Centrelink has given companies accused of exploitation and misconduct direct access to welfare recipients’ money through its automated debit system.
The companies were granted access to the Centrepay system, which allows approved businesses to deduct money from welfare payments.
The system is designed to ensure rent and power bills are paid by giving government-approved real estate agents and electricity retailers the first bite of social security payments.
But the federal government has long faced criticism for opening up Centrepay to household appliance rental companies, which rent out white goods, mobile phones, laptops and furniture.
A 2015 report from the corporate regulator found the sector was targeting Centrelink recipients and charging exorbitant prices, often more than five times the retail price of the leased goods – the equivalent of a 248% interest rate.
An independent review of Centrepay in 2013 warned the government that lax oversight was giving unscrupulous operators access to the system, raising the risk of exploitation.
More than four years on, those risks appear to still be materialising.
Guardian Australia has found at least four appliance rental companies were granted approval to use Centrepay, despite previously being punished by the corporate regulator or placed on binding agreements to rectify potential legal breaches.
One of the businesses, Amazing Rentals, continued to hold Centrepay approval for more than two years after the Australian Securities and Investments Commission (Asic) raised concerns it had failed to comply with responsible lending obligations. Most of the customers of its Darwin store, including many Indigenous Australians, received government benefits as their only source of income.
The company was renting white goods to people who could not read the contracts and did not understand what they were signing up to.
The corporate regulator accepted an enforceable undertaking from the company in June 2015, which forced it to shut down the store for 12 months, refund customers, cancel contracts and donate money to Indigenous legal support groups.
“We had examples of consumers who were on disability pensions or Newstart allowance where they were literally running out of money at the end of the month because of the impact of the repayments that were being made for those consumer lease products,” Asic senior executive Michael Saadat told the ABC at the time.
Amazing Rentals was eventually stripped of Centrepay approval in September last year, about the same time it became embroiled in a massive data breach, which exposed 26,000 documents with the personal details of 4,000 people in the Northern Territory and Queensland.
Other companies still approved for Centrepay include franchise Rent the Roo, which was fined $27,500 by Asic for breaching responsible lending laws in 2013; and Mr Rental Australia, which was found to have imposed a potentially unlawful early termination fee, and was forced by the regulator to refund about 1,560 consumers more than $300,000 in total.
Centrepay approval is also still active for The Rental Guys, a company found to have failed to meet responsible lending obligations to customers mainly from regional Indigenous communities, and not verifying their ability to make the rental payments. The company also placed vulnerable customers on new contracts that imposed higher fees and removed the right to own goods once the rental period was finished.
Rent-to-buy companies approved for the Centrepay system sign contracts with customers knowing they are living on welfare payments.
Melbourne woman Rosanna Adorno, a single parent on a Centrelink support payment, told Guardian Australia she found a $2,000 “cheque” from the appliance rental company Rent4Keeps in her letterbox. The cheque, a promotional advertisement, was followed up with a visit to her home by a Rent4Keeps employee.
Adorno said she signed contracts to be paid from her welfare payments via Centrepay for a dresser, laptop and an ottoman that she could scarcely afford – and that she was not given a copy of the contract.
The payments put her into severe financial stress within months, she said. Adorno found her Centrelink payment was no longer enough for food. “It was really stressful. It was unbearable, basically,” she said.
Adorno said her situation deteriorated to such an extent that she ended up in hospital, at the emergency department. “I was waiting to be put into the psych ward, but then I saw all the other people that were coming in, and I thought, ‘my situation isn’t that bad, I’m going back home’,” she said. “I ended up stopping the payments [through Centrelink] so I could actually put food on the table.”
With the help of the Consumer Action Law Centre, Adorno eventually had the contracts terminated last year.
Guardian Australia is not aware of any instance of Rent4Keeps being subject to regulatory action. Rent4Keeps did not respond to a request for comment.
The industry association representing rent-to-buy companies – the Consumer Household Equipment Rental Providers Association – says the sector is unfairly maligned for the actions of a few bad operators.
Its president, Steven King, said the 2015 Asic report was outdated and flawed. He said it did not reflect an industry with low complaint rates, high customer satisfaction and strong oversight through an industry code of conduct, Asic regulation and scrutiny from Centrelink staff.
“The whole system is not corrupt because of one or two people, but sadly for some reason people … focus on those things, rather than the good we do,” King said.
“Yes, we charge more than the recommended retail price of goods, but that’s because we’re not selling something to someone, we’re leasing it to them. And we’re leasing it to them with all the services that go with it … and all the risks that go with it.”
The four companies disciplined by Asic were not part of his association, King said.
King said Centrepay was a “wonderful blessing” for customers, which was voluntary and cost-free. He said it also helped rent-to-buy businesses get a “degree of security” for payments.
The 2013 review of the Centrepay system found the scrutiny applied to approved businesses was nowhere near the level a commercial provider such as a bank would conduct, making it “easier for inappropriate providers to be part of the system and potentially exploit or cause financial hardship to Centrepay customers”.
“The potential negative impact of this ‘easy in’ aspect of provider authorisations is exacerbated if there are insufficient resources to monitor the activities of the providers,” the review found. “And even further exacerbated by the hands-off approach taken by department staff to their potential capacity to act as regulators of the Centrepay scheme.”
The Department of Human Services said it had since taken steps to improve its oversight of the system. The department said businesses could remain on Centrepay if they showed they had “taken necessary steps to resolve a regulatory issue”.
Last financial year the department said it vetted 1,800 business applications, and conducted about 3,000 assurance checks and 374 compliance audits of approved businesses.
“Following the independent review of Centrepay, the department has introduced a number of changes to protect recipients, including establishing a new compliance framework and removing unregulated consumer lease businesses from Centrepay,” a spokeswoman said.
Fiona Guthrie, the head of Financial Counselling Australia, said Centrepay’s inclusion of appliance rental companies had been a “failure of policy” 20 years ago.
“The system is supposed to help with essential expenses,” Guthrie said. “It’s a budgeting tool. And what it’s done is it’s just expanded predatory leases.
“It means that people are prioritising payments to a consumer lease provider over things like food.”
The federal government is proposing new restrictions on small amount credit companies, which includes rent-to-buy operators. The laws would keep customers from spending more than 10% of their total income on appliance contracts.
Mr Rental Australia told the Guardian that it had operated under an Australian credit licence since entering into an enforceable undertaking with Asic in 2013.
“Mr Rental has welcomed of a number of compliance audits during this time, of which both the auditor and Asic have been completely satisfied,” a spokeswoman said.