The Financial Services Royal Commission has published a Treasury Paper on Reforms to Consumer Lending which it requested.

The paper gives an overview of the changes to the regulation of consumer lending in Australia since 2007.

It highlights a shift away from a consumer protection framework based on disclosure and conduct obligations to a more interventionist approach targeting specific credit lending practices and credit product features.

It also notes that reforms are being introduced to improve the efficiency and level of competition in consumer lending, with a goal of driving better pricing, enhanced access to finance and new products and services.

The paper observes that while the key reforms to consumer lending since 2007 have occurred through legislation, reforms have also occurred through legislative instruments and regulatory guidance issued by ASIC and the Australian Prudential Regulation Authority (APRA).

It also summarises reforms which are currently being progressed:

• changes to credit card regulation in the Treasury Laws Amendment (Banking Measures No. 1) Act 2018;
• ASIC’s determination of the period for repayment of the credit limit on a credit card – under new s160F of the National Consumer Credit Protection Act 2009;
•  Exposure draft legislation relating to the consumer lending laws dealing with small amount credit contracts and consumer leases (SACC providers and lessors who provide consumer leases hold credit licences. Businesses which are credit licensees only are not within the definition of financial services entities in the Commission’s Terms of Reference);
• Exposure draft legislation for a product intervention power which will allow ASIC to take direct action to intervene in the sale of products, including credit products, where it identifies a risk of significant consumer detriment;
• Exposure draft legislation for separate design and distribution obligations intended to ensure financial products are targeted and sold to the right consumers.(The design and distribution obligations do not apply to credit products which are regulated by the responsible lending obligation.);
• Exposure draft legislation to require the four major banks to share comprehensive credit information with credit reporting bodies by 1 July 2018;
•  the Review into open banking in Australia

It is likely that the Commission will make recommendations for further reforms as a result of its hearings on home loans, car loans and credit cards.

The Commissioner has made it clear in observations at the hearing that he will be considering:
• how loans are sold, including branding;
• sales incentives and bonuses as drivers of behaviour;
• how banks implement responsible lending;
• whether retail mortgage advice should be regulated in the same way as financial advice;
• monitoring of fraud and breaches;
• how banks respond to problems;
• why bad news takes so long to travel up to boards;
• the role of whistleblowers;
• the length of time to report breaches to ASIC;
• the length of time to fix mistakes;
• record keeping;
• the penalties given to bank staff guilty of dishonesty.