Offers of easy credit are bad news for the poor | smh.com.au
It's "No credit check month" at Radio Rentals. If you go to its website, the first thing that greets you is a big sign assuring customers that they can apply for the lease of a plasma television, fitness equipment or "computers plus more" without having their credit record checked.
The company claims this isn't being irresponsible. What garbage.
Anybody who claims that this sort of behaviour is responsible or ethical is talking absolute twaddle. It is subprime greed writ small.
The irresponsibility of lending money without proper credit checks is underlined by the fact that other financial institutions have argued that the Federal Government should make more information on personal credit histories available to enable them to be more responsible lenders.
The sad thing is that "No credit check month" is not a one-off. It is a symptom of a wider problem, stretching beyond just one company. It represents a business model which is predicated on maximising profit by appealing to those doing it tough, that just a bit more debt might be the gateway to the good life.
A review by the Victorian Government estimated the total amount of credit lent by the small loans industry at between $50 million and $100 million a year in Victoria alone. Many small lenders and lease companies specifically design their products to fall outside existing credit regulations.
Organisations such as Radio Rentals claim that they run the risk of the loss if the client is not able to repay the loan or keep up payments on the lease. But the loss encountered by the company is small compared to the financial, emotional and social loss of those who enter an unsustainable debt spiral because of irresponsible lending practices by those who should know better.
Radio Rentals may bear a loss in the event of a default even though the business model of such firms means that they will have the original asset returned to them. But the executives of Radio Rentals won't have to explain to their children why debt collectors and sheriffs are at their door when the debt spirals out of control.
Yes, debtors need to show some personal responsibility. But corporate lenders need to show some responsibility as well. As an MP, I see the results of this sort of irresponsible lending. And the financial counsellors attached to churches and organisations such as Lifeline see it more acutely every day.
The Radio Rentals chief executive said it was important that people with poor credit histories have the ability to acquire things such as washing machines and refrigerators. This argument might hold a small amount of water. But it doesn't apply to fitness equipment, game consoles, plasma TVs and the other goods you are tempted with on the website.
Advertising like "No credit checks" specifically and deliberately appeals to the vulnerable in society, who would not be able to find credit from more responsible lenders. It is predatory lending.
The transfer of credit regulation to the Federal Government does provide an opportunity for a more consistent and rational approach to the laws governing lending in Australia including, for the first time, a national responsible lending obligation imposed on all lenders.
The Minister for Corporate Law, Nick Sherry, is basing his plans on world's best practice legislation. But we know that even the best legislation in the world will have its limits. Lenders determined to be irresponsible will find ways around restrictions.
We need stronger legislation. But we also need to condemn those businesses that go out of their way to prey on those on who can least afford it, who skirt around the law and seem not to care about the consequences of their actions.
These days, corporate responsibility is quite fashionable. The Corporate Responsibility Index says this is achieved "when a business adapts all of its practices to ensure that it operates in ways that meet, or exceed, the ethical, legal, commercial and public expectations that society has of business".
Businesses which gear their business model to lending more to people who already have too much debt will need to have a good long look in the mirror before they come anywhere near being regarded as good corporate citizens. (Chris Bowen)
