ABC Learning, star of the fading child care bubble, is getting into the business of being credit provider.

ABC
chose a mechanism that bypasses the regulatory limits and paper
overload associated with conventional consumer loans, and instead will
keep its lending activities in-house; label interest as fees; advertise
the credit as interest-free when it isn’t really, and avoid the
compliance burdens of everyday consumer laws, including the remnant
licensing and registration requirements of three state governments.

There are no credit checks under ABC’s “deferred payment plan.”

There
is also a loan of up to $4,000 (per child), for terms of up to 15
months, and with ill-defined charges after that for anyone who fails to
pay back the loan.

There is no information on the ABC website
other than a 1800 number to call, and ABC’s customer service officers
who were taking the calls on the occasions this newsletter called were
unfamiliar with the details. Interested parents can collect forms from
child care centres, or ask for application forms in the mail.

Staff answering the 1800 number did mention an 8% interest payable up to 15 months after taking out the loan.

Copies
of the brochures faxed later by ABC’s company secretary show that the
8% – which appears to be a one-off charge – is described in the credit
contract as an administration fee. In this sense, the interest
equivalent is more like the “liquidated damages” that Diners Club or
David Jones would charge on one of their charge cards.

The point
of the ABC loan is to convert the federal government’s child care
subsidy of up to $4,000 per child per year into a reduced fee. In
effect, ABC is doing what the Health Insurance Commission or Australian
Taxation Office should already be doing, and cutting the cost of fees
by up to $77 a week.

There ought to be demand for this style of
supplier credit from ABC Learning. The mechanics of the government’s
child care rebate are cumbersome. The rebate is paid to eligible
taxpayers as a one-off payment and incorporated within a taxpayer’s
annual tax return for the financial year ending in June 2006. However,
the rebate relates to “out of pocket” expenses incurred by eligible
parents during the course of the financial year that ended two weeks
ago.

ABC’s deferred payment plan thus gives the parents with
children enrolled at their child care centres access to a one-off
government payment on a periodic and more timely basis.

With up
to 15 months interest free, and interest at 8% from then on, the credit
from ABC Learning sounds pretty cheap if the alternative is a cash
advance on a credit card where the interest rate could be a shade under
10% – but is likely be more than that, possibly as high as 20%.

ABC’s
aim is to ensure repayment of the loans by tying the repayment to a tax
refund. There doesn’t appear to be any mechanism to entrench this link,
and it’s simply up to parents to pay their deferred payments by
September 2006 (in the case of the current year), by which time many
taxpayers would have completed their tax returns.

Peter Fray

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