Alert

The Australian Federal and State and Territory Governments yesterday released their plan for the national regulation of credit.

The timetable is 18 to 24 months for a wide-ranging transformation of Australian financial regulation by October 2010 (i.e. the system will be in place by June 2009 and legislation will be released to transfer responsibility for all credit regulation to the Commonwealth). A uniform, national consumer protection law will apply to credit. This will be in addition to the Consumer Credit Code which will be re-enacted as a new part of the Corporations Act. ASIC will be the key regulator. All credit providers and finance brokers will be subject to a licensing regime.

1. Key points

The Commonwealth Government will move as rapidly as possible to implement the following reforms:

• the Consumer Credit Code (Code) will become Commonwealth legislation and all mortgage lending and broking will be regulated by the Commonwealth, as proposed in June 2008 in the Green Paper

• a national licensing regime will be implemented for credit providers and finance brokers

• finance broker regulation will be based on the draft legislation released for comment in 2007 which was prepared by the New South Wales Office of Fair Trading, on behalf of the Ministerial Council on Consumer Affairs, with some changes

• ASIC will be the main regulator and will be given substantial additional resources to control the implementation of the new laws and supervise industry

• margin lending will be regulated by the Commonwealth on a basis that requires much more effective disclosure

• the new national regime will emphasise responsible lending

• current State and Territory initiatives to amend the Code will transfer over to the Commonwealth process.

Because of the desire to move as quickly as possible, consumer credit changes may not progress simultaneously with Privacy Act changes affecting credit.

The Commonwealth Government will also move to regulate investment lending.

2. Future reforms

It is possible that the activities of credit ratings agencies may be regulated.

In future, the Commonwealth Government will examine what can be done to shorten and simplify consumer disclosure documents. This may require changes to the Australian financial services regime in Chapter 7 of the Corporations Act. A long term aim is the development of a common regime across both Australia and New Zealand for the regulation of all financial products, including credit.

A future review may also look at prohibiting or prescribing certain product features.

The Commonwealth Government also supports simplicity and consistency in dispute resolution. It endorses the universal availability of alternative dispute resolution schemes and national “one stop shop” tribunal schemes.

3. COAG meeting

In announcing the changes, Prime Minister Kevin Rudd said at the COAG Meeting held in Perth on 2 October 2008:

“These are difficult times and strong regulation is the best protection for all Australians. These new measures will protect consumers and cut red tape for business.”

Speaking on Thursday at the 18th Annual Credit Law Conference, Senator Nick Sherry said that a renewed focus on consumer protection is appropriate and inevitable:

“Current disruptions in international markets have reconfirmed and reinformed the Government’s strong view that Australia should proceed as rapidly as possible with national regulation of all financial services.”

Andrea Beatty, a Partner of Mallesons Stephen Jaques, in her Regulatory Update address at the 18th Annual Credit Law Conference, in commenting on Senator Nick Sherry’s presentation said:

“Senator Sherry said in developing these very significant reforms, it is important to clarify what is meant by ‘responsible lending’. This needs a clear understanding of the harm that regulation is seeking to protect consumers against.

It makes sense to progress credit reforms separately from privacy reforms responding to the ALRC Report. Credit reform is more advanced than privacy and so it is appropriate to deal with them separately. The overlap relates to credit application forms and contract consents.

A simple disclosure to ‘future proof’ loan documents could be settled as a priority.

Then the principles and operational issues behind comprehensive credit reporting and other credit related privacy matters can be dealt with independently of credit reform.”

4. Single national consumer law

The COAG meeting also saw agreement on a future path for consumer protection laws in Australia.

A new, national framework will be introduced, based on the consumer protection provisions in the Trade Practices Act, but adopting some additional measure now found in State and Territory Fair Trading legislation.

Adoption of the new national regime should reduce confusion for consumers and reduce complexity for businesses.

5. What’s next?

The proposed changes will have benefits for business, in that the current inconsistencies between State and Territory regimes will be removed.

Industry should continue to monitor developments and be prepared to make submissions, when these are invited, in order to avoid adverse impacts on business. We can help.