Government ignored warnings more than 100 companies may be misusing Centrepay scheme, Asic says

The corporate regulator repeatedly warned Services Australia that it should review and consider removing more than 100 companies from a government-run debit scheme that allows early access to welfare payments.

But it said its attempts to sound the alarm about potential misuse of the scheme have had no impact.

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Guardian Australia last week revealed widespread problems with the Centrepay system, including its continued use by rent-to-buy appliance companies that had previously been sanctioned by the Australian Securities and Investments Commission (Asic) for predatory conduct.

Last year Asic revealed in parliament it had repeatedly and privately expressed concern to Services Australia about 122 rent-to-buy appliance companies, many of which operate in Indigenous communities.

Related: ‘I just kept paying’: Indigenous people are being exploited by businesses using Centrepay debit scheme

Asic asked the department to closely review the businesses and consider removing them from the Centrepay register. The deputy Asic chair, Karen Chester, told parliament’s financial services committee in November: “We have meetings with them regularly and we have brought these concerns to their attention. It just doesn’t seem to be having any impact in terms of the entities being removed from the register.”

Asic also raised concerns about 21 stores, mostly in Western Australia and the Northern Territory, that had access to Centrepay and were selling low-value household goods at a high cost.

Services Australia declined to answer Guardian Australia’s questions about steps it had taken to review the 122 rent-to-buy companies. A spokesperson said this was because it was currently reviewing the entire Centrepay system.

“We are committed to seeing this process through and won’t be providing further comment on individual businesses regarding Centrepay policy or compliance while it’s under way,” spokesperson Hank Jongen said.

But Labor senator Louise Pratt says the department should take “timely action” on the businesses that Asic has concerns about.

“I’ve raised concerns that businesses that Asic has concerns about have not been removed from Centrepay. This still appears to be the case,” Pratt said.

“Centrepay and Asic have assured me that they are working closely together. I hope this means that they will be pursuing timely action on businesses that Asic has previously had concerns about.”

Among the businesses that remain approved for Centrepay is Local Appliance Rentals, a franchise network of rent-to-buy operators working in areas with high Indigenous populations, which was fined in 2018 for irresponsible lending over an alleged failure to verify consumers’ financial situations, the inadvertent receipt of excess payments, the charging of excessive late fees and a failure to properly supervise franchisees.

A spokesperson for Asic said the regulator remained concerned that some businesses that are still on the Centrepay register “provide consumer leases which may place customers into financial hardship” because deductions for consumer goods “end up prioritised over essentials such as rent and food”.

“Asic hasn’t yet been informed of the outcome of Services Australia’s review of household goods businesses on the Centrepay register,” they said. “However, we engage regularly with Service Australia, including at the most senior levels; this engagement has strengthened in recent times.”

The Guardian also revealed that Centrepay has allowed hundreds of thousands of dollars to wrongly flow from vulnerable Australians to energy giant AGL. That money has since been paid pack, according to AGL. Services Australia is also seeking to return overpayments made via Centrepay to Ergon. It has refused to say whether other utilities companies have received overpayments via Centrepay.

The Greens’ social services spokesperson, Penny Allman-Payne, said the mismanagement of Centrepay was allowing exploitation. She called for an independent investigation of the system’s failings.

“There must be an urgent investigation into how Centrepay failed so spectacularly and a broader review into the appalling state of Services Australia and Centrelink,” Allman-Payne said.

“And the government must come clean on just how widespread this problem of wrongful deductions really is and who else has profited from it.”

Independent senator Lidia Thorpe, a vocal critic of the failings of Centrepay, supported the call for an independent review of the system. She said it was causing real harm to Indigenous communities.

“The ongoing failures of Services Australia’s Centrepay system are inexcusable,” she said. “This system has allowed big businesses to rip off people who are struggling to get by, many of them First Peoples.”

Labor in opposition attempted to stop rent-to-buy companies using Centrepay through a private member’s bill.

“Now that they’re in government it seems they’d prefer to protect these big businesses rather than help the battlers who are being ripped off. It’s blatant hypocrisy,” Thorpe said.

Related: AGL was warned it was wrongly taking welfare payments from former customers but failed to act, court hears | Centrepay

Consumer advocates have been raising concerns about Centrepay for almost a decade and last year a coalition of groups wrote to the Albanese government, outlining 17 examples of Centrepay failings.

The letter alleged that, in one case, a 26-year-old Aboriginal woman in Tennant Creek had been forced to reach out to a financial counsellor for a food hamper for her two children and was later discovered to be paying hundreds of dollars in Centrepay deductions to local retailers, including a rent-to-buy scheme for home appliances and a local bus transport service, leaving her with a bank balance of zero on the day she sought relief.

In another, a Yolngu woman with a long history of homelessness asked for emergency relief in January 2023, a point at which her Centrepay deductions were more than $400 a fortnight to local retail stores for items no longer in her possession.

The rent-to-buy sector’s peak body, the Consumer Household Equipment Rental Providers Association Inc, says its members are subject to regular audits and strict regulation and had an industry code of conduct stipulating that anyone in financial distress could return goods and free themselves of debt, stopping them from entering into a debt spiral.

It rejected the suggestion that rent-to-buy operators that had previously been subject to Asic enforcement should be removed from Centrepay.