The Government has announced proposed changes to the regulation of consumer leases of household goods (including electronic goods) and motor vehicles in response to its Review Panel’s Report.

Novated leases and small business leases are not covered by the Credit Act, and will not be affected by any changes.

The changes are not expected before 2018, assuming the legislation is passed in 2017.

UPDATE 6 November 2017: draft Bill

Cap on costs

The Government has decided to apply a cap on costs to all consumer leases including for motor vehicles.

A cap on the total amount of the payments to be made under a consumer lease will be introduced. The cap will be a multiple of the Base Price of the goods, determined by adding 4 per cent of the Base Price for each whole month of the lease term to the amount of the Base Price. For a lease with a term of greater than 48 months, the term should be deemed to be 48 months for the purposes of the calculation of the cap.

The Base Price for new goods will be the recommended retail price or the price agreed in store, where this price is below the recommended retail price.

Second hand goods will be subject to the same cap as new goods, with a 10 per cent discount to the original Base Price per annum, up to a maximum of 30 per cent.

The cost (if any) of add-on services and features, apart from delivery, will be included in the cap. A separate one-off delivery fee will be permitted. That fee will be limited to the reasonable costs of delivery of the leased good which appropriately account for any cost savings if there is a bulk delivery of goods to an area.

Installation on some items will be excluded from the cap.

Protected earnings amount

A protected earnings amount requirement will be introduced for leases of household goods, whereby lessors cannot require consumers to pay more than 10 per cent of their net income in rental payments under consumer leases of household goods, so that the total amount of all rental payments (including under the proposed lease) cannot exceed 10 per cent of their net income in each payment period.

To assist lessors in complying with this obligation, the Government will provide a safe harbour allowing lessors to rely on a consumer’s bank statements when determining a consumer’s average income for the purposes of the protected earnings amount, unless there is evidence suggesting that it is inappropriate to do so.

It will make the caps on costs and protected earnings amount mandatory as soon as practicable for lessors who utilise or seek to utilise the Centrepay system.

Early termination fees
The maximum amount that a lessor can charge on termination of a consumer lease will be imposed by way of a formula or principles that provide an appropriate and reasonable estimate of the lessors’ losses from early repayment. The Government  will undertake further consultation to finalise the formula or principles.

Ban on the unsolicited marketing of consumer leases
The Government will prohibit door to door selling of consumer leases.

Bank statements
A requirement will be introduced that lessors must also collect 90 days of bank statements.
Documenting suitability assessments
A requirement will be introduced that lessors under a consumer lease must at the time the assessment is made document in writing their assessment that a proposed contract or lease is suitable.

Warning statements
A requirement will be introduced for lessors under consumer leases of household goods to provide consumers with a warning statement informing consumers of the availability of alternatives to these leases.

Price disclosure

A requirement will be introduced that lessors under a consumer lease of household goods must disclose the Base Price of the goods being leased, and the difference between the Base Price and the total payments under the lease.

Penalties
The existing civil penalty regime in Part 6 of the National Credit Code will be extended to consumer leases of household goods , and, in relation to contraventions of certain specific obligations by  lessors, provide for automatic loss of the right to their charges under the contract.