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Thursday, 20 August 2009
Page: 8496


Ms NEAL (11:00 AM) —I rise in the House today to speak in support of the National Consumer Credit Protection Bill 2009. The measures contained within this bill will bring welcome and long-overdue protections for consumers across Australia. This bill is being presented today in association with two related bills, namely the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009 and the National Consumer Credit Protection (Fees) Bill 2009. Known collectively as the national credit reform package, these three measures will establish for the first time in Australia a single standard national regime for the regulation of consumer credit.

I have to say that I am particularly excited about this package of bills because this has been an aspiration of the Australian Labor Party since I was the consumer affairs shadow minister back in 1996. This package of bills gives expression to government announcements to the Council of Australian Governments—COAG—meeting of 2 December 2008 which set out the terms under which the Commonwealth would assume responsibility for the regulation of consumer credit. Together, these bills will give consumers and providers of financial services a truly national set of laws existing under a uniform regime of consumer credit regulation and oversight.

Briefly, the three bills function in the following manner. The main bill, the National Consumer Credit Protection Bill, will introduce a framework which does four things. Firstly, it licenses credit providers, brokers and intermediaries. Secondly, it applies responsible lending conduct requirements to licensed parties. Thirdly, it provides a rigorous dispute resolution mechanism that is supported by appropriate enforcement powers for the regulators, ASIC, including improved court arrangements, remedies for consumers and penalties for licensee misconduct. Finally, the framework includes the overseeing of the regulation of margin loans.

The second bill, the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill, deals with the rights and liabilities of certain existing credit contracts and with court proceedings that existed or arose prior to the commencement of the credit bill. It also establishes a registration process for industry participants as the precursor to licensing. The third bill, the National Consumer Credit Protection (Fees) Bill, provides the mechanism to support the imposition of fees for various matters.

The changes to the consumer credit sector that will result from the national credit reform package will transform the ways in which the consumer credit sector is organised, administered and regulated. The package will promote responsible lending practices amongst credit providers and brokers. It will enforce national codes of accreditation and impose standard codes of conduct for all involved in the provision of credit. Most importantly, the package will ensure that consumers in this sector are protected in a number of ways.

Comprehensive new licensing laws for the consumer credit sector will be introduced. Lenders and providers of consumer credit broking services must be registered with the Australian Securities and Investments Commission and obtain an Australian credit licence. Participants will need to be registered or licensed if they engage in lending or collecting money, act as an intermediary between consumers and lenders or act as a credit broker in advising consumers to apply for a particular loan or otherwise assist them to apply for a particular loan.

Robust entry standards will apply for the registration and licensing procedures for participants in this sector of the finance industry. Credit lenders, brokers and their agents must also meet ongoing standards of conduct when providing credit activities to consumers. The regulatory body, the Australian Securities and Investments Commission, ASIC, will have the power to suspend or cancel licences if the participant fails to achieve and maintain required standards of professional conduct. Licensing procedures will be streamlined for authorised deposit-taking institutions such as banks and credit unions. In addition, limited expectations will be provided for some point-of-sale staff and debt collectors.

This comprehensive new licensing regime will introduce, over time, considerable benefits to this sector of the financial system in Australia. It will encourage the improvement of standards in the industry and thereby improve consumer confidence and market integrity. In particular, fringe or predatory players will be excluded. In other areas such as credit broking, this will improve the credibility of the profession. To become a licensed credit lender or broker, a person must demonstrate that they are a fit and proper person. They must also comply with appropriate standards of conduct expected of a licensee. For example, they are required to demonstrate to ASIC that they can conduct a business efficiently, honestly and fairly. They must also demonstrate to the regulator that they can properly train and supervise their agents.

ASIC will publish guidance on how participants can demonstrate that they meet these licensing requirements. This guidance will be particularly directed at small businesses. This is a terrific idea for small businesses as it will help make a smoother transition to the new licensing arrangements by providing business operators with simple, practical assistance on how to become licensed.

One of the most fundamental principles that underpin the national credit reform package is the promotion of responsible lending conduct in the sector. It is of paramount importance that credit not be given irresponsibly to consumers. The package establishes a set of responsible lending conduct standards for all licensed credit providers and their agents when they enter a consumer into a credit contract, when they suggest a credit product or when they assist in a consumer’s application for a credit contract. This code will ensure that licensees do not provide credit that is unsuitable for consumers—which, frankly, happens so often these days. It ensures that the product, service or contract is well fitted to the particular needs of the consumer as well as not being unsuitable. Most importantly, it will ensure that the consumer has a realistic capacity to pay their financial obligations. Consumers will also have guaranteed disclosure on the part of the licensee about any credit related costs or commissions. They will have access to key rights of consumer redress and to transparent assessment procedures.

One specific new arrangement that will enhance consumer protection for thousands of Australians relates to the refinancing of home loans. For homeowners who are refinancing home loans in the face of financial difficulty, the new law includes a presumption that the refinancing will be unsuitable for the consumer if they would have to sell their primary residence to meet the financial obligations of the new finance arrangements.

The package will establish a truly consistent and national regime for credit related arrangements. But the code will be strengthened and improved in a number of ways. It will be expanded to include contracts where the credit is provided to purchase, renovate or refinance a residential property for investment purposes. Consumers will now be able to apply for hardship variations or stays of enforcement, up to a monetary threshold of $500,000, and credit providers will have to respond to such a request within 21 days. This is particularly important, because I have had a number of constituents who have come to me in dire financial circumstances who have made a request of their financial institution and the financial institution has failed to respond and, essentially, starved them out by inaction.

In another breakthrough for consumer rights, credit providers will no longer be able to use household goods as security for loans. This national credit code will also close various loopholes, such as certain fee-splitting structures set up between related parties and certain business purpose declarations which at present can be used by unscrupulous lenders and brokers to avoid the law. The code will also ensure that credit providers will be required to give consumers information when they default on their contract or when direct debit is dishonoured. These added protections for credit consumers are welcome additions to our national finance sector regulations. They will ease the financial burden on many thousands of consumers across Australia.

In addition to protecting consumers, the national credit reform package gives ASIC considerable powers to impose stronger penalties for lenders and brokers. This can include criminal penalties of up to two years imprisonment for serious licensee misconduct which breaches the responsible lending conduct requirements. Civil penalties for licensee misconduct will allow ASIC to levy fines of up to $220,000 for an individual or $1.1 million for a corporation. ASIC will be able to issue infringement notices to speed up the imposition of penalties for certain breaches. Consumers will also have the right to seek compensation to redress losses or damages arising from licensee misconduct.

Sitting in between these various protections and the penalties, the national credit reform package also includes a no-cost, three-tiered dispute resolution system. This framework is designed to make it easier for consumers to have their disputes resolved. Consumers will have access to the licensee’s internal resolution process, as well as an ASIC-approved external dispute resolution scheme. All licensees will be required to be members of an external dispute resolution scheme, and consumers will be able to take disputes to the federal, state and territory courts via a streamlined procedure for small claim actions for loss or damages of up to $40,000.

These court procedures build in various further levels of protection for credit consumers. One of these protective measures presumes that the parties do not need legal representation, and another measure presumes against issuing adverse orders. In addition, the new court arrangements allow the courts to adopt informal legal procedures and depart from the formal rules of evidence. These provisions will greatly reduce the time and the often considerable expense to consumers of having to resort to the courts to resolve their disputes. The government has provided $70.2 million over four years to implement the COAG decision to transfer consumer regulation to the Commonwealth.

The government will phase in the introduction of the new licensing arrangements. They will start on 1 January 2010. Before that date, anyone engaging in credit activities will need to be registered with ASIC and must apply for registration between 1 November and 31 December 2009. They will have the six-month period between 1 January 2010 and 30 June 2010 to apply for an Australian credit licence. Anyone who engages in credit activities for the first time on or after 1 January 2010 must apply for and receive an Australian credit licence before starting a business. The two-stage process has been adopted to facilitate a smooth transition to the licensing regime. The registration procedure has been designed to be straightforward for industry and can be completed online. The two-stage process can also give industry adequate time to meet the licensing requirements. The staged introduction of the national credit reform package will give the consumer credit industry the time in which to put in place the business infrastructure needed to support and maintain responsible lending practices. Care has been taken to minimise, where possible, the transition costs incurred by businesses when they move to the new credit regime. At the same time, existing consumer protections have been preserved and, where appropriate, enhanced.

ASIC will provide all assistance possible to businesses as they adopt the new arrangements. ASIC will help businesses, especially small businesses, comply with their obligations under the new laws. It will have more flexibility to exempt or modify the licensing and registration requirements, where this is deemed appropriate. ASIC will also be able to exercise discretion in imposing penalties, taking into account instances where people have attempted in good faith to comply with these laws.

The National Consumer Credit Protection Bill 2009 forms the foundation of the new credit reform package. The passage of this bill and its two related bills will bring with it an historic and significant improvement in the way consumer credit is delivered in Australia. This is particularly needed at the moment, when many people are in dire financial circumstances. The package makes consistent across the country the arrangements for licensing and regulating the lenders and brokers of consumer credit. It builds stronger and more uniform protections for consumers of credit into the new national system. It brings a number of significant efficiencies to the regulatory framework, by plugging many gaps in the existing legislation which have burdened the sector for too long. Importantly, the national credit reform package will reduce the cost of doing business in Australia, the regulation of consumer credit currently being split between eight separate jurisdictions. In the long term, it will help reduce compliance costs for businesses operating in the consumer credit industry. For the first time in history, Australia’s financial services will have a truly national set of laws. The system will be fairer, more consistent and more efficient because of this legislation. I commend the bills to the House.

(Quorum formed)