All participants in the Australian credit industry will be affected by a move to Commonwealth regulation of the sector.What do you need to do?
Be ready to respond to requests for submissions (including an imminent Green Paper on credit regulation). Consider how an unfair terms regime could affect your products.
The Productivity Commission (Commission) released its final Report - Review of Australia’s Consumer Policy Framework (Report) on 8 May 2008. The Report contains responses to the public submissions invited in November 2007.
Key recommendations of the Report include:
- replacing current laws with a single national consumer protection law, to reduce costs for service providers and provide consistent protection for consumers
- re-enacting the Uniform Consumer Credit Code (UCCC) as Commonwealth legislation, and
- developing a national “unfair contract terms” law that would void terms in standard-form contracts that have caused actual consumer detriment.
A uniform Australian consumer law
The Commission recommends the introduction of a single consumer law across Australia (Uniform Consumer Law). This would be based on the consumer provisions of the Trade Practices Act 1974 (Cth), with the addition of an unfair contract terms regime.
The Australian Securities and Investments Commission (ASIC) would be responsible for regulating financial services, including credit and finance broking.
The Australian Competition and Consumer Commission (ACCC) would continue to enforce product safety provisions and would jointly regulate, with current state and territory consumer fair trading offices, all other consumer provisions.
National consumer credit regulation
The Report recommends transferring responsibility for regulating consumer credit to the Commonwealth Government, to be regulated by ASIC. The Report states that the new regime should:
- cover all credit products and intermediary services (including broking services and the provision of advice)
- include a national licensing system for finance brokers and a licensing or registration system for credit providers, both requiring the availability of an approved alternative dispute resolution scheme, and
- re-enact the UCCC as Commonwealth law, to operate independently within the broader financial services regulatory regime.
Changes to the UCCC that have been agreed by the Ministerial Council on Consumer Affairs but not yet implemented would be included in the Commonwealth law. The Report notes that there are differing views about the efficacy of some changes that are currently proposed - including “fringe lending” amendments and the regulation of finance brokers.
The Report also notes that the Council of Australian Governments agreed in principle in early 2008 that responsibility for consumer credit and financial services regulation would be transferred to the Commonwealth Government.
National unfair contract terms provision
The Report recommends that the Uniform Consumer Law should include “unfair contract terms” provisions. These would void unfair contract terms that have caused consumer detriment. All standard form contracts - including consumer credit contracts - would be subject to the unfair terms regime.
The recommended approach differs from the unfair contract terms regime in the Victorian Fair Trading Act under which unfair terms are void even if there has been no demonstrated consumer detriment.
The Report has been issued in final form. No submissions have been invited and it is likely that some aspects of the Report will be implemented in due course.
The Commonwealth Treasury is expected in the near future to release a Green Paper on the Commonwealth regulation of the credit sector. One month will be allowed for submissions. All financial services providers should keep this area under review, and be ready to prepare submissions at short notice. We can help.