1 month ago
The federal government will boot predatory rent-to-buy operators off its Centrepay debit system as part of sweeping reforms designed to stop the financial abuse of vulnerable Australians.
The reforms, set to be announced Monday, follow a Guardian Australian investigation that revealed shocking failures with the Centrepay system and helped trigger an urgent government review.
The Centrepay system was designed as a budgeting tool for welfare recipients, allowing government-approved providers of essential services like rent and electricity to take money from a person’s welfare payment prior to it being deposited in their bank account.
Sign up for Guardian Australia’s breaking news email
But weak oversight of the system opened it up to error and exploitation, which caused profound harm to vulnerable people.
Guardian Australia revealed this year how multiple energy retailers, including AGL, Origin and Ergon, allegedly used the system to continue deducting million of dollars from the welfare payments of former customers, long after they had left or switched energy providers. The Australian Energy Regulator successfully took AGL to court over its use of Centrepay and has stated it is now considering action against three other firms.
Guardian Australia also revealed how an extreme Christian rehabilitation centre used the system to prop itself up financially while subjecting its residents to gay conversion practices and exorcisms, and showed how rent-to-buy companies used Centrepay to lock Indigenous Australians in remote communities into paying exorbitant amounts for household appliances.
The government services minister, Bill Shorten, said Centrepay, when working as intended, was a convenient service helping welfare recipients meet the costs of basic needs, like housing, school fees and medication.
“But it’s clear from the extensive feedback we’ve received that changes were needed to ensure Centrepay wasn’t undermined by predatory behaviour,” he said.
“Predatory behaviour is unacceptable. The improvements we’ve announced today will ensure there are safeguards in place to reduce the risk of financial harm and we’ll continue to work with regulators and across government to stamp out this behaviour.”
What is Centrepay?
Show
Centrepay was established in 1998 under the Howard government as a voluntary bill-paying service for people receiving Centrelink payments to make automatic deductions for essentials like rent and utilities.
It currently has more than 620,000 users. A large percentage of them are receiving disability support payments. Almost a third are Aboriginal people, predominantly women, from remote areas, receiving jobseeker or parenting payments.
Over time Centrepay has expanded to include a range of businesses and services.
There are now more than 15,000 companies approved to access Centrepay, which facilitated 23.7 million transactions last year worth $2.7bn. Each transaction incurs a 99c fee, paid to the government by businesses using the system.
Over the past decade, consumer advocates have raised concerns that several of the businesses registered to access Centrepay may be causing financial harm to vulnerable customers.
The corporate regulator is investigating dozens of companies. At least four that it has already penalised remain on the system.
In May 2024, the government announced a full review of the system to increase compliance, transparency and strengthen auditing processes.
Services Australia, which operates the system, says it is working towards improving delivery.
In 2022-23, contracts ended for 12 Centrepay businesses due to non-compliance.
The government will remove what it describes as “high-risk services” from the Centrepay system. That will include companies providing consumer leases and household goods, otherwise known as rent-to-buy operators.
The Australian Securities and Investment Commission and financial advocates have for years been warning that the ability of rent-to-buy operators to access Centrepay was causing severe financial harm, particularly to Indigenous Australians.
The government will also impose mandatory target amounts and end dates for Centrepay deductions, a measure in part aimed at stopping energy retailers from wrongly receiving money from the welfare payments of former customers.
The reforms will include stronger oversight and compliance, including a new application and approval process for businesses wanting to gain access to the system, and formalised complaint-handling processes.
The government will also employ complaints and compliance specialists within Services Australia to “make sure businesses are accountable for how they use Centrepay”.
The announcement has been met with broad support from financial rights groups and the Australian Council of Social Service (ACOSS), the peak group for community services.
The CEO of Acoss, Cassandra Goldie, said the government efforts to protect people from exploitation has been “genuine”.
Financial Counselling and Strategy lead for Mob Strong Debt Help, Bettina Cooper said the engagement with First Nations and other consumer advocates “has been a true consultation”.
“All government departments can learn from their open and collaborative approach to achieve fair outcomes,” Cooper said.
The announcement comes after Asic announced on Friday it has suspended another retailer from the Centrepay system.
Asic has made a final stop order preventing Indy-C-Fashion Accessories from offering Centrepay credit arrangements to consumers in its store in Katherine.
The deputy chair of Asic, Sarah Court, said Indy-C provided credit arrangements to First Nations people to buy clothing and household goods “without considering whether the credit arrangement would be consistent with the consumer’s objectives, financial situation, and needs.”
“We will continue to use our full range of powers, including stop orders, to disrupt entities in these circumstances.”
The government expects its Centrepay reforms to be phased in from mid-2025 and says it will consult with “impacted businesses before the changes are finalised”.
