ASIC has released a report which reviews the cost of consumer leases for common household goods.

ASIC is concerned about the risk of lessors targeting financially vulnerable consumers with limited access to alternative forms of finance, particularly consumers in regional communities in receipt of Centrelink payments.

ASIC’s findings included:

• There is a significant variation or dispersion in the prices charged by lessors for similar items and, at least in urban areas, lower cost lease options are generally available to consumers who are willing or able to shop around;
• Centrelink recipients were charged more than the maximum payable under a small amount credit contract;
• While there is a significant price variation or dispersion, the data also shows that a consumer may be able to lease goods in each product category for between $2.10 a fortnight (for a portable heater) and $23.10 a fortnight (for a couch), which, depending on the consumer’s other financial commitments, is unlikely to have a significant impact on their financial circumstances, even for those who are on low incomes or receiving Centrelink payments;
• The total cost paid by the consumer increases as the lease term increases. For this reason, the financial benefits of choosing a longer term lease over a shorter term lease are not apparent.

Consumer leases are a contract for the hire of goods under which the consumer will pay more than the cash price of the goods. A consumer lease has a fixed term of greater than four months, where the consumer has no contractual right or obligation to purchase the goods at the end of the lease term. If there is a right or obligation to purchase the goods at the end of the lease term (e.g. a sale of goods by instalments arrangement), the contract is considered a credit contract.

Consumer leases are not subject to price caps.

Lessors must, under the National Credit Act, disclose the total amount payable as rent under a consumer lease, but are not under any obligation to disclose the retail price of the leased goods, or the amount that the consumer will pay in excess of the retail price.

ASIC’s review was undertaken using advertised price data collected by the RMIT on leasing 544 products through nine lessors.

ASIC also conducted a smaller review of 69 leases from two lessors whose business models primarily rely on providing leases to low-income consumers receiving Centrelink payments.

ASIC will use the findings in the report in its review of lessors, including by assessing, where consumers enter into high-cost leases, whether those leases are unsuitable because the consumer cannot afford the rental payments, or because those leases do not meet their requirements and objectives.

ASIC’s ‘Rent vs buy’ calculator on ASIC’s MoneySmart website helps consumers easily calculate the total cost of a consumer lease.

The Australian Government has recently announced a review of the effectiveness of the laws regulating small amount credit contracts, with the terms of reference including consideration of whether any of the provisions that apply to small amount credit contracts should be extended to regulated consumer leases.

Bright Law’s Consumer Leases and the Credit Act CPD video discusses consumer leases and their regulation under the Credit Act.