Consumer leasing industry faces cost caps 26 January 2016 4:55PM John Kavanagh A Government review panel has presented options that include caps on consumer lease charges, similar to the caps applying to small amount credit contracts. Under current rules consumer leases are not subject to the maximum caps that apply to credit contracts. The introduction of caps would be a big change for the estimated 485 businesses offering home appliance rental services. The panel said the high cost of consumer leases appeared to be causing consumers financial harm. It said there was a high level of use of leases of low value household goods by consumers on government benefits. Some submissions argued that consumer leases were functionally different from credit contracts and should not be regulated in the same way. The interim report said: "Even if consumer leases are different this does not automatically lead to a conclusion that consumers should not be provided with similar protection under both leases and credit contracts. "The impact of consumer leases is tested not only against their similarities or differences with SACCs or other credit contracts but also against the nature of the customer base, the harm arising from leases and the risks arising from the structure and operation of the product." The Government set up the review panel last year, asking it to consider the effectiveness of the provisions in the National Consumer Credit Protection Act that relate specifically to small amount credit contracts and consumer leases. The panel's interim report presents a number of "observations and preferred options." The panel said its preferred options were not draft recommendations. "They are presented to help stakeholders understand the panel's current thinking," it said. Among its other observations, the panel said current responsible lending obligations did not appear sufficient to prevent financial harm to consumers using small amount credit contracts. Additional consumer protection specific to SACCs seemed to be required, it said. Small amount credit contracts are loans up to A$2000 where the term is between 16 days and 12 months. Seven main provisions in the NCCP Act that apply to SACCs include: · a cap on fees and charges (a maximum 20 per cent establishment fee and a monthly fee of four per cent);· a ban on credit contracts with terms of 15 days or less;· a presumption that a loan is unsuitable if the borrower has held two other SACCs within the past 90 days or if the borrower is in default under another payday loan;· a requirement to obtain and consider an applicant's bank account statements for the preceding 90 days;· a requirement to advise consumers of the alternatives to SACCs;· a requirement that consumers who default must not be charged an amount that exceeds twice the amount of the loan; and· special protection that applies to people who receive 50 per cent or more of their income from Centrelink. The Australian Securities and Investments Commission's submission to the review said compliance with responsible lending obligations among SACC providers was low. The interim report highlighted ASIC's recommendation that the rules governing small amount credit contracts need to be clearer and more prescriptive. For example, ASIC called for a requirement limiting the number of small amount loans (or the amount of credit under small amount loans) that could be obtained in a given period. The panel agreed with submissions that said high levels of repeat borrowing appear to be causing consumers financial harm. One option under consideration is to reduce the maximum establishment fee for subsequent loans for a repeat customer from 20 per cent to ten per cent. Another is to extend the protected earnings amount for Centrelink recipients, where total SACC repayments cannot exceed 20 per cent of gross income; the limit could be lowered to ten per cent.