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Thursday, 20 August 2009
Page: 8483


Mr PEARCE (10:04 AM) —It is wonderful to rise in the House on this beautiful winter morning in Canberra to speak on important bills such as the National Consumer Credit Protection Bill 2009, the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009 and the National Consumer Credit Protection (Fees) Bill 2009. The national consumer credit package of bills represents considerable reform to the regulation of credit in Australia. The new uniform credit legislation is a worthy concept. It really does make sense, in my view, to have all forms of credit and financial services federally regulated. Payday lenders, finance companies and mortgage brokers will become federally licensed entities. For business, particularly those that are engaged in the provision of credit, there will be some significant adjustments required. As with any such changes, compliance can be particularly frustrating for those businesses that are required to adjust. There are quite a number of adjustment issues that Australian businesses will have to contend with. The onus is on the government to be responsive to industry and business needs in the implementation of this legislation. While some aspects of the legislation will require the immediate response of business, some provide for reasonable time frames for transitional arrangements.

There are four key objectives of the package of bills. First is the creation of a national credit law with licensing arrangements. Second is the introduction of responsible lending provisions. Some of these provisions will start from 1 January 2010 and some others for some other entities will start from 1 January 2011. Third is the universal compulsory membership of external dispute resolution schemes for ADIs and for non-ADIs. Last is the introduction of a new national consumer credit code protection mechanism which replicates—and, indeed, replaces—the state based UCCC codes that have been in existence for some time. The primary bill was provided for public exposure in late April this year. On exposure it was clear that the drafted bill in its first incarnation did have significant problems within it. I note that there have been wholesale alterations to the bill before its presentation to the House. There were many changes, but the key changes to the original bill include setting back responsible lending provisions for authorised deposit-taking institutions. They now will not come into operation until 1 January 2011. Point-of-sale, or POS, retailers have been exempted for 12 months, subject to review. Arrangements for credit assistance were simplified, with some requirements that were duplicated removed.

So let me now go to the more substantive parts of the bill; firstly, the national credit laws and licensing arrangements. Under this bill, we will see the provision of one single uniform regime and oversight for credit which is to be administered by ASIC. ASIC will license providers and administer licence requirements. The process of licensing is to begin from November of this year. There will be a new licensing regime. It will be called the Australian credit licence or the ACL.

Licensed under the new regime will be brokers, financiers and credit intermediaries. More particularly, the type of credit activities to require licensing will be things such as credit contracts, credit services, consumer leases, mortgages and guarantees. ACL holders once licensed will be able to lend and collect money due under a credit contract and act as a broker or an intermediary, or provide assistance about a credit product. Credit guides will be compulsorily provided by the licensee and will disclose all applicable commissions, fees and charges. Certain financial institutions will be streamlined to the ACL process. This will include credit providers such as mortgage brokers in Western Australia, who have until now been operating under state licences.

Other institutions to be streamlined into the ACL process are current holders of the AFSL, the Australian financial service licence, who are already licensed to dispense or advise on credit under the existing legislative arrangements. For entities requiring two licences, an AFSL and an ACL, we have been assured that just one of those licence numbers will need to be displayed on licensing credit materials. Registration will begin in November and it will end in June next year. This will occur through ASIC, who are expecting between 5,000 and 12,000 applications for such licences. From our perspective, the coalition is focused on ensuring the licensing arrangements are not prohibitive for business, as these requirements are significant in the volume and the impact that they will have on the national marketplace.

A further concern which has been raised throughout the period of consultation has been the circumstances in which licences for providing credit may be provided. It has emerged that companies which provide loans to directors may be caught up in this legislation and would therefore require such a licence. As this circumstance surely does not fall within the intended scope or objectives of this new law, I ask and respectfully request that the government exempt companies which provide director loans in the same manner that they have exempted employees receiving loans from their employers. As I say, that exemption is in this bill.

Can I also raise the issue of debt collection, which has been raised throughout the consultation process. In the initial draft legislation of the bill, it captured the debt management industry under the new regime. Throughout the consultation and upon review by Treasury and the government, debt collection was given a 12-month exemption from the bill in order to enable discussions with all stakeholders to determine a more appropriate legislative treatment for the industry. That was debt collection; they were given an exemption. However, debt buyers were left in the legislation. The Australian Collectors and Debt Buyers Association have stated that they believe that debt buyers should also be treated in the same way as debt collectors and given a 12-month exemption from the bill, as neither of these aspects of the debt management industry actually involve the initial credit provision process. If you are going to exempt debt collection, it makes perfect sense, I think, to exempt debt purchasing or debt buyers as well. Again, I call on the government to take a common-sense approach in this area and extend that exemption to the debt-buying side of the debt management industry in Australia and consult with them throughout the next 12 months to ensure an appropriate response.

The second area is responsible lending. Due to start on 1 January 2010 for brokers and some lenders, and one year later for ADIs, the area of responsible lending is in my view where most potential problems for individuals and for businesses lie in this package of legislation. The provisions are designed to help consumers make better decisions and of course to use credit appropriately. There are two tests within the legislation that the loan provider must meet. ASIC will develop definitions of each for the purposes of the legislation. Those two tests are, firstly, that a loan’s suitability must be individually determined by the provider and, secondly, that the loan recipient’s capacity to repay the loan must also be assessed.

Industry sources tell me that of course these procedures are already followed as a matter of course when loan assessments are made. Most objective analysis of Australia’s banking system would concur that, for the most part, our financial institutions have been lending responsibly. Despite this, further consumer protection and transparency is indeed always welcome. The primary issues with the responsible lending provisions are their workability, particularly in terms of how our credit reporting system works in this country. Although the responsible lending provisions do not come into operation until 1 January 2011 for many providers, it still remains most unclear how responsible lending will actually operate without positive or comprehensive credit reporting.

As I mentioned earlier, Australia currently operates a negative credit reporting structure. This system provides information to credit providers on whether a borrower has defaulted on loans or been declared bankrupt, for example. Credit providers are actually denied access to available information on a borrower’s credit history on privacy grounds. So let me, therefore, pose a simple question: how can this responsible lending regime operate as intended if the credit provider is not entitled to view the whole picture of a borrower’s financial circumstances? How can you actually fully meet the two tests that I outlined earlier? From a practical and operational viewpoint, I think this is where the real difficulties exist with this legislation. The privacy lobby have been debating the merits of reforming credit reporting in Australia for some time. This discussion is subject to a review currently being conducted by the Special Minister of State. The privacy roundtable consultation has been considering our credit system since August of last year.

To provide some context: recently the Australian Law Reform Commission, the ALRC, examined the credit-reporting system. The ALRC provided some interesting insights which I think are very relevant for the purposes of this legislation. In its final report, which was called For your information: Australian privacy law and practice, the ALRC recommended that there should be some expansion of the categories of personal information that can be included in credit-reporting information held by credit-reporting agencies. The suggestions that they made included, for example, that the type of each current credit account opened—for example, whether it was a mortgage, a credit card or a personal loan—and the date on which each current credit account was opened should be made available, along with the credit limit of each current account and the date on which each current account was closed.

Given that the outcome of the review will be of very great and substantial importance to the workability of responsible lending as it pertains to these bills, we hope that this legislation is expressly considered in that roundtable process, as the responsible lending provisions in their current form do not appear to be entirely workable. The government has much work to do in this area prior to the start dates in 2010 and 2011, respectively. On behalf of the opposition I would again ask the government, respectfully, to fast-track the roundtable consultation process which is considering our credit system. The government must bear in mind that without reform in this area these provisions will not work as intended and indeed could be detrimental to consumers and, of course, our total banking and credit system.

From a further, practical viewpoint, most financial institutions freeze their systems over the Christmas break in order to withstand the level of increased transactions. As you would know, there is a very elevated transaction volume leading up to Christmas and after Christmas—during the festive and New Year holiday season. As a result, the proposed start date for the ADIs—1 January 2011, for example—may end up proving to be quite a difficult start date for them to achieve and may in fact not be the most appropriate.

Again, it is important for governments of all persuasions to be responsible for easing the compliance burden where possible. Therefore, this is another area where the government needs to spend some time and understand whether or not it is going to be possible to establish a reliable—that is the key point—implementation date of 1 January, given what I was just saying about how a lot of the ADIs will find it most difficult to implement such a massive structural change at that time, particularly as it relates to their information and IT systems as a whole. So I call on the government, through the consultation process between now and then, to really spend some time and work out what will be the most feasible and, most importantly, the most reliable date for this to happen. The worst thing that could happen would be to push ahead with this unreliable date and for the whole banking and credit system in Australia to fall over during that time.

The next area I want to move to is the area where universal compulsory membership of external dispute resolution schemes for ADIs and non-ADIs is included. This is an objective of this legislation—to provide easier and cheaper access to dispute resolution. The legislation proposes a three-tiered dispute resolution system for consumers—firstly, through the licensee; secondly, through ASIC’s approved scheme; and, thirdly, through the court system. Under this legislation consumers will be able to apply for hardship variations, postponement of enforcement actions, regained possession of mortgaged goods, and actions against unconscionable fees and charges imposed by credit providers for amounts of less than $40,000.

Then we have the area of the new national consumer credit code. This legislation introduces a new national consumer credit protection mechanism. This will replicate and indeed replace all of the state based UCCCs and is designed to enhance consumer protection by raising hardship thresholds from the current $330,000 limit to $500,000 and provides, among other things, a prohibition on essential household goods as security.

The overall objectives of these bills are sound. Providing a national system of licensing of credit is particularly worth while from a consumer protection viewpoint. The responsible lending provisions are well intentioned, but it remains to be seen how the government will manage this process in terms of the practical implementation leading up to the start dates in 2010 and 2011. This package of bills is a significant reform which our business community will have to adapt itself to. Once again, given the size of the reform and the possible likelihood of compliance problems, the government must be responsive to the needs of the industry. I am confident that ASIC and the Treasury will make themselves available to those businesses which need assistance in actually implementing this legislation. I hope that the government does the same. The coalition trusts that consumers and businesses across the whole of Australia will benefit from having these bills enacted.