Last week I spoke with Michael. Michael is not his real name—I'm using that name to protect him. I spoke with him just after he withdrew cash from a machine located in a retail shop in one of my local shopping centres.
The cash dispenser was not an ATM, rather it was a machine that spits out cash loans. The process did not require Michael to indicate what he plans to do with the cash or demonstrate a capacity to repay the loan. It did though require him to hand over his bank account details so that the lender could access his account to secure repayments and any interest or late payment penalties. Worse, the interest rate he will pay can be anything up to 30 per cent. Penalties of course can be punitive.
It was obvious to me that Michael did not fully understand what he had committed himself to in accepting this short-term loan. It was also obvious that he did not enjoy the benefits of a sound education. Michael is on a disability pension. I don't know why he's on a disability pension, but I know that every circumstance is different.
If Michael takes $100 from the machine, he will eventually pay at least $130. That's what will be taken out of his account. I asked him what sort of money he has withdrawn in the past and he said, '$300.' I asked, 'What would you repay?' He said, '400 and something dollars.' That was the repayment on his $300 short-term loan. Michael may have needed the money for many reasons. I didn't ask him. But, before jumping to conclusions, I thought of a constituent called Mary—and that is not her real name. She desperately turned to a similar process when her refrigerator broke down. Mary has children, and her family can't live without a fridge, so Mary entered into a contract with a local retail who provided her with that new fridge. The fridge retails for $498. Her repayment plan will result in her paying three times that by the end of the loan period, and that's if she pays on time every time. Again no-one assessed Mary's capacity to repay the loan or fully explained to her the consequences of her actions.
In recent years the growth in what have become known as payday loans has been scary. Basically, firms providing these loans are exploiting vulnerable and often desperate people. Yes, interest rates must reflect the level of risk for the lender, but lending to people without regard to their circumstances and their capacity to repay is irresponsible and the penalties for late payments are often bordering on criminal.
In 2009 the then federal Labor government introduced reforms which implemented a national regime for the regulation of consumer credit for the first time. In 2012 further enhancements were introduced, including additional protections regarding small-amount credit contracts and consumer leases. So we have a framework for addressing this serious problem, but time has demonstrated that more needs to be done. Governments can't and shouldn't make lending illegal, but there are some things we can do to catch those treading the fine line between the lawful and the unlawful.
There are alternative microloans for people in trouble. It's not as if this is their only choice. It's just too easy. I asked Michael whether there were often other people accessing cash from the machine in my local retail shop. He said, 'Yes, often. I came down one day and they were queued up outside the shop.' Charitable organisations that run these other microloan options do so responsibly, apply much lower interest rates and of course have the welfare of the borrower in mind. So there is no argument that these circumstances must be available because people don't have other choices.
The government now must act urgently. The loan sharks are circling the most vulnerable people in our community. We have had the review of the small-amount credit contract laws. It was subject to some debate in question time today. If there is ever a case for a bipartisan approach, this is it. We need to act and we need to act very quickly. The government have been too slow. I won't criticise them tonight, but I just want to make an appeal to the government to address this very serious issue. I met with the Samaritans, including their financial adviser, in Toronto last Friday to discuss the issue. They assist people in trouble. Some of the stories they told me were just horrific. We must act, and very quickly.