Targeting and financial exploitation of welfare recipients through the Department of Human Services’ Centrepay automatic deductions facility is again under the regulatory spotlight after the Australian Securities and Investments Commission confirmed it is again investigating key ‘consumer leasing’ player, Radio Rentals.
A division of ASX-listed company Thorn Group, Radio Rentals on Tuesday again pulled on the hair shirt for a $4 million provision against an expected dent in profits announced by its parent, which the company has attributed to likelihood of regulatory action against it in an announcement to the market.
“Thorn Group continues to engage with the Australian Securities and Investments Commission (ASIC) with respect to ASIC’s investigation into the responsible lending obligations of the Company’s consumer leasing division, Radio Rentals,” Thorn said in its update to the ASX, triggering its shares to dive almost 7% by market close on Tuesday.
But the big write down is yet another headache for the embattled Department of Human Services, not to mention policy parent the Department of Social Services.
Both have have persistently been criticised by welfare groups and responsible lending advocates for waving through so-called ‘consumer leasing’ arrangements — regarded as a regulatory fig leaf for exploitative lending rorts by many — to harvest welfare benefits via the Centrepay facility.
No interest like self interest
The core of the criticism is that current welfare policy settings knowingly allow ‘consumer leasing’ operators — who can charge effective interest rates as high as 884% when they sign-up customers otherwise unable to access to commercial credit – to exploit an eligibility loophole that gives companies like Radio Rentals access to Centrepay.
In September 2015 ASIC revealed the results of an initial probe into ‘consumer leasing’ providers “to see if they are making reasonable inquiries to ensure the consumer can afford the lease and that it meets their needs, particularly considering how high the total cost of a lease can be.”
The financial watchdog also fired a conspicuous shot across the bow of providers milking Centrepay as a cash cow.
“Relying on consumers being able to make payments as long as they are in receipt of government benefits is not a substitute to making these inquiries,” ASIC Deputy Chair Peter Kell said at the time.
Turning deductions into dividends
Centrepay was initially established to help welfare recipients take greater control of their limited finances by nominating automatic deductions to be made for regular essential payments like utilities, rent and other essential services.
This was then extended to include leasing of household goods and appliances, like washing machines and fridges through companies like Radio Rentals, which expanded their offerings to consumer electronic and entertainment products like televisions and gaming consoles.
While gaming consoles have since been booted off Centrepay’s eligible products list, concerns have been growing for years that so-called ‘consumer leasing’ has been allowed to flourish and gouge welfare recipients — especially those with poor financial literacy — by virtue of access to Centrepay.
Stock market participants have also previously raised concerns about shadowy ‘consumer lending’ practices.
A March 2015 note to clients from broker Credit Suisse cautioned that as much as half or Radio Rentals’ revenue came via social security.
“Any change to remove the ability to use CentrePay for consumer leasing will have a substantial negative impact on TGA, with Radio Rental[s] believed to derive ~50% of its revenue from CentrePay deductions,” Credit Suisse wrote at the time.
Whether ASIC’s investigation into Thorn will ultimately prompt a policy rethink about who has access to Centrepay is as still unclear, but what is evident is that the company expects to take a hit as a result of the latest ASIC probe.
“Thorn Group has made provision in its accounts with respect to compensation that may be payable to customers who did not meet minimum income thresholds for their contracts.
“Discussions with ASIC have now reached a point where Thorn Group anticipates that ASIC will seek a civil penalty and require further compensation and remediation,” the company said in its announcement.
The Mandarin approached ASIC, which confirmed the investigation but did not provide further detail.
The Department of Human Services general manager and chief spokesperson Hank Jongen said his department was aware of ASIC’s investigation into Radio Rentals, but that “further questions about this investigation should be directed to ASIC.”
“The department has been working closely with Thorn since 2015 to ensure they continue to meet their Centrepay agreement and ensure recipients who have deductions in place are protected,” Jongen said. He confirmed that Thorn is currently eligible to use Centrepay.
“The department considers information from ASIC and other regulatory bodies when determining eligibility for Centrepay or if a business has breached their agreement.”
The price of cost recovery
Ironically, Centrepay and its parent Centrelink could feel a real financial pinch if Radio Rentals and other ‘consumer leasing’ operators are booted off the approved supplier list.
Centrepay has for years clipped the ticket on funnelling welfare payment deductions to eligible payees, a service for which it charges a handsome 99 cents per transaction – more than double the wholesale flat fee rate attracted by commercial services like BPAY.
However Centrelink often waives the fee requirement for charitable and not for profit groups, thus using commercial payees to effectively cross-subsidise the deductions system. The institutionalised co-dependency has had many worried for years.
In answers to questions on notice from the Opposition in 2015, former Human Services Minister Marise Payne revealed Centrepay transaction fees for the financial year 2013-2014 totalled $15.5 million.
Despite that Centrepay still chalked-up a net loss on operations, putting its cost of administration at $16 million for the same year.
In the event ‘consumer leasing’ providers get the boot from Centrepay – how much they generate is still an official known unknown – Centrelink could be left with its own budgetary hole after years of cross subsidisation.
But with ASIC now closing-in on consumer credit marketing sharks, pressure for a policy recalibration on welfare payment deductions can only increase.