ASIC backs reforms to consumer leasing market
The Australian Securities and Investments Commission has released a critical report on the consumer leasing market, with a finding that reforms "could be considered" to address unreasonably high costs and misconduct by lessors.The regulator said it had concerns about the conduct of lessors, including the targeting of financially vulnerable consumers.ASIC's report is timely, given that last month the Australian Government launched a review of the effectiveness of laws regulating small amount credit contracts. The review will look at whether any of the provisions applying to small amount credit contracts should be extended to consumer leases.Currently there are maximum cost caps on small amount credit contracts but not on consumer leases. Lenders providing small credit contracts also have a number of additional obligations, such as a requirement to review applicants' bank statements, that do not apply to lessors.A consumer lease is a contract for the hire of goods for a fixed term of more than four months, where the consumer has no contractual right or obligation to purchase the goods at the end of the lease term.In practice, most lessors allow the consumer the option to retain the goods at the end of the contract.ASIC's report was based its own investigations as well as price data collected by the Royal Melbourne Institute of Technology. ASIC found that consumers generally paid significantly more than the retail price of the goods and were charged more than a lender would be permitted to charge under a small amount credit contract.The RMIT research revealed that there was significant variation in the charges applied by lessors. In one case the interest rates under two leases for identical goods were 25.9 per cent and 85.3 per cent. In another case the difference was between 17.3 per cent and 231.9 per cent.There was no consistency in the amounts charged relative to the value of the goods being leased, and there could be a difference in total cost between the cheapest and the most expensive leases of up to 467 per cent.Centrelink recipients were likely to pay higher rates than other customers, and pay more than the advertised price. In one case the cost of goods leased to a Centrelink recipient was equivalent to an interest rate of 884 per cent.The market for leasing electronic products and other household goods is estimated to be about A$570 million a year.Over the past couple of years ASIC has taken enforcement action against a number of lessors, including Amazing Rentals, Make It Mine, Rent the Roo, Ray Rentals, Mr Rental Port Augusta, Zaam Rentals and Mobile Rentals.