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Tuesday, 26 June 2012
Page: 8020

Mr SHORTEN (MaribyrnongMinister for Financial Services and Superannuation and Minister for Employment and Workplace Relations) (16:57): The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 continues the government's commitment to protecting Australian consumers who take on credit and delivers part 1 of phase 2 of the COAG national credit reforms.

This bill delivers on five areas of credit reform. First, the government has identified short-term small amount lending as an area which has been long overdue for regulatory reform. People who take out these loans generally have low incomes or are financially marginalised. The high and largely uncontrolled cost of these loans can exacerbate the financial problems of these borrowers to the point where they find themselves stuck in a cycle of debt.

This bill, including the parliamentary amendments, introduces significant protections for consumers. These protections include Australia's first ever national interest rate cap on loans. The cap on costs of loans of less than $2,000 and the one-year duration have been increased following the review by the Parliamentary Joint Committee on Corporations and Financial Services and the Senate Standing Committee on Economics.

The amendments that are being proposed are such that they will set these matters at a level which allows for a viable industry to continue. It is these small amount credit contracts that have caused much pain in the Australian community. Indeed, the member for North Sydney himself described these loans in 2001 as 'part of the twilight zone of Australian finance'.

Other protections include tailored responsible lending obligations that address the position of borrowers who have already defaulted or who make repeated use of small amount credit contracts. The government will also introduce through regulation the concept of a protected earnings amount, which will provide that, where social security payments are a borrower's predominant source of income, repayments on any short-term small amount loan will be restricted to a maximum of 20 per cent of their income. The government believes these laws, as amended, will strike the right balance between allowing a viable and regulated credit industry to provide credit to consumers in need and at the same time providing safeguards to protect the interests of these consumers. The measures in relation to short-term, small-amount lending have been a hotly contested area of public policy debate. I would like to thank the consumer movement and the credit industry for their respective contributions. The government realises that on both sides of the debate there are further issues that have been raised, and we remain committed to an ongoing and sensible discussion on policy development. However, from the perspective of both consumers and the credit industry, it is important that there is certainty in relation to existing policy settings, and this bill provides that certainty.

Secondly, the bill implements the government's election commitments in relation to reverse mortgages. The new laws will introduce a statutory protection against negative equity as well as targeted disclosure requirements. These amendments will maintain public confidence in reverse mortgage providers. They will also give seniors who are thinking of taking out a reverse mortgage better information to assist them in making such an important financial decision.

Thirdly, the bill amends the National Consumer Credit Protection Act 2009 to ensure greater regulatory consistency between consumer leases and credit contracts. This will alleviate the disparity that currently exists between these products and resolve the problems arising from this regulatory arbitrage through the use of leases.

The fourth area of reform is a number of specific improvements, including improving the capacity of borrowers to obtain variations to their repayments when they are in financial hardship and restricting the use of terms such as 'financial counsellor' to minimise the risk of consumers being misled.

Together, these four areas of reform are important in strengthening consumer rights under the credit regime, and Australians will be the better for them.

Finally, this bill also makes a minor technical change to the Australian Consumer Law.

Through this bill, the government is moving to improve the position of consumers when they use credit and to protect vulnerable borrowers. These reforms build on the government's phase 1 consumer credit reforms, which introduced a licensing regime and responsible lending obligations on lenders and brokers. They reflect a continued commitment by the government to make lenders more accountable, for the benefit of all Australians. This legislation is a very important step in helping the financially vulnerable. This is an issue that the government considers every day, across multiple portfolios. That is why the Minister for Social Inclusion asked the Social Inclusion Board to include financial inclusion. It is why this government has given $20.7 million to the no-interest loans program to help those in need to reduce their energy bills. It is why the Attorney-General will be introducing privacy reforms later this year that will make it easier for consumers to access and correct credit information held about them and to regulate the use of personal information for direct marketing. It once again reaffirms that this government is getting on with business, passing important legislation and protecting the most vulnerable.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.