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 in 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 before it is deposited in their bank account.
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 said 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, including 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.”
The government will remove what it describes as “high-risk services” from the Centrepay system. That will include companies providing consumer leases and those offering rent-to-buy arrangements for 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, the peak group for community services.
The chief executive of Acoss, Cassandra Goldie, said the government efforts to protect people from exploitation has been “genuine”.
The 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 had 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”.
