Our recent article ‘One-Stop Shop: Consumer Credit Issued at the Point of Sale’ is the first scholarly study of point-of-sale credit to be published in Australia. Point-of-sale credit is offered by a business directly to its customers, on behalf of a third-party lender, to enable these customers to purchase goods or services from the business. This may take the form a loan or a consumer lease, sometimes known as a ‘rent to buy’ arrangement. It may also be issued in the form of a credit card bearing the business’s brand. In 2013, the Treasury estimated that there were more than 12,000 retail businesses and more than 600 vehicle dealerships engaged in providing such credit in Australia.
At present, point-of-sale credit is exempt from the consumer protections that apply to most forms of consumer credit in Australia. This regime imposes both general conduct obligations and ‘responsible lending’ obligations on credit providers. It requires providers to act ‘efficiently, honestly and fairly’ and to assess consumers’ individual circumstances, to ensure that they are not offered credit unsuitable to their needs. When these laws were enacted in 2009, the exemption of point-of-sale credit was cast as a short term measure, designed to assist retailers and car dealerships in their recovery from the Global Financial Crisis. Yet subsequent proposals to remove the exemption have met with fierce resistance from industry groups, particularly those representing car dealerships. These dealerships derive significant profits from selling car finance on-site. They argue that removing the exemption would impose an excessive administrative burden on their businesses, threatening their viability.
Despite these objections, successive reviews have called for the repeal of the point-of-sale credit exemption. The exemption has been scrutinised by the Treasury, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, and, most recently, a Senate Inquiry. All three have found that, due to its less stringent regulation, point-of-sale credit poses risks to consumers. They have noted that businesses have an incentive to obtain such credit for their customers in order to facilitate sales, even if their customers cannot afford to repay their loans. These businesses also have an interest in encouraging their customers to request higher credit limits, even if this is likely to cause them financial harm. In 2019, the Royal Commission recommended the abolition of the point-of-sale exemption to afford greater protection to consumers.
In May 2020, the Australian government announced its intention to implement the Royal Commission’s recommendation. To date, however, no such legislation has been introduced to Parliament. Rather, in December 2020, the government introduced legislation to repeal much of the responsible lending regime. In order to stimulate economic growth, it proposed a significant reduction in the regulation of most forms of consumer credit, with special safeguards for ‘high risk’ products such as payday loans. Despite strong lobbying from the finance industry, the government has not yet garnered sufficient support in the Senate to pass this legislation. It has deferred debate on the proposals until later in 2021.
Against this backdrop, our article reports the findings of a series of focus groups exploring the impact of point-of-sale credit on vulnerable consumers. Conducted in early 2020, these focus groups drew on the expertise of financial counsellors, solicitors and policy workers specialising in consumer law. Participants said that many of their clients had experienced severe financial hardship as a result of using point-of-sale credit, particularly store-branded credit cards. They related several examples of such credit being offered in inappropriate circumstances, at high interest rates or with unnecessarily high credit limits. They said that their clients were often induced to apply for such credit, in order to buy products that they did not need or could not afford. Some said they had seen point-of-sale credit supplied in fraudulent circumstances, with businesses deliberately overstating their customers’ incomes. Several expressed the view that this type of credit is particularly harmful to low-income and vulnerable consumers, including social security recipients, recent migrants and victims of domestic violence. They said they had seen instances of women being forced to apply for point-of-sale credit in order to buy cars or other expensive items for abusive partners.
Our article concludes that consumers would be best served by the retention of responsible lending laws, applicable to all consumer credit, and the abolition of the point-of-sale credit exemption. It argues that, even if the responsible lending regime is repealed, the government should honour its commitment to abolishing the exemption. This would bring point-of-sale credit within the ambit of the new, ‘streamlined’ consumer credit regime, which would continue to afford some important protections to consumers. In these circumstances, the article contends, the government should introduce additional safeguards to mitigate the unique risks posed by on-site car finance and store-branded credit cards.
Lucinda O’Brien is a Research Fellow in the Centre for Corporate Law, Melbourne Law School, at the University of Melbourne.
Ian Ramsay is the Redmond Barry Distinguished Professor Emeritus and Director of the Centre for Corporate Law, Melbourne Law School, University of Melbourne.
Paul Ali is an Associate Professor in the Centre for Corporate Law, Melbourne Law School, University of Melbourne.
Mihika Upadhyaya is a former Research Assistant in the Centre for Corporate Law, Melbourne Law School, University of Melbourne.