Consumer leases: hiring goods you will not own

AWhat makes it a lease

The line between a lease and a loan is ownership. A lease is hire: the consumer pays to use the goods and has neither the right nor the duty to buy them. In the Act, a consumer lease means one to which Part 11 of the National Credit Code applies.

Not every lease is caught: ASIC says the Code excludes some types of credit and consumer leases, and its guide to credit licensing lists consumer leases for a fixed period of four months or less among them. Whether a particular lease falls inside the Code is a question for advice.

BA loan and a lease, side by side

The same duty to check sits behind both. The responsible lending obligations cover consumer leases, and ASIC’s rules on the written assessment name lessors alongside credit providers.

CWhy ASIC counts a lease as higher-cost

RG 209 puts consumer leases in its group of higher-cost credit products, with small amount credit contracts and some continuing credit contracts, as products that can involve relatively small amounts of credit and higher costs. Its reasons for leases are specific: the payments over the whole term may be high next to the value of the goods, the consumer does not end up owning them, and consumers may not fully understand the extent of what they are signing up to, so there may be a higher risk of committing without seeing the longer-term effect on their finances.

ASIC also deals with one way lease payments are collected. Some lessors of household goods rely on Centrepay to take payments straight from the consumer’s income. ASIC says that does not reduce or replace the obligation to make reasonable inquiries, even where the consumer has paid well under an earlier lease with the same lessor.

DThe assessment, and the right to a copy

A lessor’s assessment is a document the consumer can ask for. ASIC’s information sheet on disclosure covers lessors as well as credit providers (other than assignees): if the consumer asks in the first two years of the contract, the lessor has seven business days to hand over the written assessment, and after two years it has 21 business days from receiving the request. There is no assessment to give if the lease was never entered into.

The test it records is the one in Unsuitable credit: inquiries into the consumer’s financial situation and their requirements and objectives, steps to verify that situation, and an assessment of whether the contract is “not unsuitable”.

EIf lease payments become hard

The points below come from ASIC’s Regulatory Guide 271 on internal dispute resolution, which names lessors alongside credit providers. The first four concern a lessee’s complaint about a hardship notice; the last two concern a default notice.

1. The hardship noticeA lessee may give a hardship notice, or ask for enforcement proceedings to be postponed, for leases entered into on or after 1 March 2013. Complaints involving hardship notices or postponement requests must be treated as urgent. The lessor must answer such a complaint no later than 21 calendar days after receiving it, with exceptions where it lacks the information to decide or reaches an agreement with the lessee, as the next steps set out.
2. If information is missingIf the lessor does not have enough information about the hardship notice to decide, it must ask for it no later than 21 calendar days after receiving the complaint, and the complainant must provide it within 21 calendar days of the request.
3. The lessor’s answerOnce the credit provider or lessor has the information, RG 271 allows a further 21 calendar days for its response; if the information does not arrive within 21 calendar days of the request, the credit provider or lessor has 7 calendar days.
4. An agreementIf agreement is reached, the lessor has 30 calendar days to confirm the terms in writing.
5. Before enforcementASIC’s complaints guide says a credit provider or lessor must give a default notice before starting enforcement proceedings to recover money, take possession of property or sell it, and that the notice must tell the borrower or lessee they must remedy the default within 30 calendar days.
6. A complaint about the noticeIf a complaint involves a default notice, the lessor must give its response within 21 calendar days.

If the lessor’s answer does not resolve it, the Australian Financial Complaints Authority helps resolve disputes with financial firms, and every credit licensee must be a member. Where to get free help sets out the free services, and High-cost loans and their warnings sets leases beside payday loans and credit cards.