Credit and financial services targeted at Australians at risk of financial hardship

Submission 68

CITY FINANCE
Submission to the Senate Economics Committee
Australians at Risk of Financial Hardship

Andrew Child
CEO

CONVENIENT
MONSTERS
 Credit and financial services targeted at Australians at risk of financial hardship
Submission 68

What is a Pay Day Lender?

Ask ten people from in and around the finance sector or ASIC and you’re guaranteed to receive ten
different interpretations. I hope after reading this submission you will understand my frustration
with being labelled a Payday lender and all the negative connotations that term brings with it.

City Finance have been providing small loans to Australians for 20 years, we operate under a
franchise model and all franchisees operate from an office, have their own Australian Credit License
and lend their own money. In 2018 most of our applications are generated from our website
however branches play an important part of providing service to people who are just not skilled
enough to transact online.

The government have a number of proposed changes to our legislation in front of them from a
review that was conducted by an independent panel. Some of these changes if they are introduced
will simply force most of the City Finance franchisees to close down.

Advocate groups such as CALC and Good Shepherd have been very outspoken about their ambition
to shut our industry down. This goal is made much easier by the banks refusing to provide basic
banking facilities too SACC lenders, refusing to lend them money and then funding the development
of the online and retail divisions of Good Shepherd who offer the same product under the same
regulations as we do. The main difference being they are able to offer it at half the price because of
the cheap funding provided by NAB and the financial support of the government, whilst other credit
providers not offering SACC’s are left to alone to rip people off without the label of being a “Payday
lender”.

There is an ethical group of SACC lenders in this sector that could be forced out of business due to
the convenience of having someone to blame for the credit problems associated with this group of
Australians. SACC lenders have become Convenient Monsters and blamed for all the poor behaviour
by anyone providing credit to low income Australians. They have embraced the protective features
of this carefully structured loan product and are now being punished, while non-regulated products
and services fly under the radar.

I hope this submission opens your eyes to some of the inequities and mistruths associated with what
we do - provide sensible credit solutions to those who can afford to repay us.

I ask, why are SACC loan providers the only credit service provider covered in your inquiry
that supplies a regulated and tightly controlled licensed product whilst the appalling
behaviour of others in this sector operate un-regulated? The lack of understanding of our
product and our sector has become our enemy and we have become the “Convenient
Monsters”
 Credit and financial services targeted at Australians at risk of financial hardship
Submission 68

What is a SACC and the Fundamental Principles of City Finance’s lending in this sector
Firstly, Payday Loans have been a banned product since 2013 and so the stigma attached to the
product we provide being SACC’s is inaccurate and a misrepresentation of our brand.

Our Experience

Over the last four years of our operation, City Finance has developed lending policies and
procedures that ensure the client’s best interest is put first. Ultimately, we will only lend to people
who we believe can afford to pay us back.

This is reflected by the fact that almost 90% of new customer applications are declined due to our
thorough lending criteria. Of the customers that are approved, approximately 90% of them pay off
their loans on schedule with no defaults or arrears incurred.

For those customers who may be struggling to make their repayments due to unforeseen
circumstances, our payments department provide our clients flexible payment options. If a customer
is experiencing difficulty, we will happily make suitable changes to their repayments without any
extra fees or charges. We prefer our clients to keep in contact during these times rather than
defaulting on their payments and incurring dishonour fees instead. We pride ourselves on our level
of communication with our clients. All customers receive a regular SMS reminder for their scheduled
repayments, phone calls, texts and emails after any dishonours on their account, and contact is
always made once their loan is paid out.

Our Lending Procedures

Whilst our application process appears quick and easy from the customer’s perspective, our internal
processes are extremely thorough and detailed. Legally we are required to obtain ID and 90 days of
bank statements from our applicants however we also collect additional documents such as payslips,
Centrelink Income Statements, other Lender account statements and credit bureau checks in order
to ensure the applicant’s income and expenses are legitimate. Unlike other lenders who operate
100% online, we speak to our applicants in person or over the phone regarding their personal
budget details so that we get a much better idea of their needs and affordability.

Unlike many other credit providers, customers can walk in to one of City Finance’s eighteen physical
branches across the country and complete their loan application face to face with the assistance of
our friendly branch staff members. We are so confident in the service we provide that we use
Facebook and Trustpilot to allow our customers to leave unedited ratings and reviews that truly
depict how our service helps them out on a daily basis.

“As a single parent I have struggled to find extra funds for life’s down times,
I contacted City Finance as my options were limited, best thing I ever did, they are extremely
helpful and strive to help as much as possible. I recommend City finance to anyone”

“I've been with City Finance for over 8 years, they have never let me down and I have never had so
much as a late payment I respect them because they are great fast easy to apply for. I recommend
anyone with a decent credit rating to borrow or do any financial business with them
thank you City Finance”

“Sam is a great person to work with, he listens and understands individual’s concerns. He makes
the application process very understandable and easy. I strongly recommend City Finance more
than any other.”
 Credit and financial services targeted at Australians at risk of financial hardship
Submission 68

Other Credit Providers

There is so much regulation around the SACC product that prevents companies like City Finance
from lending to long term customers who rely on them for credit. However, there are a number of
credit providers that have flown under the radar, avoiding regulation, and are creating financial
hardship for many Australians.

Cigno Loans call themselves ‘pay-day lenders’ and specialise in emergency cash lending. Due to some
of the characteristics of these loans such as their size and term, people label them as SACC’s,
however Cigno’s product is very different in the way that their fees are charged. Gold Silver Standard
Finance Pty Ltd is the lender whilst Cigno is the service provider that ‘manages’ the account.
Therefore, there are two sets of fees from both the lender and the service provider. This means that
Cigno is able to charge their customers fees that well exceed the legal fee cap on SACC products (See
Figures 1-4 in the Appendices). For example, please see the redacted statement in the appendices
that shows a customer’s accumulation of fees and charges exceeding $1491 over a 19 month
period whilst the original loan amount was only $250.00. This customer still had a balance of
$693.05 remaining at this point in time (see Figure 2.0 in the Appendices).

The other non SACC loan that is on the rise amongst Australian consumers is the 47.8% interest
revolving line of credit product. Companies such as Credit Corp owned, Clear Cash provide their
customers with a line of credit of up to $5000 that they are able to redraw on over and over again up
to their credit limit. Clear Cash advertise their $0 service fees however the APR on their product is
47.8%. This is effectively a credit card without the card @47.8% interest that never receives a
mention when the discussion of Debt Spiral is raised, instead it the Convenient Monster the Payday
lender offering a protected SACC product tightly controlled by regulations that receives the negative
attention.

“Buy Now, Pay Later” Services

The introduction of ‘buy now, pay later’ services such as Afterpay, Zippay and Oxipay allow
consumers to make retail purchases and pay them back, interest free, over four fortnightly
repayments. These companies do not have any form of application process, do not perform credit
checks or review bank statements for customers income and expenditure. Consumers can therefore,
make multiple retail purchase above their means without any regulation whatsoever. For example,
Afterpay requires their customers to be above 18 years of age, have an active email address and
mobile number and have access to an Australian payment method. That is it. Recently, a City Finance
client applicant was declined for her low affordability caused by the number of active Afterpay’s she
had on her Bank Statement.

This client only received an average weekly wage of $494, however her Afterpay transactions for
one week added up to $736.00. The only reason this client was able to repay her Afterpay’s
successfully was her reliance on cash transfers from her mother and a recent $2000 loan deposit
from Credit Corp’s Clear Cash Finance (See Figure 5 in the Appendices).

Over the last 18 months, our City Finance lending staff have seen a huge increase in the use of ‘buy
now, pay later’ services by our applicants. As consumers increase their use of Afterpay for retail
purchases, their disposable income decreases. Therefore, these people come to a SACC provider
needing a loan for urgent car repairs, new white goods or unexpected bills as they do not have the
cash. Unfortunately, due to our industry’s strict regulations we are having to turn them away as they
 Credit and financial services targeted at Australians at risk of financial hardship
Submission 68

no longer have the affordability due to their unregulated retail spending (See Figures 5 & 6 in the
Appendices).

Dept Repair, Debt Management and Credit Repair Agencies

Despite the common opinion that debt repair or debt management companies are there to help
consumers who are drowning in SACC debts, this is far from the truth. After investigations by ASIC, it
was concluded that information about their fees was hard to find, and that they tend to be high,
front loaded and not refunded if promises are not delivered. In many cases, these “credit repair”
agencies have proven to not act in the best interests of clients, using predatory, high pressure sales
tactics to charge thousands for their services that are not even guaranteed to improve your credit
score and often convince consumers to enter into debt agreements that leave the consumer worse
off in the future.

City Finance has been involved in several cases where there is evidence that clients, following advice
from debt repair companies, have taken out a City Finance loan knowing that they have entered a
debt agreement only days earlier. For example, October 2017 a customer took out a $1000 SACC
with us. The following morning after the contract was signed and funds were deposited, we received
an email from with a Part IX Letter of Authority that had been signed by the client prior
to the date she submitted her City Finance loan application, hence she had lied when answering our
disclosure questions during the application process.

The client told us that she had been advised by her consultant, Felicia xxxx, to take
out the unsecured loan of $1000 and it would be incorporated into her debt agreement.

We lodged a complaint with AFSA, who advised we could take legal action against this client and
make an unconscionable conduct claim against Debt Busters. The client chose to proceed into a Part
IX agreement with Debt Busters. Action was not taken against her as the fault appeared to be with
Debt Busters for misleading and misinforming her of the consequences of her actions and so we
launched a report with ASIC who unfortunately never advised us of an outcome of this situation.

This is not an isolated case. There have been several instances where clients have borrowed up to
$5000 with City Finance under the advice of their debt repair advisor after signing a debt agreement
to avoid paying their loan.

The client below took out a loan with us on 03/07/2018 and only 14 days later, we received
contact from Fox Symes advising us that the client was going through the application for a Part IX
debt agreement
 Credit and financial services targeted at Australians at risk of financial hardship
Submission 68

This client borrowed $3500 from City Finance on the 16/05/2018 and only 10 days later we were
contacted by Fox Symes advising us that the client was proceeding with a Part IX debt agreement
and we were one of the last of his creditors that they were contacting. This implies that the client
would have known of his debt agreement arrangements at the time of his City Finance loan
application. We suspect this type of advice ensures payment to the credit repair company and the
client is advised the debt will be covered in the debt agreement.
 Credit and financial services targeted at Australians at risk of financial hardship
Submission 68

Appendices

Figure 1

Figure 2
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Figure 3
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Figure 4
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Figure 5
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Figure 6