The corporate watchdog has released a new report detailing the unforeseen costs associated with consumer leases.
ASIC compared the cost of leases from two sources: the advertised prices of nine lessors, collected by the Royal Institute of Technology in April 2015, and a review by ASIC of 69 leases provided by two lessors since 2014.
The report found that the market for consumer leases is failing many low-income consumers, with the highest price charged by a lessor, expressed as an interest rate, standing at 884 per cent.
It was also revealed that consumer leases can cost as much as five times the maximum amount permitted under a payday loan (where a cap on cost applies), and that consumers receiving Centrelink payments are being charged higher prices than the prices advertised by lessors.
“As there is no cap on the amount lessors can charge, we found that some consumers can end up paying very high costs,” ASIC deputy chair Peter Kell said.
“Of particular concern is that the most financially vulnerable consumers in Australia are paying the highest lease prices for basic household goods. For two-year leases, half the Centrelink recipients in our study paid more than five times the retail price of the goods.”
In light of the report findings, ASIC will review the conduct of some lessors for compliance with their responsible lending obligations under the Credit Act.
“ASIC is reviewing a number of larger lessors, 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,” Mr Kell said.
“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.”
The report comes after Connective director Mark Haron called for more regulation on funding areas that have an effect on borrowers’ financial hardship.
“Interest-free loans to buy whitegoods, TVs and furniture cause people more financial hardship and concerns, and they don’t have any NCCP obligations, nor does a lot of the car finance,” Mr Haron told Mortgage Business.
“That needs to be addressed more so than the concerns around people being able to afford their home – it’s the other debts that they’ve taken out after taking out their home loan that are the issue,” he said.
According to ASIC, consumer leases are a contract for the hire of goods under which the consumer will pay more than the cash price of the goods and where the consumer does not have a contractual right or obligation to purchase the item. Fixed-term consumer leases with a term greater than four months are regulated under the NCCP. Unlike credit contracts such as payday loans, consumer leases are not subject to price caps.