The Panel reviewing small amount credit contract (SACC) laws and related provisions in the National Consumer Credit Protection Act 2009 has published a Consultation Paper for comment.(Background).

The Panel has been asked to consider the key legislative provisions that relate to SACCs including the cap on fees and charges and the rebuttable presumption that a loan is unsuitable where the consumer has held two other SACCs within the past 90 days.

The consultation paper does not include any recommendations in relation to SACCs: it asks a series of questions related to the Terms of Reference.

The Panel will also consider whether the provisions that apply to SACCs should be extended to comparable consumer leases and, if so, to what extent.

Should there be greater consistency in the regulatory requirements that apply to SACCs and comparable consumer leases?

The Panel explains the relationship between consumer leases and SACC’s as follows:

The focus of this review is on consumer leases that can be considered comparable to SACCs in that, in general terms, they are leases of relatively low value goods (for example, less than $2,000) and are predominately used by consumers who are excluded from mainstream forms of finance or payment for those goods (or who self-exclude). However, while the value of the good under a comparable lease is prima facie likely to be similar to that of a SACC, the term of a comparable lease may be longer than that of a SACC, and can often extend beyond one year to three years or more….

Comparable consumer leases are often structured so that the consumer has the benefit of owning the good at the end of the lease without having a legal ’right or obligation to purchase the good’. This is done at no cost or nominal cost to the consumer, for example, lessors may give the consumer the right to:

• purchase a similar good for a nominal amount;
• make an offer to purchase the good which can be rejected or accepted by the lessor (but in practice is almost invariably accepted by the lessor);
• direct the lessor to gift the leased good to another person;
• continue to hold the good without taking ownership; and
• extend the term of the lease.

It concludes:

The regulatory requirements that apply to Part 11 consumer leases are less onerous than the requirements for consumer leases which have a right or obligation to purchase the good. Given that SACCs and comparable consumer leases have similar markets and economic outcomes, this difference in regulation creates a risk that:

• Consumers may be adversely affected by paying higher amounts for a lease than a credit contract;
• Providers of SACCs may be operating in a market that is not competitively neutral.