Centrepay is a free direct bill-paying service offered to customers receiving Centrelink payments. It was originally developed for the indigenous housing sector to help pay rent and utilities. Today it is a $2 billion a year operation used by almost 600,000 Australian residents.

The Report of an Independent Review of Centrepay has highlighted concerns that the use of Centrepay deductions for household goods rentals (and other sectors such as funeral benefit plans) often results in the customer overextending him or herself financially, and sometimes this results in insufficient funds then being available for basics such as food.

The Report recommends that the Centrepay system be reworked to ensure a better focus on its customers. For example it recommends that a new partial hierarchy of Centrepay deductions be instituted based on criteria of ‘essential services’ (rent and utilities) so that they always are deducted first (rather than relying on the current system of first authorisation lodged/first deduction paid).

It also recommends that mechanisms be established to more adequately scrutinise affordability of goods and services purchased through Centrepay, and the sustainability of payments, at the deduction authorisation stage.

The main concern about household goods rental providers is that their provision of consumer durables and appliances via rental contracts often cost the customer far in excess of the value of the goods.

A Centrepay customer without a credit card or an acceptable credit history who is in need of a fridge or a bed, typically has only two options available: rent the goods or approach a short term/high interest lender.

Submissions to the review contained many examples of goods rental concerns. Separate from the review FOS and ASIC have also considered the regulatory issues.

FOS recently published its determination in Case number: 266568 relating to rental agreements for a LCD television, home theatre and a Play Station.

Rental payments were made by way of Centrepay (Centrelink) deductions.

FOS concluded that the FSP has failed to comply with the responsible lending provisions of the NCCP. The FSP ought to have known or could have ascertained by reasonable inquiry at the time that the Applicant could not comply with the rental payments under the Agreement or could only comply with substantial hardship.

ASIC recently announced it has banned a Victorian-based household goods rental company from offering credit for four years.

An ASIC investigation found the company was providing credit without an Australian credit licence and was promoting this activity on its website. The company was found to have offered household items on ‘rent to buy’ terms, in regional NSW and Victoria, to 111 people, many of whom lived in remote indigenous communities.

In respect of household goods rental the report recommendations include:

• Disallow the use of indefinite leases or the rolling over of four month leases. For any customer genuinely only wanting to access a good for a short period via a rental contract, a four month lease with an NCCP accredited provider could be allowed.
• All Centrepay authorised household goods rental providers should voluntarily sign a specific Rental Goods Code of Conduct (in addition to the generic Centrepay Code of Conduct), that would not only incorporate adhering to the purpose of Centrepay, but would also include:
  o having to ensure the rent to buy service is structured so as to limit the lease terms to one or two years;
  o disclosure of the effective or notional interest rate or cost of the lease which is not to exceed 48% per annum, including the cost of delivery, maintenance and replacement if the good is faulty; and
  o lease documentation to clearly include not only the total cost of the contract but an indicative retail price for the product.
• The Department of Human Services may also choose to investigate the appropriateness of limiting the percentage income that can be allocated to rent to buy deductions in the case of households with only one Centrelink income and no additional outside source of income.