News

For immediate release: 20 August, 2007.

Wesley Mission today released its White Paper on how to deal with Australia’s consumer debt crisis.

The Wesley Report comes in the wake of a turbulent week on world stock markets and speculation about further possible interest rate rises.

Financial Stress: a way forward recommends six main areas for action including the instigation of responsible credit provision, a national sinking fund to employ more financial counsellors, financial literacy programs as a form of early intervention, a national system to flag potential problem consumers and measures to curb excessive consumerism and a national credit summit involving both finance and community groups.

“Australia has reached a turning point: we need more than an economic adjustment we need a national wake up call and a way forward,” the CEO of Wesley Mission the Rev Keith Garner said.

The White Paper follows the release of Wesley Mission’s major study and report on financial stress in November last year. That report showed the impact of financial hardship on individuals, families and communities in metropolitan Sydney was significant and widespread.

It also revealed that one in three Sydney households is anxious about their finances and that one in four would be concerned about meeting unexpected additional expenditure in their current budget. About 15 percent of responding households were at the brink of insolvency – they would be totally unable to meet even a small extra expense of $40 per week, and one quarter of respondents have no savings to draw on.

After the release of this first Wesley Report last year, Wesley Mission embarked on a process of public consultation through a series of Financial Stress forums involving representatives from business, the finance sector, community groups, credit providers and government departments. The White Paper’s recommendations are the outcome of these forums.

“We believe that access to credit is a serious issue and one that must be urgently addressed,” the Rev Keith Garner said. “We need reforms within the financial services industry. Our recommendations are being presented to financial institutions as a challenge to re-think relationships with clients and to ultimately re-orient thinking about good corporate governance.”

The Wesley Report also suggests that lenders to refrain from encouraging their clients to take up pre-approved, unsolicited credit increases without full re-assessment of their client’s capacity to pay or without taking into consideration changes in their client’s income.

And in a warning which is now echoing across the world the report recommends that second-tier and “fringe” lenders refrain from giving credit on onerous terms.

“Many of the clients who suffer from financial exclusion in the mainstream market (either due to its more stringent requirements or to the type of financial services sought) often tap this flexible, secondary market. In other words, it is usually the low income and disadvantaged individuals who tend to use fringe lenders,” the report says. “To take advantage of this vulnerable group is socially irresponsible and unacceptable.”

Other key recommendations include:

• Truth in lending through the provision of complete and simple financial information to clients.
  
• Increasing the minimum credit card payments as a percentage to total debt.
  
• Financial literacy initiatives can be improved with education being fed in at appropriate times of a life cycle: for example, young people who are able to undertake legal contracts (such as mobile phone contracts) need to be educated on the responsible use of credit.
  
• The creation of a national flagging system involving bill-paying organisations. It is not the intent that these organisations share customer information. Rather, these organisations would be the first to identify and to flag a potential problem.
  
• The establishment of an industry sinking fund to address the shortage of trained financial counsellors. The government could legislate for compulsory contributions from financial services organisations. This could be made a compulsory requirement of their licensing agreement. A voluntary system could be established in which funds may be generated by a small percentage of extra interest paid on credit cards to act as a buffer or insurance.
  
• Greater efforts to educate consumers and raise awareness as to the dismal environmental and social effects of material excess and accumulation.

“We are now seeing the social and individual costs of plasma prosperity: a consumer culture which is a mile wide and an inch deep”, the Rev Garner said. “The live now, pay later mentality has an individual and collective cost.”

To download a copy of Wesley Mission’s White Paper, Financial Stress: A Way Forward go to www.wesleymission.org.au/FinancialStress

Graeme Cole
Public Affairs Manager 
Wesley Mission  
Ph. 02 9263-5350  
Mobile: 0408 470 722