Social Security (Administration) Amendment (Consumer Lease Exclusion) Bill 2015 – 20 August 2015


Senator SESELJA (Australian Capital Territory) (09:55): I want to speak on the Social Security (Administration) Amendment (Consumer Lease Exclusion) Bill 2015 and say up-front that the government does not support it. And that is not because we do not support the intention behind this bill. I understand much of what Senator Cameron is saying about some of these rip-off merchants, and we agree with that; I do not disagree with many of the points Senator Cameron has made. But what I want to speak to today is the practicalities of this bill—why we think it is misguided, why we think it would not achieve what Senator Cameron no doubt genuinely wants it to achieve. So, I will go through some of those. We need to make sure that any changes to the system are well-targeted and actually do what we need them to do. Unfortunately, this bill, while it would exclude consumer leases from income management, would not stop Centrepay deductions for consumer leases.

 

Firstly, let's be clear about what we are discussing here. Centrepay is a valuable bill-paying service that helps many Centrelink customers manage their ongoing expenses. Welfare recipients are usually unable to access most forms of credit, such as credit cards. Regulated consumer leasing is one of the few ways of obtaining essential household goods quickly. Centrepay is voluntary and free for the customer. Deductions are made to elected businesses before the customer receives their welfare payment, which reduces the potential costs of bank fees from overdrawn accounts. Businesses pay a fee for each customer deduction. They generally appreciate how it helps customers to meet their obligations. For example, a person on welfare may need a fridge for their home. They pick up the fridge on consumer lease with monthly or weekly payments. They can then use the Centrepay system to have their repayments deducted automatically from their social security payment before it reaches their bank account. This is an important protection for people so that they are not stung with extra fees for late payments. Importantly, Centrepay is not a legislated program. The Department of Human Services is responsible for it.

I want to go to some of the issues the government has with this bill. The first is that excluding all consumer leases from Centrepay would interfere unduly with existing means of urgent access to necessity goods. The recent changes to Centrepay announced by the Minister for Human Services strike a balance between strengthening protections for customers and not interfering unduly with existing means of facilitating access to necessity goods, such as refrigerators and washing machines. These changes mean that unregulated consumer leases—that is, consumer leases that are not regulated by the National Consumer Credit Protection Act 2009—are no longer supported by Centrepay. Regulated consumer leases are not being excluded from Centrepay. Remember, though, that there are alternatives to consumer leases, such as the No Interest Loan Scheme, or NILS, operated by Good Shepherd Microfinance, and low-interest loans. We are expanding Centrepay to support these options and other microfinance approaches. But until these alternatives are available on a much broader and larger scale, many people will depend on consumer leases, so the use of Centrepay for regulated consumer leases should remain open.

I know that not every Centrelink customer is able to access a local NILS provider. For example, in some places in Far North Queensland there is no local NILS provider, so the Centrepay system remains vital for people. There are also differences of scale. In 2013-14 NILS approved 24,378 loans with a total value of $22 million. Compare that with the usage of Centrepay for household goods: in just the six months from July to December 2014, a total of 136,000 customers, with total deduction value over $148 million. Not all those deductions were for consumer leases, but the comparative volume indicates significant demand for household goods.

The second issue is that Centrepay is already being improved. With this in mind, I know that the intention of Senator Cameron's bill is to make sure that Centrepay is improved. That is something we agree on. But as I have already mentioned, major changes to Centrepay were already announced in May this year. I have spoken about how consumer leases that are not regulated by the National Consumer Credit Protection Act 2009 have been excluded. Funeral insurance has also been excluded, though Centrepay is still available for scheduled repayments of funeral expenses and prepaid funeral plans. Customers who have been using Centrepay for household goods or funeral insurance have been advised in writing of these changes. They have also been advised of alternatives to consumer leases.

These changes built on other changes following the independent review of Centrepay. Customer complaint mechanisms have been improved to ensure prompt and relevant responses by the department. There has been a full review of the Centrepay policy contract framework and assurance and compliance frameworks. Additional resources have been provided for assurance reviews of participating businesses and the Department of Human Services has reviewed and built on the information provided to customers about their Centrepay deductions by developing a customer deduction statement, which assists customers to better understand and manage their deductions.

The Department of Human Services has also added a link to the Australian Securities and Investments Commission's money manager on its website to help raise awareness of good financial management. The department has strengthened its relationships with ASIC, the Australian Competition and Consumer Commission and the Australian Energy Regulator. Agreements with these regulators allow for the exchange of information in relation to entities of mutual interest, including businesses seeking approval to use Centrepay or who are approved to use Centrepay.

These relationships have led to the exposing of businesses that may not have appropriate licensing, are operating illegally, are not complying with consumer law or are operating unscrupulously towards customers. The department has established a working group with Treasury that will consult on options to use Centrepay policy settings to improve disclosure of effective interest rates by Centrepay-approved businesses when offering consumer leases. No decision has been taken on a preferred approach, but this is an issue that is being explored. The Assistant Treasurer, Josh Frydenberg, announced on 7 August 2015 that there will be a review of the small-amount credit contract laws. He also announced that this review will also consider whether those laws should be extended to apply to regulated consumer leases. Any changes resulting from this review would potentially apply to consumer leases generally, not only to consumer leases under Centrepay or under income management. The government looks forward to the results of the review and is not pre-empting the outcome of that review.

The third issue is that the bill as introduced would not impact on Centrepay, but only on people supported by income management. I think this is a really important point. It is sensible and reasonable to consider further changes to the Centrepay system, including possible caps on or disclosure of effective interest rates. But that does not mean that all consumer leases should be excluded from Centrepay. It is important to note that the Centrepay scheme is not established by social security law. However, the legislation allows for Centrepay deductions through section 55 of the Social Security Administration Act 1999, which addresses how social security payments are paid into bank accounts. Subsection 55(4) of the act enables the secretary of the Department of Social Services or a delegate to direct that the whole or part of a relevant amount to be paid to a person in a way other than a bank account nominated and maintained by the person. Senator Cameron's bill seeks to amend two sections in the part of the Social Security Administration Act that is concerned with income management. It would prevent expenditure under income management on certain consumer leases, but it would not affect payment of deductions under Centrepay.

The fourth issue, excluding rent-to-buy contracts from income management, is not supported. I will go through why. It is the view of the government that if Senator Cameron's bill were enacted it would mean that people on income management would not be able to pay for any consumer lease obligations, regulated or unregulated, using their income managed money, regardless of whether they have existing obligations.

That is a critical point. The purpose of income management is to ensure that the priority needs of welfare recipients are met and that they are protected from the things that would undermine them, their families and their communities. These are things like alcohol and gambling. Income management was not designed to stop people from getting access to a refrigerator to store their food or a washing machine to clean their clothes, if they need to rent those because it is the only way they can acquire them or because it is the way that they choose.

The important point is that they have access to the information that would help inform their choice. That is why the department's customer service officers will only set up these deductions following a discussion with the customer about possible alternatives.    These include Centrelink advance payments, no- and low-interest loans from community organisations, lay-by or savings accounts for the goods. Customers are also referred to the ASIC-developed rent versus buy consumer lease calculator on the department's website to assist them in understanding the true cost of a possible lease arrangement.

The addition of consumer leases to the list of excluded goods for income management is not supported, as many people would have existing obligations of this type at the time they enter the program. For many people, these types of arrangements continue to be a practical option for obtaining basic household goods. I think that this is actually the strongest point against Senator Cameron's bill: people who have existing obligations could be severely undermined by this legislation. I know that that is not the intent of it, but we believe that that would be the effect if it were to pass through the parliament.

Let's again return to the ultimate purpose. People on social security payments still need to occasionally purchase goods such as fridges and washing machines that contribute to an acceptable standard of living. The Centrepay system helps people do that through consumer leases or short-term loans, while ensuring there is less risk of being hit with bank fees or fines for late payments. We do not want people who are already doing it tough to face further problems, so we have changed Centrepay so that consumer leases that are not regulated are no longer part of the scheme. But people still sometimes purchase these goods or enter into some of these arrangements. The government is not excluding regulated consumer leases from Centrepay, so people can still get these necessary household goods. In this context, the government does not agree with Senator Cameron's rationale.

Centrepay is already being improved without legislative changes. The bill as introduced would not actually have the impact its proponent purports to want on Centrepay. Instead, it would restrict people who are supported by income management by adding rent-to-buy contracts to the categories of goods and services excluded for income management purposes. It would not restrict the use of consumer leases under Centrepay.

This change to income management arrangements is not supported by the government. Customers may have existing consumer lease obligations when they enter income management and they may need to continue to meet those obligations. The key point is that people on income management are aware of the alternatives. Departmental officers are providing and will continue to provide such advice to them.

 

Because the fine print can sometimes have unintended consequences, this is a clear case of why changes to our welfare system must be worked through carefully and methodically. The minister and this government are going to keep working with the Department of Human Services and the relevant consumer protection regulators to make sure people are not being ripped off by lease providers. We are going to make sure the Australian Securities and Investments Commission takes action against these providers and we will work towards making sure people in need get the goods they need in the most appropriate way. This bill is not the way to protect these people and does not do what it claims to do. For all of those reasons the coalition will not be supporting the bill.