Local Appliance Rentals (LAR) has paid $257,500 after ASIC identified concerns regarding LAR meeting its responsible lending obligations and its supervision of franchisees.
LAR provides consumer leases nationally through a franchise model, including in regional and remote areas of Australia such as the Tiwi Islands, Katherine, Broome and Thursday Island which have a high Indigenous population and limited options for purchasing household goods. LAR mainly leases household goods to low-income consumers, including those who receive payments from Centrelink.
ASIC investigated LAR's conduct in respect of consumer leases referred by its franchisees during the period between April 2011 and August 2018 and was concerned that LAR:
- had contravened responsible lending obligations by failing to make reasonable inquiries or take steps to verify consumers financial situations;
- had inadvertently received excess payments from consumers in relation to their lease and charged late fees in excess of the amounts set out in the consumer's lease agreement; and
- failed to adequately supervise its franchisees.
A Court Enforceable Undertaking requires LAR to remediate affected consumers, appoint an independent compliance consultant, and pay a Community Benefit Payment of $100,000 to The Smith Family.
Three infringement notices totalling $157,500 were also issued for concerns relating to responsible lending failures following ASIC's review of LAR's consumer lease contracts. LAR paid these infringement notices on 27 September 2018.
ASIC entered into the EU and issued the infringement notices as it was concerned that low-income consumers often have little flexibility in their spending and may have to go without essential items or default on other financial commitments, including rent and utility bills, due to responsible lending failures by firms. LAR will provide remediation to affected consumers, including those who made excess payments or were charged excessive late fees.
Background
Local Appliance Rentals Pty Ltd holds Australian Credit Licence 394374.
The National Credit Act allows infringement notices to be issued for strict liability offences and certain civil penalty contraventions where ASIC has reasonable grounds to believe a person has contravened the provision.
The payment of an infringement notice is not an admission of a contravention of the National Credit Act.
ASIC has continued to focus on the consumer leasing industry since the release of Report 447 Cost of consumer leases for household goods (REP 447) on 11 September 2015. REP 447 found that household goods leases can be very costly and, for low income consumers, the market was delivering poor outcomes.
ASIC, through the work of the Indigenous Outreach Program (IOP), is committed to achieving outcomes where Indigenous consumers are affected by misconduct.
ASIC's IOP supports Indigenous consumers to be confident when making financial decisions and dealing with financial services providers by working with Indigenous communities to resolve financial services issues and problems. Stakeholders working with Indigenous consumers and communities can contact the Indigenous Outreach Program directly to raise concerns of misconduct.
The Indigenous Outreach Program can be contacted through a dedicated Helpline (telephone: 1300 365 957 and email: iop@asic.gov.au).
ASIC produces impartial and tailored consumer education resources for Indigenous Australians available on ASIC's MoneySmart website, including on consumer leases.
Recent consumer lease outcomes include:
- 16 May 2018 – Thorn Australia Pty Ltd (Radio Rentals) ordered to pay $2m penalty together with consumer remediation of almost $20m in respect of contraventions of responsible lending obligations. (18-139MR)
- 20 July 2017 - The Rental Guys paid $100,000 to regional customers after ASIC found that they failed to make proper inquiries, conduct verification and carry out unsuitability assessments when contracting with customers from NSW regional Indigenous communities. (17-243MR)
- 23 November 2016 - ASIC cancelled the credit licence of Rent to Own after finding that it had actually entered into credit contracts (that purported to be consumer leases) where it charged consumers an annual interest rate more than the allowable maximum of 48% for credit contracts. (16-403MR)
The Government has proposed enhancements to the credit legislation that introduces a series of consumer leasing reforms. ASIC supports these reforms as they will lead to better outcomes for consumers. For more information visit Treasury's website.
A review of credit and financial services targeted at Australians at risk of financial hardship (including consumer lease providers) has recently been referred to the Senate Economics References Committee for inquiry and will report by 22 February 2019. ASIC will cooperate with that Committee.
ASIC's Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) sets out practical guidance for lenders and credit intermediaries (including brokers) on how to comply with their responsible obligations.