Small Amount Credit Contract Reforms: Will the Affordability Cap Achieve Its Intended Objectives?

The law applying to small amount credit contracts (a.k.a Pay Day Loans) was reviewed by Government in late 2015 and a final report was released in March 2016.

In November 2016, essentially the Government accepted many of the recommendations, and said it will legislate the changes in 2017, with some grandfather provisions for existing contracts. A further review is proposed in 3 years time.

A key recommendation was to establish a new affordability cap. But will this be effective?

Gill North, Professorial Research Fellow, Law School, Deakin University has published an academic article which reviews the state of play-  Small Amount Credit Contract Reforms: Will the Affordability Cap Achieve its Intended Objectives Without Unintended Adverse Consequences?

Specifically she questions the efficacy of the proposed affordability cap and calls for for an independent review of the business model and practices of small amount lending.

The stated objectives of the review were to allow consumers to access credit fairly and without excessively large debt burdens, and to establish regulatory settings that allow the industry to remain commercially viable. In November 2016, the Coalition Government accepted most of the review recommendations, including recommendation one that establishes a new affordability cap for all consumers seeking small amount credit contract loans.

Recommendation one is the central reform to enhance consumer protection, but is highly contentious. Consumer groups support it, but the industry body argues that consumers will be disadvantaged due to more limited access to credit and higher fees than at present.

The article explores these arguments and highlights possible outcomes that may arise from the introduction of a broad affordability cap. It ultimately concludes that available information is inadequate to properly assess the risks and likely impacts of enacting recommendation one.

Consequently, it calls for an independent review of the business model and practices of small amount lending to confirm that the affordability cap reform will achieve its stated objectives and will lead to better long-term consumer outcomes without unintended adverse consequences.

The article is available for download.

DFA had previously completed detailed analysis of households and their use of small amount credit contracts, a.k.a. payday lending. That report is still available.

Note this is looking at short term credit. If you are after our recent work on mortgage defaults and household financial stress, please follow this link:

Fair Disclosure: I am related to Gill North.


Payday lenders fined $730,000 for diamond trading ‘sham’

ASIC says, following ASIC action, the Federal Court has today fined payday lenders Fast Access Finance Pty Ltd, Fast Access Finance (Beenleigh) Pty Ltd and Fast Access Finance (Burleigh Heads) Pty Ltd (the FAF Companies) a total of $730,000 for breaching consumer credit laws by engaging in credit activities without holding an Australian credit licence.

The FAF Companies operated under a business model where consumers seeking small value loans (of amounts generally ranging from $500 to $2,000) were required to sign documents which purported to be for the purchase and sale of diamonds in order to obtain a loan.

ASIC alleged in its claim that the purchase and sale of diamonds was a pretence, because there were no diamonds involved in the transaction and consumers had no intention of buying or selling diamonds. Rather, the diamond purchase and sale contracts were designed to camouflage what, in reality, were loan transactions to which the National Consumer Credit Protection Act 2009 (National Credit Act) applied.

The Court handed down today’s penalty following its decision on 30 September 2015 that the arrangements for the sale of diamonds ‘comprised a pretence or sham, brought into existence as a mere piece of machinery, to conceal the true nature of the transaction, which was the provision of credit. Neither side intended that the Sales Agreement should create the relationship of vendor and purchaser….’

The Court also found that that the FAF Companies ‘intended to conceal the true nature of the transaction from those responsible for enforcing the interest cap’ (refer: 15-278MR).

In handing down the penalty, the Federal Court stated that ‘Although the excessive interest paid by each customer may not have been large in absolute terms and by some standards, it was no doubt substantial for the customer in question. Such customers have little chance of recovering anything from any of the respondents. The most heinous aspect of the case is the deliberate and pre-meditated exploitation of these vulnerable people.’

In determining the appropriate penalties, the court took into account that:

  • the diamond model was designed to conceal the true nature of money-lending transactions. The underlying reason for such concealment was to circumvent the limit upon the rate of interest which was 48%.
  • FAF, and its controlling officers must have had at least a strong suspicion that the diamond model was contrary to the relevant legislation.
  • There had been little or no cooperation with ASIC.
  • As between FAF Beenleigh and FAF Burleigh Heads, any difference in penalty should reflect the small number of transactions which have been proven against FAF Beenleigh as compared to the number proven against FAF Burleigh Heads. FAF was the designer of the diamond model and encouraged its use by its franchisees. It must be seen as being more culpable for each of the contraventions in which it was involved, than was either FAF Beenleigh or FAF Burleigh Heads.

Deputy Chairman Peter Kell said, ‘ASIC will continue to crack down on lenders who use avoidance models in an attempt to deprive consumers of these important protections.’

Community and Financial Services Sectors Unite to Fight Financial Exclusion

HESTA has joined 12 ‘trailblazer’ organisations from government, business, education and the community sectors to announce collective action to improve financial inclusion and resilience within Australia. At present many vulnerable households find the only place they can go to are  payday lenders or a rent to buy provider.


HESTA will publicly release its Financial Inclusion Action Plan (FIAP), which details specific steps being taken by the organisation to improve financial resilience for its 820,000 members, 80% of which are women.

HESTA CEO Debby Blakey said the FIAP was an opportunity for the $36 billion industry super fund to assess how it can put in place measures to build greater financial resilience across its membership.

“Three million people in Australia are experiencing some form of financial exclusion, many of these are women, and this puts them at greater risk of poor social, economic and health outcomes.” Ms Blakey said.

This follows a round-table, organised by HESTA in Melbourne last week where experts and academics from a range of organisations including universities, charities and community groups discussed what financial institutions can do to build a more financially inclusive Australia.

“The round-table saw fruitful discussions on innovative and practical steps to build a more a financially inclusive Australia.”

It follows a move by the Australian Government in 2015 to commit to international obligations including the G20 Financial Inclusion Action Plan and the United Nation’s Sustainable Development Goals.

Good Shepherd Microfinance is leading the development of the FIAP program, in partnership with the Australian Government, EY and the Centre for Social Impact.

Good Shepherd Microfinance’s general manager advisory, Dr Vinita Godinho, said financial exclusion was a “wicked problem” with wide ranging impacts.

“Because these people don’t have that ready access… the only place they can go to buy these is actually a payday lender or a rent to buy provider… and these informal providers are much more expensive and many times the business model is exploitative. So what happens is people end up in debt spirals… where they are constantly borrowing more and more in order to repay a more and more expensive debt proposition.”

Godinho said there were also a lot of secondary effects that resulted from financial exclusion and a lack of resilience, such as domestic violence and financial abuse.

Westpac also steps up commitment to support financial inclusion.

Westpac Group confirms its commitment to helping Australians better manage their money, with the release today of its first Financial Inclusion Action Plan (FIAP).

Developed in response to Australia’s commitment to the United Nation’s Sustainable Development Goals, the Plan is a roadmap towards Westpac’s vision of helping Australians manage their money, build their financial resilience, and participate in our economy throughout their lives.

Westpac Group Chief Financial Officer, Peter King, said he was proud Westpac is among the first 12 trailblazing Australian organisations to release a Financial Inclusion Action Plan.

“At Westpac, we believe service leadership extends beyond helping people achieve their financial goals.

“It also means being there to provide support when customers experience financial hardship, helping to prevent them from falling into hardship in the first place, and removing barriers that may be blocking people from accessing banking.

“Our foundational Financial Inclusion Action Plan focuses on key areas where we believe Westpac can make the greatest contribution to financial inclusion in Australia. It brings together the work already in progress across Westpac Group, as well as setting out the specific priorities that will guide our initiatives over the next twelve months,” Mr King said.

The 15 commitments laid out in the Action Plan include enhancing Westpac Assist service for customers facing hardship and tailoring of financial services for specific communities at risk of economic downturn; expanding Westpac’s suite of financial education programs, including targeted education for youth and women over 40; and supporting small business and social enterprise to grow through grants, microfinance loans, access to Westpac’s supply chain and financial education.

The FIAPs of the 12 trailblazer organisations were produced as part of an Australian Federal government and industry initiative, coordinated by Good Shepherd and Ernst & Young (EY).

“Financial Inclusion Action Plans harness the influence and resources of industry leaders like Westpac Group to build a more inclusive economy and ensure that, as our economy grows, we’re not leaving people behind,” said Delia Rickard, Independent Chair, FIAP Advisory Group.

“The organisations that have signed up to Financial Inclusion Action Plans, including Westpac Group have identified practical ways to support the financial inclusion of their customers, employees and the broader community. The initiatives these trailblazers have put forward are much more than nice sentiments and ambitions, they have tangible, measurable outcomes,” she said.


Google’s ban on payday & high-interest loan ads going into effect

From Search Engine Land.

After a week’s delay, the ban on predatory lending ads for AdWords advertisers is beginning to roll out.

In May, Google announced that ads promoting payday loans that require repayment within 60 days and loans with interest rates above 35 percent would no longer be accepted or displayed starting July 13. Yet many people have noticed that payday loans are still showing up in Google search results, a week after the ban was supposed to start.

Payday-SearchGoogle’s execution of the ban was delayed, but it is now rolling out. The company posted an update to the ad policies in the AdWords help center covering personal loans, high-APR (annual percentage rate) and personal loans on Wednesday afternoon. Note, the policy on high-APR personal loans affects US advertisers only. The policy for short-term personal loans is global.

The policy includes the following reasons for ad disapproval:

Payday loans: “Personal loans which require repayment in full in 60 days or less from the date the loan is issued (we refer to these as ‘Short-term personal loans’). This policy applies to advertisers who offer loans directly, lead generators, and those who connect consumers with third-party lenders.”

High interest loans: “In the United States, we do not allow ads for personal loans where the Annual Percentage Rate (APR) is 36% or higher. Advertisers for personal loans in the United States must display their maximum APR, calculated consistently with the Truth in Lending Act (TILA).”

New ads for payday and high-interest loans are no longer being accepted, and Google will be removing existing ads from the system over the next several weeks. That process will take some time, as it’s likely Google will have to manually check the loan terms listed on advertiser websites before deciding whether to disapprove ads.

Limiting access to payday loans may do more harm than good

From The US Conversation.

One of the few lending options available to the poor may soon evaporate if a new rule proposed June 2 goes into effect.

The Consumer Financial Protection Bureau (CFPB) announced the rule with the aim of eliminating what it called “debt traps” caused by the US$38.5 billion payday loan market.

But will it?

What’s a payday loan?

The payday loan market, which emerged in the 1990s, involves storefront lenders providing small loans of a few hundred dollars for one to two weeks for a “fee” of 15 percent to 20 percent. For example, a loan of $100 for two weeks might cost $20. On an annualized basis, that amounts to an interest rate of 520 percent.

In exchange for the cash, the borrower provides the lender with a postdated check or debit authorization. If a borrower is unable to pay at the end of the term, the lender might roll over the loan to another paydate in exchange for another $20.

Thanks to their high interest, short duration and fact that one in five end up in default, payday loans have long been derided as “predatory” and “abusive,” making them a prime target of the CFPB since the bureau was created by the Dodd-Frank Act in 2011.

States have already been swift to regulate the industry, with 16 and Washington, D.C., banning them outright or imposing caps on fees that essentially eliminate the industry. Because the CFPB does not have authority to cap fees that payday lenders charge, their proposed regulations focus on other aspects of the lending model.

Under the proposed changes announced last week, lenders would have to assess a borrower’s ability to repay, and it would be harder to “roll over” loans into new ones when they come due – a process which leads to escalating interest costs.

There is no question that these new regulations will dramatically affect the industry. But is that a good thing? Will the people who currently rely on payday loans actually be better off as a result of the new rules?

In short, no: The Wild West of high-interest credit products that will result is not beneficial for low-income consumers, who desperately need access to credit.

I’ve been researching payday loans and other alternative financial services for 15 years. My work has focused on three questions: Why do people turn to high-interest loans? What are the consequences of borrowing in these markets? And what should appropriate regulation look like?

One thing is clear: Demand for quick cash by households considered high-risk to lenders is strong. Stable demand for alternative credit sources means that when regulators target and rein in one product, other, loosely regulated and often-abusive options pop up in its place. Demand does not simply evaporate when there are shocks to the supply side of credit markets.

This regulatory whack-a-mole approach which moves at a snail’s pace means lenders can experiment with credit products for years, at the expense of consumers.

Who gets a payday loan

About 12 million mostly lower-income people use payday loans each year. For people with low incomes and low FICO credit scores, payday loans are often the only (albeit very expensive) way of getting a loan.

My research lays bare the typical profile of a consumer who shows up to borrow on a payday loan: months or years of financial distress from maxing out credit cards, applying for and being denied secured and unsecured credit, and failing to make debt payments on time.

Perhaps more stark is what their credit scores look like: Payday applicants’ mean credit scores were below 520 at the time they applied for the loan, compared with a U.S. average of just under 700.

Given these characteristics, it is easy to see that the typical payday borrower simply does not have access to cheaper, better credit.

Borrowers may make their first trip to the payday lender out of a rational need for a few bucks. But because these borrowers typically owe up to half of their take-home pay plus interest on their next payday, it is easy to see how difficult it will be to pay in full. Putting off full repayment for a future pay date is all too tempting, especially when you consider that the median balance in a payday borrowers’ checking accounts was just $66.

The consequences of payday loans

The empirical literature measuring the welfare consequences of borrowing on a payday loan, including my own, is deeply divided.

On the one hand, I have found that payday loans increase personal bankruptcy rates. But I have also documented that using larger payday loans actually helped consumers avoid default, perhaps because they had more slack to manage their budget that month.

In a 2015 article, I along with two co-authors analyzed payday lender data and credit bureau files to determine how the loans affect borrowers, who had limited or no access to mainstream credit with severely weak credit histories. We found that the long-run effect on various measures of financial well-being such as their credit scores was close to zero, meaning on average they were no better or worse off because of the payday loan.

Other researchers have found that payday loans help borrowers avoid home foreclosures and help limit certain economic hardships.

It is therefore possible that even in cases where the interest rates reach as much as 600 percent, payday loans help consumers do what economists call “smoothing” over consumption by helping them manage their cash flow between pay periods.

In 2012, I reviewed the growing body of microeconomic evidence on borrowers’ use of payday loans and considered how they might respond to a variety of regulatory schemes, such as outright bans, rate caps and restrictions on size, duration or rollover renewals.

I concluded that among all of the regulatory strategies that states have implemented, the one with a potential benefit to consumers was limiting the ease with which the loans are rolled over. Consumers’ failure to predict or prepare for the escalating cycle of interest payments leads to welfare-damaging behavior in a way that other features of payday loans targeted by lawmakers do not.

In sum, there is no doubt that payday loans cause devastating consequences for some consumers. But when used appropriately and moderately – and when paid off promptly – payday loans allow low-income individuals who lack other resources to manage their finances in ways difficult to achieve using other forms of credit.

End of the industry?

The Consumer Financial Protection Bureau’s changes to underwriting standards – such as the requirement that lenders verify borrowers’ income and confirm borrowers’ ability to repay – coupled with new restrictions on rolling loans over will definitely shrink the supply of payday credit, perhaps to zero.

The business model relies on the stream of interest payments from borrowers unable to repay within the initial term of the loan, thus providing the lender with a new fee each pay cycle. If and when regulators prohibit lenders from using this business model, there will be nothing left of the industry.

The alternatives are worse

So if the payday loan market disappears, what will happen to the people who use it?

Because households today face stagnant wages while costs of living rise, demand for small-dollar loans is strong.

Consider an American consumer with a very common profile: a low-income, full-time worker with a few credit hiccups and little or no savings. For this individual, an unexpectedly high utility bill, a medical emergency or the consequences of a poor financial decision (that we all make from time to time) can prompt a perfectly rational trip to a local payday lender to solve a shortfall.

We all procrastinate, struggle to save for a rainy day, try to keep up with the Joneses, fail to predict unexpected bills and bury our head in the sand when things get rough.

These inveterate behavioral biases and systematic budget imbalances will not cease when the new regulations take effect. So where will consumers turn once payday loans dry up?

Alternatives that are accessible to the typical payday customer include installment loans and flex loans (which are a high-interest revolving source of credit similar to a credit card but without the associated regulation). These forms of credit can be worse for consumers than payday loans. A lack of regulation means their contracts are less transparent, with hidden or confusing fee structures that result in higher costs than payday loans.

Oversight of payday loans is necessary, but enacting rules that will decimate the payday loan industry will not solve any problems. Demand for small, quick cash is not going anywhere. And because the default rates are so high, lenders are unwilling to supply short-term credit to this population without big benefits (i.e., high interest rates).

Consumers will always find themselves short of cash occasionally. Low-income borrowers are resourceful, and as regulators play whack-a-mole and cut off one credit option, consumers will turn to the next best thing, which is likely to be a worse, more expensive alternative.

Author: Paige Marta Skiba, Professor of Law, Vanderbilt University

Google Bans PayDay Ads

Google said that from mid-July, it would no longer accept ads for loans where repayment is due within 60 days of the date of the issue, imposing a blanket ban across its ad systems to shield users from “deceptive or harmful” financial products. It will include ads for loans with an annual percentage rate of 36 per cent or higher in the US. The decision would not affect other financial products such as mortgages or credit cards. The payday loans will still be shown in search results. This is the first time Google has announced a global ban on ads for a broad category of financial products.

You can listen to the segment on ABC PM where we discussed this issue.

eMarketer says Google dominates the global digital advertising market, receiving a third of the $159bn in revenues in 2015. Facebook who is second with 11 per cent of the worldwide market, has already banned advertisements of payday loans or paycheck advances, making it harder for such loans to reach large online audiences.

Google already has bans on advertising of tobacco, recreational drugs, guns, ammunition, explosives and dangerous knives on its site. In 2015, they disabled over 780 million ads.

Here is the annoucement, made on Google’s blog.

When ads are good, they connect people to interesting, useful brands, businesses and products. Unfortunately, not all ads are–some are for fake or harmful products, or seek to mislead users about the businesses they represent. We have an extensive set of policies to keep bad ads out of our systems – in fact in 2015 alone, we disabled more than 780 million ads for reasons ranging from counterfeiting to phishing.

Ads for financial services are a particular area of vigilance given how core they are to people’s livelihood and well being. In that vein, today we’re sharing an update that will go into effect on July 13, 2016: we’re banning ads for payday loans and some related products from our ads systems. We will no longer allow ads for loans where repayment is due within 60 days of the date of issue. In the U.S., we are also banning ads for loans with an APR of 36% or higher.

When reviewing our policies, research has shown that these loans can result in unaffordable payment and high default rates for users so we will be updating our policies globally to reflect that. This change is designed to protect our users from deceptive or harmful financial products and will not affect companies offering loans such as Mortgages, Car Loans, Student Loans, Commercial loans, Revolving Lines of Credit (e.g. Credit Cards).

According to Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, “This new policy addresses many of the longstanding concerns shared by the entire civil rights community about predatory payday lending. These companies have long used slick advertising and aggressive marketing to trap consumers into outrageously high interest loans – often those least able to afford it.” We’ll continue to review the effectiveness of this policy, but our hope is that fewer people will be exposed to misleading or harmful products.

The Community Financial Services Association of America, a trade group for the industry, says more than 19 million U.S. households use payday lenders.

“These policies are discriminatory and a form of censorship,” the trade group said in a statement. “Google is making a blanket assessment about the payday lending industry rather than discerning the good actors from the bad actors. This is unfair towards those that are legal, licensed lenders and uphold best business practices, including members of CFSA.”

Google is acting more aggressively than the US government. The Consumer Financial Protection Bureau is in the process of instituting new rules around payday lending, which the Wall Street Journal points out is usually regulated by states, but that is going to be a much slower process that Google’s. It’s government after all.

Small Amount Credit Review Recommends Tighter Controls

The final report of the Review of Small Amount Credit Contracts (SACCs) has been released. A range of recommendations tighten regulation of short term small loans and consumer leases. Of note is the need to disclose the actual APR of the transaction, be it a small amount credit contract or consumer lease. In the latter case, the cost of the relevant household good must be disclosed.

The review panel provided the Final Report to the Government on 3 March 2016.

The review was silent on mandating better collection of transaction data so  the true volume of loans could be recorded. As highlighted in the report accurate data is an issue.

Small Amount Credit Contracts (SACCs)

Recommendation 1 – Affordability – Extend the protected earnings amount regulation to cover SACCs provided to all consumers.
Reduce the cap on the total amount of all SACC repayments (including under the proposed SACC) from 20 per cent of the consumer’s gross income to 10 per cent of the consumer’s net (that is, after tax) income. Subject to these changes being accepted, retain the existing 20 per cent establishment fee and 4 per cent monthly fee maximums.
Recommendation 2 – Suitability – Remove the rebuttable presumption that a loan is presumed to be unsuitable if either the consumer is in default under another SACC, or in the 90-day period before the assessment, the consumer has had two or more other SACCs.
This recommendation is made on the condition that it is implemented together with Recommendation 1.
Recommendation 3 – Short term credit contracts – Maintain the existing ban on credit contracts with terms less than 15 days.
Recommendation 4 – Direct debit fees – Direct debit fees should be incorporated into the existing SACC fee cap.
Recommendation 5 – Equal repayments and sanction – In order to meet the definition of a SACC, the credit contract must have equal repayments over the life of the loan (noting that there may need to be limited exceptions to this rule). Where a contract does not meet this requirement the credit provider cannot charge more than an annual precent rate (APR) of 48 per cent.
Recommendation 6 – SACC database – A national database of SACCs should not be introduced at this stage. The major banks should be encouraged to participate in the comprehensive credit reporting regime at the earliest date.
Recommendation 7 – Early repayment –  No 4 per cent monthly fee can be charged for a month after the SACC is discharged by its early repayment. If a consumer repays a SACC early, the credit provider under the SACC cannot charge the monthly fee in respect of any outstanding months of the original term of the SACC after the consumer has repaid the outstanding balance and those amounts should be deducted from the outstanding balance at the time it is paid.
Recommendation 8 – Unsolicited offers – SACC providers should be prevented from making unsolicited SACC offers to current or previous consumers.
Recommendation 9 – Referrals to other SACC providers – SACC providers should not receive a payment or any other benefit for a referral made to another SACC provider.
Recommendation 10 – Default fees – SACC providers should only be permitted to charge a default fee that represents their actual costs arising from a consumer defaulting on a SACC up to a maximum of $10 per week. The existing limitation of the amount recoverable in the event of default to twice the adjusted credit amount should be retained.

Consumer Leases

Recommendation 11 – Cap on cost to consumers – A cap on the total amount of the payments to be made under a consumer lease of household goods should be introduced. The cap should be a multiple of the Base Price of the goods, determined by adding 4 per cent of the Base Price for each whole month of the lease term to the amount of the Base Price. For a lease with a term of greater than 48 months, the term should be deemed to be 48 months for the purposes of the calculation of the cap.
Recommendation 12 – Base Price of goods – The Base Price for new goods should be the recommended retail price or the price agreed in store, where this price is below the recommended retail price. Further work should be done to define the Base Price for second hand goods.
Recommendation 13 – Add-on services and features – The cost (if any) of add-on services and features, apart from delivery, should be included in the cap. A separate one-off delivery fee should be permitted. That fee should be limited to the reasonable costs of delivery of the leased good which appropriately account for any cost savings if there is a bulk delivery of goods to an area.
Recommendation 14 – Consumer leases to which the cap applies – The cap should apply to all leases of household goods including electronic goods.
Further consultation should take place on whether the cap should apply to consumer leases of motor vehicles.
Recommendation 15 –Affordability – A protected earnings amount requirement be introduced for leases of household goods, whereby lessors cannot require consumers to pay more than 10 per cent of their net income in rental payments under consumer leases of household goods, so that the total amount of all rental payments (including under the proposed lease) cannot exceed 10 per cent of their net income in each payment period.
Recommendation 16 – Centrepay implementation – The Department of Human Services consider making the caps in Recommendations 11 and 15 mandatory as soon as practicable for lessors who utilise or seek to utilise the Centrepay system.
Recommendation 17 – Early termination fees – The maximum amount that a lessor can charge on termination of a consumer lease should be imposed by way of a formula or principles that provide an appropriate and reasonable estimate of the lessors’ losses from early repayment.
Recommendation 18 – Ban on the unsolicited marketing of consumer leases – There should be a prohibition on the unsolicited selling of consumer leases of household goods, addressing current unfair practices used to market these goods.

Combined recommendations

Recommendation 19 – Bank statements – Retain the obligation for SACC providers to obtain and consider 90 days of bank statements before providing a SACC, and introduce an equivalent obligation for lessors of household goods. Introduce a prohibition on using information obtained from bank statements for purposes other than compliance with responsible lending obligations. ASIC should continue its discussions with software providers, banking institutions and SACC providers with a view to ensuring that ePayment Code protections are retained where consumers provide their bank account log-in details in order for a SACC provider to comply with their obligation to obtain 90 days of bank statements, for responsible lending purposes.
Recommendation 20 – Documenting suitability assessments – Introduce a requirement that SACC providers and lessors under a consumer lease are required at the time the assessment is made to document in writing their assessment that a proposed contract or lease is suitable.
Recommendation 21 – Warning statements – Introduce a requirement for lessors under consumer leases of household goods to provide consumers with a warning statement, designed to assist consumers to make better decisions as to whether to enter into a consumer lease, including by informing consumers of the availability of alternatives to these leases. In relation to both the proposed warning statement for consumer leases of household goods and the current warning statement in respect of SACCs, provide ASIC with the power to modify the requirements for the statement (including the content and when the warning statement has to be provided) to maximise the impact on consumers.
Recommendation 22 – Disclosure – Introduce a requirement that SACC providers and lessors under a consumer lease of household goods be required to disclose the cost of their products as an APR. Introduce a requirement that lessors under a consumer lease of household goods be required to disclose the Base Price of the goods being leased, and the difference between the Base Price and the total payments under the lease.

The Government is also consulting on whether the recommendations relating to consumer leases should apply to all regulated consumer leases (including motor vehicles) rather than only leases of household goods, and how second hand goods should be treated.