UCA Funds Management is leading a group of like-minded ethical investors and other players seeking to tidy up the payday lending and consumer leasing industries in Australia.
Funds Management Chief Executive Michael Walsh said the group – which also includes financial counsellors, the Church’s Justice and International Mission unit, the Community Action Law Centre and internationally-recognised investment specialists – is engaging with publicly-listed companies involved in the industry to ensure adherence to existing credit legislation.
In 2013 a credit code was introduced which capped interest rates and repayment schedules that can be applied by the payday industry.
Mr Walsh said it was staggering that an Australian Securities and Investment Commission (ASIC) inquiry earlier this year found that many providers were not complying with this legislation.
ASIC reviewed 288 consumer files from 13 payday lenders. It found some lenders were engaging in conduct which breached responsible lending obligations and were failing to meet new obligations introduced as part of the small amount lending reforms in 2013.
“It is quite remarkable ASIC found it to be a sector-wide problem,” Mr Walsh said.
“But it did confirm what we have heard from financial counsellors in relation to people having more than two payday loans, being hit with (exorbitant) fees and charges and taking loans out under duress.”
Mr Walsh said his group wanted companies to agree to undertake independent compliance audits.
He said shareholders in companies involved or associated with the industry would be concerned by non-compliance.
“There is a widespread view out there that the sector is not complying (with the credit legislation) and that is a very serious issue, he said.
“Shareholders are concerned about risk. The risk of not complying with the law is pretty obvious.”
The consumer leasing – or rent/buy – component of the industry was another trend which worried Funds Management, particularly given it is not subject to the credit code and consumers are subjected to excessive fees and charges.
Mr Walsh said the fees and charges are often far in excess of the interest rates charged on payday loans.
Unlike payday loans, consumer leasing contracts are not subject to repayment caps as a percentage of a client’s Centrelink payment, nor is there a cap on their duration.
As a result, many clients pay hugely inflated prices for items such as televisions, computers and furniture – upwards of 300 per cent more than the item bought directly off the shop floor.
Mr Walsh wants the existing credit code principles to extend to consumer leasing.
He said he expects the collaborative engagement to lead to positive outcomes over the next 12 months in terms of consumer financing.