ASIC review of consumer leases

ASIC has conducted a review of consumer leases, to evaluate the implementation of the reforms which commenced in 2023. ASIC's review signals its continued focus on consumer harm, with ASIC noting specifically that consumer lease providers obtain 80% of their repayments via CentrePay deductions, meaning consumers who are accessing these products are those more likely to be at risk of financial harm.

ASIC's review

ASIC's review covered the period 1 July 2023 – 30 June 2024 and considered providers' compliance with:

the protected earnings amount;
the cap on costs;
providers' suitability assessments;
disclosure obligations; and
financial hardship requests.

ASIC consulted with industry participants, consumer advocates and industry representatives. Six consumer lease providers were issued with notices to produce metrics regarding their consumer leases, a selection of consumer files and policies and procedures in relation to their pricing practices. Another 12 providers were subject to a desktop review.

ASIC has set out the poor practice which it has observed and included guidance for providers in relation to what ASIC considers is better practice. A summary is below.

Consumer lease providers should carefully consider their practices in each of these areas and whether changes should be implemented.

Protected earnings amount
Poor Practice Failure to consider a consumer's existing lease deductions Failure to identify existing leases already held by the consumer	Better Practice All necessary steps should be taken to ensure any existing leases are identified and considered Review a consumer's credit report to determine if there are inquiries from other credit providers and contact those credit providers to find out if the lease is still current
Cap on Costs
Poor Practice Including add-on fees and installation fees - these are not declared by ASIC to be permitted fees at this time Charging delivery fees which were significantly higher than the actual delivery fee	Better Practice Delivery fees should be limited to the provider's reasonable costs of the delivery and not inflated Add-on fees and installation fees should not be charged until ASIC makes a declaration by legislative instrument that these are permitted
Suitability Assessment
Poor Practice Failure to review each transaction on the consumer's bank statement Failure to review the bank statement to ensure expenses in it are consistent with expenses the consumer has listed for assessment purposes Failure to record the assessment of the protected earnings amount in the assessment of suitability Recording an assessment that is generic and not a reflection of any inquiries or verifications actually undertaken to reach the assessment Determining the protected earnings amount and telling the consumer the maximum lease they can enter	Better Practice Reviewing bank statements to ensure the provider is aware of the consumer's actual expenses Keep detailed records of the inquiries and verifications undertaken and why the provider has come to the assessment that the lease is not unsuitable Consider what the consumer is seeking and the level of repayments that they can comfortably afford, based on the item they want to rent
Disclosure Obligations
Poor Practice Failure to disclose delivery fees Failure to disclose the difference between the base price and the total amount payable under the lease Failure to specifically define early termination fees	Better Practice Fees should be defined clearly and itemised Early termination fees should be disclosed so that there is enough information for the consumer to determine what they would need to pay to terminate the lease early
Hardship Practices
Poor Practice Hardship requests failing to proceed because the consumer needed to provide more information High failure rates Hardship requests which failed also included those related to consumers experiencing domestic violence or mental health issues	Better Practice Reviewing processes to ensure they are simple and easy for consumers to follow Ensuring consumers can easily understand the further information needed from them and how it can be provided Considering a high failure rate and making changes to hardship procedures

ASIC has also considered those providers who have moved away from providing consumer leases and now provide sale of goods by instalment contracts or lines of credit to purchase household goods. Further commentary and enforcement action is expected from ASIC in this space.

Background

The reforms introduced by the Financial Sector Reform Act 2022 (Cth) to amend the National Consumer Credit Protection Act 2009 (Cth) include:

A protected earnings amount of no more than 10% of a consumer's after tax income;
A cap on costs which is calculated by adding together the base price of the goods, plus the term (maximum of 48 months) and multiplying by 0.04, plus any permitted delivery, installation or add-on fees. At present, the only permitted fee is a delivery fee which must be limited to the reasonable costs of delivery. ASIC has not declared any other permitted fees at this stage.
An obligation for consumers to conduct a responsible lending assessment and consider a consumer's bank statements
Anti-avoidance provisions, to prevent providers structing their products in order to avoid the new obligations.

ASIC has taken a range of enforcement action in relation to consumer leases since the reforms commenced and has stated that it is committed to further enforcement action. ASIC Deputy Chair Sarah Court has said:

"Enforcement action against misconduct by credit providers and predatory lending is a key enforcement priority for ASIC and we will continue to hold to account any business that we consider has exploited consumers by breaching these important consumer protection laws."

ASIC review of consumer leases

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ASIC's review

Background

Further Reading

Consumer Protection

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Australia