'There are two ways you can learn in this life: listen to me, because I have made all the mistakes, or go and make the mistakes yourself, but the latter is a very expensive way to learn.'

I refer to those credit cards where hopefully the credit given out to people has tightened up a bit. I saw for years the willy-nilly lending, people having a credit card and maxing out with debt, late paying their payments, 20 to 22 per cent interest compounding month to month. Then I have seen people actually go and get another credit card and borrow on that credit card to make the payments on the previous credit card, and on it compounds. People are vulnerable, and that is why we need credit controls.

Back to this bill. I think the committee has done an excellent job. Obviously the government has made a monumental mess of its original plan. It is good to see that the government has rolled over on the original plan and has now gone with the committee's recommendations. We see that people do need money quickly. Many are desperate. As I said, when it comes to those bills to be paid, essential ones like electricity, even the Taxation Office in some cases, motor vehicle repairs, maintenance, registration, insurance—we know how the bills continue to come into the household all the time. I think this is a fair piece of legislation that will not be opposed by the opposition.

I come back to the cost of living. We are going to see more and more of this lending because the cost of living is going up so much. Electricity prices rose 18 per cent at 1 July in New South Wales, half of that attributed to the carbon tax. We are now seeing the flow-on to small business. Households have not got their electricity bills yet, they are a three-monthly bill. You wait until early October when they receive their first bill and we will see more of this payday lending where people are in financial trouble. The cost of living is escalating. I had a friend based in Uralla in the New England area who came back from overseas and he was amazed at the cost of living in Australia, the cost of food. He said, 'Why can I buy a T-bone steak from Australia in Europe cheaper than I can buy it in Australia?' A very good question. We know what the farmers and the primary producers are being paid. I have never been to Europe or America or anywhere like that. People tell me they go to America and they say you fill a shopping trolley in America and it might cost you $80 or $100. The same trolley in Australia costs $200. Why is this when many of these products, vegetables and other food, are produced here? So the cost of living will continue to go up. It will get even worse if the Gillard Labor government is elected at the next election and come 1 July 2014 we will see another half a billion dollars fuel tax imposed on our truckies some reason. It simply will not reduce our CO2 emissions. Are we going to just shut the trucks down and not transport our exports to the waterfront or bring the food and clothing et cetera into the country towns that do not have rail? This will be another cost and we will see more of this short-term payday lending being demanded and accessed.

In summary, I say congratulations to the committee for righting the wrongs of the previous legislation put forward by Minister Shorten. It is obviously a far better result—not perfect but far better. I come back to the point that we should be thinking why people are demanding payday loans. It is because they are desperate because of the cost of living. We know who we can look at around this chamber when it comes to increasing the cost of living over the last year or two.