Centrepay: Poor taken to the cleaners by leasing companies

The Centrepay system is meant to help vulnerable Australians meet repayments but, in many cases customers are locked into unfair contracts with appliance lease companies, Annika Smethurst writes.

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For those among us lucky enough to have a little bit of cash in the bank, replacing a broken clothes dryer is more of an annoying task rather than a life-changing one.

Scraping together the cash or putting an appliance on a credit card is a luxury that some of Australia’s most vulnerable citizens just don’t have.

Enter rent-to-buy businesses, which lease household items such as fridges and washing machines at inflated prices. For many people, this is the only option, but the consequences can be dire.

Welfare recipients are often stuck with unfair and expensive contracts with appliance lease companies.

While the typical lease for a 5kg dryer attracts an interest rate of 26 per cent, Australia’s corporate watchdog ASIC found one case where a welfare recipient leasing a dryer was charged an interest rate of 884 per cent. That’s $3040 for a $345 dryer.

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To make matters worse, Centrelink has approved 192 consumer lease companies, such as Radio Rentals, to deduct money from government payments before welfare recipients access their cash.

Using Centrepay, a system set up in 1998 to help welfare recipients pay for essential items, rent-to-buy businesses are taking the first bite of welfare cheques.

The system is meant to help vulnerable Aussies meet repayments but, in many cases customers are locked into unfair contracts with appliance lease companies.

National political editor Annika Smethurst.

More than 638,000 welfare recipients use Centrepay, primarily to cover the cost of accommodation and electricity bills. But new data from the Department of Human Services shows that $255.5 million — 10 per cent — of the $2.6 billion processed by Centrepay last year was spent paying off household goods on consumer leases. One well-known consumer leasing business, Radio Rentals, recently told a government inquiry that more than half of its customers pay their leases through Centrepay.

It’s true that cutting off rent-to-buy services from Centrepay will further limit options available for poorer Australians. Further regulating these businesses would be a good start.

In 2016, the federal government accepted a recommendation to place a cap on the total repayments of leased goods but little progress has been made.

Labor has also promised to crackdown on consumer lease businesses and wants to debate its own reforms in parliament this week.

Both sides of parliament recognise the need for annual interest caps as well as repayments limits linked to a customer’s monthly income.

Until these changes are made, the government might want to reconsider whether it should endorse the consumer leases industry by providing access to welfare cheques.