2.1
This chapter summarises the views held by stakeholders on the provisions of the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 (the bill). This chapter is intended to provide an indicative, though not exhaustive, account of the key issues raised and examined during the committee's inquiry.
2.2
Following a call for submissions, the committee received 112 submissions from interested parties.
2.3
The discussion is separated into the key high-level changes the bill makes: reforming the responsible lending obligations; extending the best interests obligations; and amending the protections for small amount credit contracts (SACCs) and consumer leases.
Responsible lending obligations
Support for the reforms
2.4
Inquiry participants representing the Australian banking industry were supportive of the government's proposed reforms to the responsible lending obligations. For example, the Australian Banking Association (ABA) stated that the reforms would retain customer protections whilst improving the customer experience through streamlined credit application and information collection processes. Further, it stated that the reforms would 'simplify and modernise the regulatory landscape'.
2.5
Articulating the ABA's position, Ms Anna Bligh, the association's chief executive officer, in verbal evidence provided to the committee, stated the following:
This reform means less time and paperwork for borrowers, not less scrutiny for lenders. It means less reliance on obscure discretionary spending during the loan assessment and more attention on the factors that count, like income expenses and debt. Banks know from decades of experience that Australians are reliable and responsible borrowers. They adjust their lifestyle to repay their loans, and when things go wrong it is rarely, if ever, due to spending habits but more to major life events that impact income, such as job loss, illness or divorce. That's why this change makes sense.
2.6
Aligning with the above, the industry association representing Australia's mutual banks, credit unions, and building societies, the Customer Owned Banking Association (COBA), stated that the current responsible lending obligations are not well drafted, and that they are 'elaborate and prescriptive'. COBA's chief executive officer, Mr Michael Lawrence, made a number of further observations to the committee during his evidence. He submitted that:
…the requirements are specific and detailed and contraventions are subject to very significant penalties; that the regime imposes prescriptive procedural obligations on the credit provider; that it is an elaborate statutory regime; and, finally, that identifying the proper construction of key provisions is not straightforward, and civil penalty provisions should be interpreted on the basis that it is expected that the obligation imposed would have been identified clearly and unambiguously.
2.7
COBA also submitted that the reforms would remove regulatory duplication for authorised deposit-taking institutions (ADIs) and enhance competition, whilst also retaining multiple consumer protection regimes.
2.8
Representatives of the property sector were also supportive of the reforms. The Property Council of Australia stated that credit approval waiting times for first home buyers has increased from several weeks to several months, and that the responsible lending obligations have resulted in many Australians missing the opportunity to obtain grants under the Australian government's HomeBuilder scheme.
2.9
The Housing Industry Association (HIA) was also concerned about the ability of first home buyers to access credit. Although noting that the credit reforms implemented over the last decade have generally improved lending practices and the quality of credit, the HIA submitted that they have not come without a cost. On this point, the HIA stated that:
[a] consequence of the reforms that improved credit quality is that there is now a greater disincentive for lenders to lend to higher risk borrowers, which includes first home buyers. Far more aspiring first home buyers are unable to access the credit they need. This is contributing to the drop in home ownership rates amongst younger age cohorts.
2.10
Master Builders Australia stated that they believe the proposed amendments would deliver a 'smoother and more timely flow of credit to the housing market', whilst also retaining important safeguards to protect consumers. They also indicated their belief that the current laws are unbalanced and are detrimental to consumers and the broader economy.
2.11
The peak national body representing Australian mortgage brokers, the Mortgage and Finance Association of Australia (MFAA), supported the reforms. In their submission to the inquiry, they stated that:
[t]he MFAA welcomes the [bill] and considers it will ultimately lead to stronger customer outcomes, as lenders and brokers will have a clearer understanding of their individual responsibilities, including a higher legal duty for brokers. It will also enable a more efficient flow of credit, whilst maintaining customer protections.
2.12
The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) was also supportive of the reforms. In its submission it highlighted that access to capital is an ongoing problem for small business and that, notwithstanding that the responsible lending obligations apply only to consumer lending, banks commonly utilise a one‑size‑fits‑all approach, resulting in unnecessary burden on small business. In conclusion, ASBFEO stated that:
[l]ending to small business should be clear, simple and safe. Unfortunately, this is not always the case and we hope these reforms will help address the issue.
2.13
Mr Daniel Popovski, a senior adviser from the Australian Chamber of Commerce and Industry (ACCI), further articulated this issue in his evidence to the committee. Supporting the reforms, he stated the following:
Following the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, many banks have erred on the side of caution and applied responsible lending obligations for consumers to small businesses. Banks have noted that these standards are applied because there is often a blurred line between personal and business finances for small business owners. These standards have reportedly continued to be applied by banks, despite ASIC reiterating that these obligations should not apply to lending for business purposes. What we [ACCI] find is that because of the regulatory overlap that these reforms are trying to circumvent, banks are actually becoming overly cautious and applying the laws where they are not fit for purpose. They're actually applying the laws where a business owner might have blurred lines between their personal and business spending behaviour.
Concerns with the reforms
2.14
A number of inquiry participants from a cross‑section of the community raised concerns with the government's proposed reforms to the responsible lending obligations. Key issues raised by these individuals and groups are discussed below.
Reform rationale
2.15
A number of submitters questioned the government's rationale for reforming the responsible lending obligations. For example, Legal Aid Queensland (LAQ), in its submission to the inquiry, stated that there is no evidence that consumers are encountering difficulties gaining access to credit.
2.16
To support their statement, LAQ referred to prior evidence provided by the Treasury to the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry (the Banking Royal Commission), and by the Australian Prudential Regulation Authority (APRA) and the Commonwealth Bank to two parliamentary committees. LAQ noted that this evidence indicated that there is an abundant supply of credit in Australia; the responsible lending obligations have not materially affected the flow of credit; and that adhering to the existing laws would likely enhance, rather than detract from, macroeconomic performance.
2.17
Ms Amy Auster, a chief advisor within the Markets Group of the Treasury, accepted that credit has grown overall; however, she noted that this growth has been uneven throughout the economy, and that the proposed reforms are not necessarily about increasing the overall supply of credit, but are also aimed at reducing credit assessment timeframes. Specifically, she said the following:
Credit to housing is growing very strongly, personal lending products are shrinking rapidly and credit to business is relatively stagnant. So, while you have credit growing overall, the distribution of that credit through the economy is pretty varied.
In relation to this specific proposed change in legislation, we make the point in the regulatory impact statement that it's obviously very difficult to attribute a change in growth of overall credit to one regulatory or legal shift, but this particular proposal is about addressing the time and effort that it takes to receive approval on a credit assessment or to undertake a credit assessment and have that come to a decision. It is not necessarily about the overall supply of credit.
2.18
Reflecting on the argument that responsible lending obligations are prescriptive and have resulted in a 'one-size-fits-all' approach, Mr Ben Slade, the chair of the Australian Consumer Law Committee of the Law Council of Australia (LCA) said the following:
We understand that the primary reason, the pressure, is that ADIs complained that the responsible lending obligations are prescriptive and impose burdensome and unnecessary processes—the one-size-fits-all argument. We don't understand why it has got to that in practice, unless it is that the ASIC guideline RG 209 is overly prescriptive, or at least the interpretation of RG 209 by the lending institutions has turned into something overly prescriptive, because it's not what chapter 3 of the [Credit Act] imposes. It doesn't impose a one-size-fits-all burden—in fact, on the contrary. The Full Federal Court has said that all that chapter 3 does is impose a requirement on lenders to not make unsuitable loans and to have a system in place to assess the granting of loans to ensure that the loans are 'not unsuitable'.
2.19
In its submission, the LCA also highlighted that the bill makes permanent changes to Australia's consumer credit protection framework to address a temporary issue, the COVID-19 pandemic, and that it is concerned with the long-term consequences of such an approach. On this issue the LCA stated that:
[w]hile it is appreciated that the COVID-19 pandemic has changed the economic circumstances in Australia, the Bill does not represent a temporary adjustment to exceptional conditions. Rather, it seeks to make permanent changes that will not expire when the crisis has passed. The Law Council is concerned that the reforms proposed under the Bill may impact consumers in the long term…
Assessing unsuitability
2.20
A number of submitters stated that removing the responsible lending obligations was in direct opposition to the recommendation made by Commissioner Hayne, in the final report of the Banking Royal Commission, that the National Consumer Credit Protection Act 2009 (the Credit Act) should not be amended to alter the obligation to assess unsuitability.
2.21
For example, in a joint submission to the inquiry, Care and the ACT Council of Social Service claimed that the proposed amendments contradict recommendation 1.1 of the Banking Royal Commission. This was also emphasised by Good Shepherd Australia New Zealand which stated that the reforms are contrary to the commission's findings and weaken responsible lending obligations.
2.22
In response to the suggestions that the proposed reforms go against recommendation 1.1 of the Banking Royal Commission, the ABA and COBA indicated that these claims misrepresent what the commissioner said. The ABA highlighted the commissioner's recommendation was made in response to a proposal by consumer advocacy groups to amend the Credit Act to require lenders to determine whether a loan contract was 'suitable', as opposed to 'unsuitable', for a consumer. On this point the ABA said:
The Commission did not give consideration to the question of whether the regulatory landscape facilitates or hinders the efficient supply of credit. Nor did it make any recommendations to the effect that an elected government should never review or revise the regulatory landscape when economic conditions change.
It is a mischaracterisation of the Commissioner’s recommendation to say otherwise.
2.23
Reflecting on this issue, COBA concluded that the commissioner's recommendation to not alter the obligation to assess unsuitability did not amount to an endorsement by the commissioner of the responsible lending obligations.
Government consultation
2.24
Ms Amy Auster articulated to the committee the approach used by the Treasury, APRA, and the government following the announcement of the reforms. She said the following:
Following the [government's] announcement, Treasury undertook consultation that included over 20 meetings, leading to direct contact with more than 30 stakeholders and representative groups.
In November [2020], Treasury consulted on the draft legislation package, including the bill, the non-ADI standard and supporting changes. Over 50 submissions were received. Changes made to the bill prior to the introduction into parliament reflect this feedback. The government and APRA have released draft standards that will govern the regulatory practice for non-ADIs and ADIs in respect of credit assessments.
2.25
Notwithstanding the above approach, the committee received evidence raising concerns regarding the level of community consultation on the proposed reforms, and how the current government's approach differed markedly from that taken prior to the introduction of the responsible lending laws.
2.26
For example, Ms Karen Cox, the chief executive officer of the Financial Rights Legal Centre, stated that she first heard about the proposed changes the night before they were announced by the government. She contrasted this to her prior experience leading up to the introduction of the existing laws which involved 'extensive consultation' with all major lending industry bodies, broker industry bodies, and lenders.
2.27
The financial counselling sector, in a joint submission, stated that the government is overturning these laws with 'very little thought and with very little time for stakeholders to respond'. To support this claim, they noted that the proposed reforms were only publicly announced on 25 September 2020 with an original commencement date of 1 March 2021; and that the draft legislation was released for comment on 4 November 2020, with responses due by 20 November 2020.
Protections for the vulnerable
2.28
Consumer groups who responded to the inquiry expressed concern that removing the responsible lending obligations could reduce protections for vulnerable community members. For example, the financial counselling sector submitted that the removal of the requirement that licensees make reasonable inquiries about a consumer's requirements and objectives could encourage over‑commitment and that consumers may end up with loans they cannot afford and that do not meet their needs.
2.29
Commenting on the importance of these protections, the chief executive officer of the Consumer Action Law Centre (CALC), Mr Gerard Brody, said the following to the committee:
The existing law has, as part of the suitability assessment, two parts: the lender has to make an assessment of (1) whether repayments will cause a substantial hardship; and (2) whether the loan is in line with the borrower's requirements and objectives. That part in particular is being pulled out entirely under the government's proposal in this bill. The risk associated with that is that people will be given an inappropriate product for their circumstances.
2.30
The Economic Abuse Reference Group highlighted the importance of responsible lending in preventing economic abuse. It stated the following in its submission to the inquiry:
When responsible lending is done correctly it can help to prevent economic abuse because the lender will make reasonable inquiries about each applicant’s financial position and assess the requirements, objectives and the financial situation of each borrower. This process is an effective mechanism to expose undue influence, imbalance of bargaining power and the underlying dynamic behind economic abuse.
2.31
In her verbal evidence to the committee, Ms Laura Bianchi from the Redfern Legal Centre, a member of the Economic Abuse Reference Group, stated her concerns regarding the removal of responsible lending obligations and articulated their role in preventing abuse. She said:
Economic abuse can take various forms, but most relevant to this bill are cases which involve a person using coercion or fraud to make their partner liable or jointly liable for a credit contract under which their partner derives no benefit. That debt trap is a common barrier to a victim-survivor remaining in or returning to a violent relationship. Retaining the current responsible lending obligations is vital to prevent debts from economic abuse originating and to provide individual remedies when lenders wilfully or inadvertently allow their credit products to be used to perpetrate economic abuse.
2.32
However, Mr Michael Lawrence from the Customer Owned Banking Association clarified that this bill is not about winding back on consumer protections. Rather, it is about removal of duplications within the legislation while still affording substantial means of redress for consumers who need it:
….what we're talking about here in terms of the bill is the removal of duplication without the consumer losing any of their ability to have any sort of redress.
With this bill, under the credit act, there are still requirements to act honestly and fairly. There are requirements around unfair contracts, unconscionable conduct and misleading and deceptive conduct.
But could I add that it's also this cost burden, because, at the end of the day, the more that costs are layered on top of an organisation, the consumer pays for it. So anything that can remove it, whilst the consumer is still protected, has to be a positive thing for the consumer.
Penalties and redress
2.33
The Law Council of Australia, a group of legal academics, and various consumer groups, amongst others, voiced their concern that removing the civil and criminal penalties, and various consumer remedies, associated with the responsible lending obligations, would result in reduced incentives for lenders to comply with good lending practices.
2.34
The Indigenous Consumer Assistance Network stated their concerns succinctly as follows:
The Bill removes civil penalties for unsuitable lending and instead provides that civil penalties be imposed where lenders have engaged in ‘repeated’ or systemic breaches of the standards set by the Australian Prudential Regulatory Authority (APRA) (for lending by banks) and the Ministerial Standards (for non-bank lending). The intention is clearly to remove rights regarding civil penalty provisions from the hands of individual consumers as it will be all but impossible for an individual to first, identify that the unsuitable loan that they obtained is indicative of broader systemic or repeated practices by the lender and second, prove this.
2.35
The Law Council of Australia submitted that consumer remedies are an essential part of promoting compliance with legislative requirements, and raised concerns that the proposed reforms would deprive consumers of individual remedies if they are victims of unsuitable lending. Specifically, it stated the following:
Sections 179 to 184 of the [Credit Act] empower courts to grant remedies, including injunctions and compensation orders, to prevent or compensate for loss or damage suffered, or likely to be suffered, by consumers as a consequence of conduct of licensed credit providers and credit assistance providers in breach of the [Credit Act]. Removing [the responsible lending obligations] of banks would mean that these remedial powers of the courts would no longer apply to decisions taken by banks about loan suitability.
2.36
Similarly, a group of consumer law academics noted that the removal of responsible lending obligations would reduce opportunities for legal action and, hence, impact the ability to clarify the expectations of lenders under the new regulatory regime. They said:
As a consequence of [the] effective removal of the [responsible lending obligations] from the [Credit Act], and lack of opportunity for legal action, there will be no opportunity to use litigation to clarify the scope of the expectations of lenders. The fact that the vast majority of disputes at [the Australian Financial Complaints Authority] are resolved by negotiation also results in a lack of transparency about the expectations of lenders, which in turn makes it difficult for consumers to know whether standards are below what is required.
2.37
In its submission to the inquiry, ASIC stated that it was currently unclear what direct remedies would be available to consumers who have complaints about assessments and credit decisions made by ADIs under the new regime.
2.38
However, COBA disagreed with this perspective:
Borrowers will continue to be protected by multiple consumer protection regimes. The reforms will not remove the ability of consumers to dispute transactions or obtain redress from their lender. Lenders will be required to undertake reasonable credit assessments using appropriate systems, policies and procedures in place to make responsible inquiries and appropriately evaluate credit applications. They will be required to assess whether the consumer will be able to comply with the financial obligations under the contract without substantial hardship. Lenders will continue to be required to maintain appropriate internal dispute resolution processes. Consumers will also continue to receive free redress from AFCA in the event that disputes cannot be resolved directly with the consumer's financial institution.
2.39
Similarly, the chief executive of the ABA submitted that '[t]he government's reforms in this bill do not affect the rights of customers to bring a lending complaint to AFCA', and that the EM makes this clear.
2.40
Further, Treasury clarified the role of AFCA and the process for redress for consumers who need it:
AFCA is the financial services dispute resolution and redress authority. Consumers can go and do go to AFCA to make complaints. Those get resolved, and consumers receive redress. There is no plan to change any aspect of that under this legislation…. The average time for AFCA to close banking and finance related complaints in the last year, including RLO complaints, is about 62 days and it's free. That tells you why AFCA is so much more attractive as a proposition to consumers than, for example, going through the court…By and large, in the world of responsible lending obligations, the vast, vast majority of issues end up with AFCA and not in the courts.
Avoidance
2.41
A number of stakeholders raised concerns regarding the differing protections afforded to consumers who borrow up to $2 000, compared to those who borrow larger amounts. For example, Good Shepherd said this approach may create an incentive for credit providers to 'upsell' potential borrowers to a higher loan amount so that they would no longer be required to meet the responsible lending obligations.
2.42
Similarly, WEstjustice were also concerned that the combination of removing the responsible lending obligations for loans over $2 000, and enhancing protections for consumers of loans up to $2 000, could inappropriately promote larger loans. It believes such an outcome would have 'perverse consequences' where customers are no longer protected by the responsible lending obligations and their associated legal remedies.
2.43
Another concern of inquiry participants was the small business purpose exemption, whereby once a lender identifies that part of the credit is for a small business purpose, the obligations in the new non-ADI standard are switched off. Notwithstanding the safeguard that the small business purpose must not be minor or incidental to the overall purpose of the credit, the financial counselling sector believes that this will encourage 'sham' business lending.
Twin peaks framework
2.44
Australia's financial regulation is founded on the 'twin peaks' model whereby the key components of financial regulation are primarily split between ASIC and APRA. Under this model, APRA is the financial safety regulator, focusing on financial soundness and stability, and ASIC is the conduct regulator responsible for regulating companies, markets, and enforcing consumer protections.
2.45
In his opening remarks to the committee, Mr Sean Hughes, a commissioner of ASIC outlined the commission's view of the future and where it will be focusing its efforts. He said the following:
In terms of the approach going forward: our position will be that we will not be responsible for administering responsible lending obligations in relation to ADI lenders, that there will be a different regime in relation to the regulation of credit by non-ADI lenders and that we will be responsible for regulating small-amount credit contracts and other low-limit loans, both by non-ADI lenders and other providers. So our role will be more focused in relation to the non-ADI and small-amount credit contract providers.
2.46
In her evidence to the committee, Ms Renee Roberts, an executive director at APRA, explained the authority's role as '[ensuring] that there is confidence in the safety of individual banks and in the financial stability of the system overall'. She indicated to the committee that the authority emphasises systemic lending issues at an institutional level, rather than having a direct focus on outcomes at an individual loan or customer level, and that it is not planning any material changes to its standards and guidance on the basis of the proposed reforms.
2.47
Given the changes within the bill, inquiry participants were concerned that the reforms dismantle the existing twin peaks regulatory regime. The CALC, in a joint submission with a number of other organisations, stated that the bill would confuse and undermine the existing model, as APRA would now be required to act as both a prudential regulator for all ADIs and as a conduct regulator for the lending activities of those institutions.
2.48
CALC was also concerned that the new approach may result in the inconsistent application of similar laws by ASIC and APRA, as CALC believes it unlikely that both organisations would apply identical compliance and enforcement tools. In conclusion, the centre stated:
This overlap of conduct and prudential oversight will be confusing and inefficient. It will not be competitively neutral, and it will create conflicting regulatory objectives for APRA.
2.49
A joint submission by the peak bodies representing the financial counselling sector raised concerns that the reforms would reduce the effectiveness of both regulators and, as a result, consumers would 'fall through the gap'. The counsellors also believe that, as APRA is focused on financial system stability and the protection of depositors, it is unlikely to take enforcement action if consumers are harmed by lending practices.
2.50
As noted by the Treasury, however, prudential regulation and conduct are not distinct, but operate along a continuum:
…there is a continuum between what constitutes a prudent ADI and good prudential regulation and the conduct of the entity and how prudent lending and conduct intersect. Subsequently APRA, as you would have heard, now administers the BEAR regime, which is another good example of where conduct and prudential standards are, in a sense, becoming more intertwined. RLOs, which originally started as a conduct matter, essentially became more strongly reflected in APS 220, which is prudential guidance, and so ADIs now have a prudential standard and they also have a conduct standard, which by and large have the same requirements on the banks, on the ADIs, but with different language and responding to two different regulators in respect of those requirements.
Best interests obligations
2.51
There was general support for the extension of the best interests obligations from mortgage brokers to other credit assistance providers. For example, CPA Australia stated that:
[t]he extension of the best interests duty from only mortgage brokers to all credit representatives is one measure that will enhance consumer protections. The current principles-based approach will help support and positively influence the conduct of all credit representatives to ensure they prioritise the interests of their clients over those of their own, or other relevant associates.
2.52
The Economic Abuse Reference Group also expressed its support for this reform, noting in their submission that they support the 'general principal and standard of behaviour' contained within these obligations. Notwithstanding this, the group also submitted to the committee that the extension of these obligations should complement, not replace, the existing responsible lending obligations, as they do not consider, or resolve conflicts between co-borrowers or guarantors.
Small amount credit contracts and consumer leases
2.53
Evidence provided to the committee indicated general support for improving protections for consumers of SACCs and consumer leases; however, a significant number of inquiry participants raised key concerns with the specific reforms being proposed by the government within the bill.
Support for the reforms
2.54
The Legal Services Commission of South Australia welcomed the proposal to enhance protections for consumers of SACCs and consumer leases. It noted that the financial harm of these products is well known and that capping payments and extending protections to all consumers would go some way in reducing this harm.
2.55
The Salvation Army also endorsed a number of the reforms, such as requiring equal repayments and prohibiting certain unsolicited contact by lenders, noting that they would provide safeguards against various predatory practices.
2.56
The Consumer Household Equipment Rental Providers Association (CHERPA) stated that schedules 3 and 6 of the bill, which relate to consumer leases, would provide essential additional consumer protections for recipients of consumer leases.
2.57
CHERPA also submitted that the government has set these additional protections at levels which would preserve the consumer lease industry's viability; prevent financial exclusion; and avoid placing excessive financial burdens on consumers. Specifically reflecting on the proposed protected earnings amount within the bill, it stated the following:
This amount matches CHERPA’s broad industry experience in determining general affordability of consumer leases and is adequate in the vast majority of cases to both prevent financial exclusion in consumers needing to secure essential household items, while mitigating any excessive financial burden to those consumers.
2.58
CHERPA also highlighted the importance of a nationally consistent approach to the regulation of its industry, indicating that if the Australian Government fails to act then state and territory parliaments would. CHERPA stated that this would lead to a 'patchwork of inconsistent government approaches throughout the country…to the determinant of the national economy, business, and consumer stakeholders'.
2.59
Aspire 42, a business operating within the leasing industry, also indicated its support for a consistent national approach to regulation, stating in its submission that:
…it is imperative that the national approach to [consumer leasing] in the Bill is passed as quickly as possible to ensure consistently high levels of protection for [consumer leasing] customers across the country and prevent inconsistent legislation by states and the adverse consequence of that.
Concerns with the reforms
2.60
The National Credit Providers Association (NCPA) submitted that a number of the proposed reforms to the regulation of SACCs would not be in the interests of consumers, and would 'further disadvantage financially excluded Australians who are unable to access credit from a bank or who simply [choose] not to have a credit card'. It submitted that the bill would either make it harder, and up to 155 per cent more expensive, for many financially excluded Australians to qualify for a SACC; or disqualify them altogether.
2.61
Another concern of inquiry participants was that the enhancements to the protections for consumers of SACCs and consumer leases proposed by the bill do not reflect the recommendations made by the 2016 review of small amount credit contracts (the SACC Review). For example, WEstjustice, submitted that the proposed reforms to SACCs represent a 'missed opportunity' to make meaningful changes to protect low‑income earners and that they are a 'heavily diluted' version of the recommendations made by the SACC Review.
2.62
Similarly, the NILS Network of Tasmania, a community‑lending service based in Tasmania, also expressed its disappointment with the provisions of the bill, stating that they have been 'weakened' and 'watered down', and will not protect consumers from predatory practices.
2.63
The Indigenous Consumer Assistance Network, an organisation providing education, advocacy, and counselling services in north and far‑north Queensland stated that:
[t]he reforms proposed in the Bill fall so far short of what was recommended in the SACC Review that we are unable to support them. Far from welcoming the proposals in the Bill regarding Small Amount Credit Contracts and consumer leases, we see these as an affront to the people who most need these laws changed.
2.64
A number of submissions raised specific concerns regarding the protected earnings amount; the cost cap for consumer leases; and the prohibition of door‑to‑door selling and unsolicited communications. These specific issues are discussed below.
Protected earnings amount
2.65
In its joint submission, the CALC submitted that the protected earnings amount reforms would not deliver on the recommendations made by the SACC Review. Specifically, it stated that the amount is double that recommended by the review and that:
[u]nder these laws, most people could still have up to 40% of their income taken to repay payday loans and consumer leases collectively. Doubling these limits will result in payday loans and consumer leases continuing to cause low‑income earners significant hardship.
2.66
Legal Aid NSW welcomed the introduction of the protected earnings amount reforms; however, it believes that the 10 per cent repayment cap for people receiving 50 per cent or more of their income from Centrelink should also apply to all low income consumers, such as those currently receiving a pension from the Department of Veteran Affairs.
2.67
Cash Converters submitted that the proposed reforms to the protected earnings amount would require it to decline many customers who would otherwise qualify for a SACC, and, for those who remain eligible, the cost of their loan would increase and the amount they could access would be reduced. Cash Converters also provided the inquiry with the results of a survey it conducted of reportedly 12 700 of its customers, noting that 93 per cent of respondents disagreed with the proposed changes and 89 per cent believe they would significantly impact on their ability to budget.
Consumer lease cost caps
2.68
In their respective submissions, Good Shepherd and the ACTU both raised concerns regarding the proposed extra charges which the bill includes in the consumer lease cost cap. They noted that the SACC Review recommended a 4 per cent monthly cost cap for consumer leases, calculated on the retail price of the leased good; however, the bill permits 4 per cent monthly fees calculated on the base price plus delivery and installation fees.
2.69
Both Good Shepherd and the ACTU also highlighted that the bill permits consumer lease providers to charge an extra 20 per cent establishment fee in addition to the cost cap that was recommended by the SACC Review. Good Shepherd noted that this would likely increase, rather than prevent, harm.
Door-to-door selling and unsolicited communications
2.70
Although there was general support for the prohibition on unsolicited direct communications, a number of inquiry participants raised specific concerns with the efficacy of the proposed amendments. These are discussed below.
2.71
CALC was concerned that the reforms prohibiting unsolicited selling of consumer leases does not deliver on the intent of recommendation 18 of the SACC Review. Specifically, it states that due to the 'except by prior arrangement' exemption, the proposed provision is unlikely to stop door‑to‑door selling. It submits that this is a 'significant loophole' and will allow considerable scope for consumer lease providers to circumvent the prohibition.
2.72
Legal Aid NSW supports the prohibition; however, it believes the measure is too restrictive and should not be limited to a person's place of residence. Aligning with the SACC Review, it submitted that the prohibition should include situations where canvassing is done from vehicles outside, or in proximity to, a person's residence.
Committee view
Responsible lending obligations and best interests obligations
2.73
The committee notes that a well-functioning credit market is essential for economic growth generally, and for Australia’s recovery from the COVID‑19 pandemic specifically. The committee agrees that the current consumer credit protection framework is potentially overly prescriptive and that regulatory duplication between the responsible lending obligations, under the Credit Act, and the prudential standards issued by APRA could be an issue.
2.74
The committee is concerned by evidence that the regulatory framework has resulted in consumers being unable to access credit in a timely manner to buy their first home or to obtain a grant under the HomeBuilder scheme. The committee is also concerned by the invasive and onerous nature of the inquiry and verification processes required under the existing responsible lending obligations.
2.75
The committee notes the key concerns with the proposed reforms raised by inquiry participants, both through their submissions and at the two public hearings held in Canberra. The committee is of the view that these regulatory changes will not undermine consumer protections and that the principal of 'responsible lending' is deeply embedded in Australia's broader regulatory framework, which credit providers and credit assistance providers must still operate within and comply with.
2.76
Additionally, the committee notes the vital role that AFCA plays in the efficient resolution of complaints and redress for consumers who need it. It is a free, fast and independent dispute resolution scheme, which improves the level of support and outcomes for consumers, especially those who are in substantial hardship. The committee suggests that the government continue to raise awareness of and promote the dispute resolution services available through AFCA, with an ongoing focus on continual improvements of AFCA’s processes and services.
2.77
The committee welcomes the extension of the best interests obligations, which currently apply only to mortgage brokers, to other credit assistance providers, and the enhancement proposed by APRA to its credit risk management prudential standard (APS 220) requiring ADIs to assess an individual borrower's capacity to repay a loan without substantial hardship. The committee also notes similar arrangements are expected to be put in place for non‑ADIs through a legislative instrument.
SACCs and consumer leases
2.78
The committee is acutely aware of the harm that unsuitable SACCs and consumer leases can cause vulnerable members of the community, and strongly supports the proposed enhancements to consumer protections for these products.
2.79
In addition to protecting vulnerable members of the community, the committee believes the reforms proposed by the government will promote financial inclusion through the introduction of a new protected earnings amount and a cap on costs for consumer lease. The committee believes these reforms will reduce the risk that consumers are unable to pay for their basic needs, or will default on their other commitments.
2.80
The committee recommends the bill be passed.
Senator Slade Brockman
Chair
Liberal Senator for Western Australia