Poor lending reforms may deprive most vulnerable of home basics: study

Changing lending rules to restrict access to financial services could deprive low-income people of home basics like white goods, furniture and internet access, a new RMIT study suggests.

In light of calls for tighter regulations on predatory lenders, the research discusses how borrowing money for certain household goods – although financially detrimental to the borrower – can have positive impacts on the person’s wellbeing if it means they can secure housing fundamentals.

Associate Professor Ashton De Silva, from the RMIT Centre for Urban Research and the School of Economics, Finance and Marketing, said the data suggests many individuals appear to be choosing to carry financial debt rather than endure housing deprivation.

“It is important to understand that a house is not merely a home and a household’s level of wellbeing depends on more than just access to a safe and affordable physical structure,” he said.

“Households require access to particular goods such as washing machines, separate beds for each child and televisions, for them not be considered deprived.

“To secure these essentials, low income earners may seek some form of credit in the form of an alternative financial service (AFS), as standard options such as bank credit are typically not accessible to them.”

AFS products, particularly small amount credit contracts (SAACs) and consumer leases, have attracted a considerable amount of criticism in Australia due to the high financial costs incurred by the borrower.

Yet more regulation in an attempt to protect consumers has the potential to deliver significant unintended consequences in the form of housing deprivation, De Silva’s paper, Housing deprivation or financial debt: betwixt the devil and the deep blue sea? finds.

“Despite the financial costs, it appears that consumers are choosing SAACs or consumer leases to secure housing essentials,” he said.

“If consumers are indeed being adequately informed of their financial obligations in engaging such services, they are making the best decision in the context of their circumstances.”

De Silva said that any future reform needed to consider why households were turning to these forms of credit and be constructed to maximise competition and efficiency of the sector.

“We need to have a deeper understanding of ‘what’ consumers are securing with these financial services if we are to truly appreciate the ‘why’,” he said.


For interviews: Associate Professor Ashton De Silva, ashton.desilva@rmit.edu.au, (03) 9925 1313 or 0417 378 247.

For general media enquiries: Chanel Bearder, chanel.bearder@rmit.edu.au, (03) 9925 0917 or 0432 140 673.