This article by me was first published in Retail Banking Review.
A media release, speech or interview transcript is not the equivalent of a new law passed by Parliament regardless of the language used by a Government Minister.
In these days of complaints about inadequate supervision of insolvent financial service providers, excessive executive remuneration, bank exit fees, ATM fees, credit card charges and break fees, politicians are quick to announce an inquiry, investigation, industry summit or the like to give an impression of action. But government policy announcements or ASIC and ACCC discussion papers are not changes to the law until passed by Parliament (and the Senate agrees). Except for taxation changes, most new laws only take effect when they are actually passed. Businesses incur costs in getting ready for and implementing changes.
In addition the Commonwealth government can find it hard to implement changes which need the co-operation of the States even when COAG has agreed to the changes in principle. Consumer credit and consumer protection policy reforms are examples of this process and what might happen if policy changes are not co-ordinated .
Consumer credit reform
Nearly a year ago, the Minister for Superannuation and Corporate Law, Senator the Hon Nick Sherry, announced a $71 million National Consumer Credit Action Plan for single, standard, national regulation of consumer credit for Australia.
He has now announced that draft bills are expected by the end of April with introduction into Parliament by mid-year. The legislation will be passed by September with licensing to commence by 1 January 2010.
The new regime will be implemented by two draft bills: the National Consumer Credit Protection Bill and the Corporations Amendment Financial Services Modernisation Bill.
The first bill will contain the new national consumer credit code, which sets the framework for the regime; responsible lending conduct provisions (which will include an assessment of the borrower's capacity to repay the credit being offered); licensing of credit providers and greater enforcement powers for ASIC to police the new regime.
The second Bill will address margin lending, trustee companies and debentures.
At the request of the States and Territories, the Commonwealth has agreed to defer full passage of both bills until September to allow the states to pass their relevant referral legislation in time.
The second phase of consumer credit reform will be rolled out in 2010. During this phase, the government will consider possible further rules to regulate specific lending practices, including credit card limit extension offers, deceptive advertising practices and other fringe lending issues.
Australian consumer protection law
Meanwhile Assistant Treasurer Chris Bowen has announced that the national consumer protection law which was agreed between the Commonwealth and the states in 2008 will be fast tracked with a bill to be introduced by June 2009 with commencement on 1 January 2010.
The reforms have three key elements:
• the development of a consumer law to be applied both nationally and in each State and Territory, which is based on the existing consumer protection provisions of the Trade Practices Act 1974, and which includes a new national provision regulating unfair contract terms and new enforcement powers;
• the implementation of a new national product safety regulatory and enforcement framework, as part of the national consumer law; and
• enhanced enforcement cooperation and information sharing mechanisms between national and state and territory regulatory agencies.
The Government undertook to maintain consistency between the Australian Consumer Law’s generic provisions and the consumer (or investor) protection provisions in credit and financial services laws, to the extent that it is practicable to do so.
Nevertheless there will be an overlap between the two sets of laws, especially in the area of unfair contracts.
Unfair contract terms are those that cause a significant imbalance in the parties’ rights and obligations arising under a contract and are not reasonably necessary to protect the legitimate business interests of the supplier. They are prevalent in standard form contracts.
Particular unfair terms that will be banned include:
• Unreasonable flat/fixed early termination fees and those requiring the paying out of the contract; and
• Terms requiring consumers to pay more than suppliers’ reasonable enforcement costs reasonably incurred.
Other proposals
COAG’s Business Regulation and Competition Working Group has recently published its 2009 Annual Report Card on progress towards a "seamless national economy".
It includes a useful snapshot of the current financial services regulatory landscape and timetable for change.
In addition to the consumer reforms discussed already, the report includes discussion of:
• Personal Property Securities
• Standard Business Reporting
• A National Electronic Conveyancing System
• Directors’ Liability
• Other consumer credit reforms (such as pay-day lending, credit cards, store credit, investment and small business lending, and personal loans).
It will be interesting to see if and when all of these proposals become law.
