The Financial Sector Reform (Hayne Royal Commission Response – Protecting Consumers (2019 Measures)) Bill 2019 has been introduced into the House of Representatives.

The Bill responds to four recommendations from the Financial Services Royal Commission including:

• Recommendations 1.2 and 1.3 – requiring mortgage brokers to act in the best interests of consumers when providing consumer credit assistance; reforming mortgage broker remuneration by requiring the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount; banning campaign and volume-based commissions and payments; and capping soft dollar benefits. These measures will apply from 1 July 2020.
• Recommendation 4.2 – ensuring that the consumer protection provisions of the ASIC Act apply to funeral expenses policies. The change will apply to funeral expenses policies from the day after the Bill receives Royal Assent.
• Recommendation 4.7 – banning unfair contract terms in standard insurance contracts. This will apply to new, renewed and varied insurance contracts from 5 April 2021 which is consistent with the commencement of the Design and Distribution Obligations provisions in the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019.

Mortgage brokers
The Bill amends the Credit Act to require mortgage brokers to act in the best interests of consumers and address conflicted remuneration for mortgage brokers.

The key features of the new law are:

• mortgage brokers must act in the best interests of consumers in relation to credit assistance in relation to credit contracts;

• where there is a conflict of interest, mortgage brokers must give priority to consumers in providing credit assistance in relation to credit contracts;

• mortgage brokers and mortgage intermediaries must not accept conflicted remuneration;

• employers, credit providers and mortgage intermediaries must not give conflicted remuneration to mortgage brokers or mortgage intermediaries; and

• the circumstances in which these bans on conflicted remuneration apply are to be set out in the regulations.

Unfair insurance contracts
The Bill extends the existing protections of the unfair contract terms regime under the Australian Securities and Investments Commission Act 2001 (ASIC Act) to insurance contracts governed by the Insurance Contracts Act 1984.

There are two key components in the Bill. First, the Bill amends the Insurance Contracts Act 1984 to enable the unfair contract terms regime under the ASIC Act to apply to insurance contracts covered by the Insurance Contracts Act 1984. Secondly, the Bill amends the ASIC Act to tailor the existing unfair contract terms regime in its application to insurance contracts.

The Bill will amend the ASIC Act to exclude terms that set the quantum of the excess or deductible in an insurance contract from the unfair contract terms regime as long as they are presented transparently.

Funeral expenses policies
Section 12BAA of the ASIC Act is amended to expressly specify that funeral expenses policies (described as funeral expenses facilities) are not funeral benefits for the purposes of the Act. The amendments do not impact the treatment of prepaid funerals which continue to operate as funeral benefits.