Chris Pearce (Aston, Liberal Party, Shadow Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

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.

Bernie Ripoll (Oxley, Australian Labor Party) Share this | Link to this | Hansard source

It is a great pleasure to speak on these three bills—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. It is a pleasure because it is an ‘about time’ collection of bills where a decent government comes in and acknowledges a whole range of problems that have existed in the community, particularly in relation to consumer credit, for a very long time.

These are not new issues or new problems. These are things that have been out in the marketplace. We have all heard it from our constituents. Mr Deputy Speaker, I am sure you are aware of those as much as I am: people who have complained or made representation to you—and I would say to every single member in this House, and senators as well—about having problems with credit facilities, with the people who sell them credit, with how credit works, with unfair clauses, with fees, with termination, and the list goes on and on. But underpinning all that has always been the principle that we needed to approach, and that was about protecting ordinary Australians—consumer protection. To be part of a government that takes the fight upfront and looks at ways that we can seriously have a practical impact out in the community on these issues is a proud moment, and I am very pleased to speak on these bills.

The national consumer credit reform package that we are putting forward will, for the very first time in Australia, put in place a single standard. It will be a national regime for the regulation of consumer credit—no small feat. It takes a lot of work, cooperation and effort and, dare I say it—and I say it in a humble way—a little bit of courage as well. When you are make significant changes, which is what we are talking about, and working with all of the states and territories, you have to bring people to the table; you have to do it in a bipartisan manner and you have to see other people’s point of view. That is what we have striven to do and I am proud of that.

The National Consumer Credit Protection Bill will develop a framework to licence credit providers, brokers and intermediaries and apply responsible lending conduct requirements to licensed parties. I will talk about the detail of that in a moment. It will also provide a robust dispute resolution mechanism supported by appropriate enforcement powers. This is a suite of actions that need to be taken. Not only do you need to provide the right licensing regime and framework but you need to look at how you enforce it; how you ensure that the policeman on the beat has the right powers to deal with these matters. These are long-awaited reforms that go to areas such as court arrangements and remedies for consumers, penalties for licensee misconduct and—of great interest to this parliament and the community—the regulation of margin loans.

The transitional and consequential provisions bill contains specific clauses relating to the rights and liabilities of certain existing credit contracts. Whenever there are these types of legislative changes it is essential that we put in place some transitional arrangements. We will make sure that, where court proceedings arose prior to the commencement of these bills, there is a proper process in place for participants as a precursor to the licensing arrangements.

The fees bill provides a mechanism to support the imposition of fees as are deemed necessary and essential for the proper working of these legislative arrangements, such as for searching a register kept by the Australian Securities and Investments Commission. The package relies in part on a referral of state powers to regulate consumer credit.

The government are committed not just to the words and the framework for making these things actionable but to providing the funding for them to happen. As such, we will provide $70.2 million over four years to ensure that our work with the states and territories through COAG can be achieved properly. The member for Solomon is in the chamber, and I know he is a big supporter of consumer credit, being from the Northern Territory—as are any of us who represent rural or regional areas. We understand just how important it is to ensure that constituents have access to proper credit protection and regulation, and I know the member for Solomon is as supportive of our bills in this area as I am.

The national consumer credit reform bills are a comprehensive package of legislation for a comprehensive licensing regime. For the first time, all providers of consumer credit, including brokers and other intermediaries in the industry, will be captured as one, which is a very important move forward in this area. The bills include industry-wide responsible lending conduct requirements for licensees, something that is desperately needed. The global financial crisis has, in a way, highlighted the cracks in the system, the areas of failure and the abuses that often occur when markets are running hot and people are, let us say, less concerned with procedure and process than they might be when there is a downturn in the market and they are looking closely at every single cent. In saying that, even the boom times we had for a decade did not diminish people’s concerns about the way they were being treated in relation to their credit arrangements.

The legislation will also provide improved sanctions and enhanced enforcement powers for the regulator, the Australian Securities and Investments Commission, making sure that not only do we in this place do our job in terms of the regulatory framework but that ASIC, as the regulator, has the power to ensure enforcement and to make sure that consumers are properly protected.

The bills will also expand the scope of credit contracts to include credit provided to purchase, renovate or improve the value of a residential investment property. This is an important area in which we have seen a growing market. Given that the Rudd Labor government has put in place the nation’s largest building program, in a whole range of areas but specifically in the areas of housing and homeless, it is important that we regulate in that area as well.

These bills will replicate the current state based Uniform Consumer Credit Code as a national code. It is important to understand that, constitutionally, the Commonwealth has insufficient powers to enact a nationally comprehensive regulatory framework for consumer credit. As such, we have worked with the states and territories for a specific referral of state powers to the Commonwealth for consumer credit. That entails an agreement to a text based referral of powers, which will need to be enacted by each state parliament before the proposed laws can commence in those states. We are working through that process. We have the agreement from COAG, which is very much appreciated. It shows the strong working relationship that the Commonwealth government can have with its state partners in providing nationally consistent laws and regulations and working in the national interest and in the best interests of Australian consumers—something that we on this side of the House are very much committed to and something I would suggest members of the Liberal and National parties take a closer look at.

The legislation is supported by intergovernmental agreement, which will provide all of those mechanisms that I spoke about. The implementation of the national consumer credit regime will include other providers or intermediaries such as brokers. For the first time, they will be required to actually be registered with ASIC by 31 December 2009 and to have applied for a licence by 30 June 2010 if they want engage in, or continue to engage in, credit activities. Again, this is a very important mechanism to ensure that everyone who is involved in this sector is caught under these regulations.

The responsible lending conduct obligations will commence 1 January 2011 and will provide the industry time to put in place systems and training and to make sure that people are up to speed in terms of their requirements and their obligations. Licensing, I believe, is very important. It is a very important part of ensuring that those who provide these types of credit or broker and credit facilities are actually properly qualified, properly trained, understand codes of standards and ethics, and provide the best possible service to consumers. As such, these bills do provide a comprehensive licensing requirement. It will mean that there will be a requirement for people in this area to hold an Australian credit licence, an ACL, if they want to be properly authorised to provide credit activities. That will include such areas as: lending or collecting money; acting as an intermediary between the consumer and the lender—for example, credit aggregators; and suggesting a consumer apply for a particular loan—for example, people such as brokers.

The licensing regime will impose certain entry-level requirements—a very important step towards making sure that the quality of advice and service provided in these areas is up to standard. I am very happy to see that we will be regulating in that area. To ensure that it is not just an entry-level requirement and then a self-regulating system, we will also be requiring that people meet ongoing standards of conduct when engaging in credit activities. And, most importantly, ASIC will have the power to either suspend or cancel their licence—a very strong power, a very necessary power and one which I believe will point the way in related matters in terms of the financial services world.

There will be special procedures in place to streamline the licensing to make sure that it works efficiently for banks and credit unions as well as others. We do expect to put in a number of limited exceptions because, as always in these things, from time to time there are exceptions. An example is point of sale staff, particularly in places such as major retailer outlets which offer interest-free periods and where there is some sort of credit line arranged. We will be exempting those particular point of sale staff from having to have an ACL or from meeting particular requirements. Those requirements will not be necessary at that point, but certainly the providers of that credit need to be the ones who actually hold the licence.

Responsible lending is something that we have all talked about quite a bit, particularly given that we have seen some high-profile and spectacular collapses—for example, Storm Financial, Opes Prime and the margin lending debacles throughout the country. It all comes back to this central point about appropriateness and responsible lending—ensuring that the lender understands the capacity of a consumer to repay a loan so that the consumer is not placed under some sort of financial stress created by the loan. So responsible lending requirements will also apply. These will set a standard of expected behaviour for licensees—as I have mentioned previously, not only entry requirements but also requirements for licensing, ongoing standards, proper qualifications and so on.

There also need to be clearly delineated responsibilities and obligations for people such as finance brokers when it comes to lending conduct. They play an essential role in meeting the need of consumers in the community to have a choice—so they do not necessarily just go to their bank to get credit and have to be limited to the offerings of that one institution; but, perhaps, they could go through a broker or some other licensed agent who would be able to seek out or source the very best deal or most appropriate and suitable credit for a consumer’s particular needs. So it is essential that we include people involved in that particular sector as well.

The legislation introduces for consumers some important disclosure requirements in relation to credit costs and commissions, another area which I think is ahead of the game in what we are seeing happening in the sector already. Peak representative bodies across the country, those who represent people working in the financial services world and in brokering, are already seeing the need for peer change, for conduct change and for reform in the areas of how these things work. Disclosure is one of those very important issues. It is important because consumers need to understand upfront in simple plain English exactly what it is that they are buying into and what the terms are. There need to be clear, concise terms in plain English, and I think disclosure can play an important role in that.

I want to make the point that disclosure is not about providing more and more information—it is not about the 100-page disclosure document where you can bury or hide in some critical piece of information that cannot be found unless you are a constitutional lawyer; it is about providing clear and concise information. It is about having upfront, full disclosure so that people truly do understand what it is that they are buying into. I think that is a fair process and it is something that I am very pleased about in these bills. This is about consumer rights. This is about consumer protection. This is about ensuring that people know what they are buying into and ensuring that they are not abused by people who think that they may be cleverer than everybody else.

Importantly, for Australian homeowners who are refinancing—and there would be quite a number; whether it be due to financial difficulty, whether it be to access some of the equity in their home, or whatever it might be—there need to be laws that specifically include a presumption that the refinancing is suitable for those people. Again, there need to be arrangements in place that are appropriate; the correct financial obligations need to be met; and all of this needs to work in line with our national consumer credit legislation. This is about having a national credit code, albeit that it has come out of the state regimes and we will in effect have a state based uniform credit code which will be largely replicated in the legislation as the national credit code. Importantly, it will ensure that we have a consumer focus—a focus on improving the code and protecting ordinary people in terms of their access to credit.

What the scope of the code will be expanded to include is credit where it is predominantly used to purchase, renovate, improve or refinance a residential property. The code is also being amended to reduce several loopholes that could be used by unscrupulous lenders or brokers to avoid the law. We have been careful to make sure we cover those. The bills will also change the monetary thresholds under which consumers can apply to their credit providers for hardship variations. Credit providers will also be prohibited from using essential household goods as security for loans, and they will be required to give consumers information when they default on their contracts or when a direct debit is dishonoured.

I have spoken briefly about penalties, remedies and enforcement powers, and I just want to touch on them again. If you are going to send out a strong and clear signal to the sector about doing the right thing, about adhering to the codes and making sure that people understand what is required of them, it is not just a case of licensing but making sure that you have criminal penalties in place for licensing misconduct. That could include imprisonment of up to two years for really serious breaches, and I think that sends the right signal to say that we are serious about doing the right thing. There are also civil penalties for licensing misconduct which will enable ASIC to seek heavy fines of up to $220,000 for an individual and $1.1 million for a corporation.

These are the right signals in terms of ensuring that providers do the right thing, and for the vast majority this will actually be something they welcome because they do do the right thing and they do understand their obligations. It will make it easier for them, not harder, because it will ensure that the unscrupulous operators are weeded out. There might be only a limited number, but it helps provide a more robust framework and stronger rules for those who are doing the right thing.

All in all, these three bills together provide a complete package. It is more than a step in the right direction; it is a leap in the right direction in terms of providing the right sort of consumer protection balance. It is a balance between an open marketplace, where people can access finance, credit and debt and get on with doing the things that they deem necessary for themselves, and consumer protection. But for me that balance needs to have consumer protection as its primary focus, consumer protection at its heart, and that is what these bills achieve.

While I chair the Parliamentary Joint Committee on Corporations and Financial Services, and we are doing two inquiries at the moment which touch on a lot of these issues, I feel that what these bills do is already moving us in the right direction. They cover many of those areas that we are inquiring into, so I welcome these bills very much. I am very supportive of these bills and I commend them to the House.

Judi Moylan (Pearce, Liberal Party) Share this | Link to this | Hansard source

I am very grateful to have the opportunity to speak and contribute to this debate today on the National Consumer Credit Protection Bill 2009 and the related bills, because this process of bringing national unity to consumer credit provisions has long been desired. I think the community expects us to act and to amend the governing laws, the legislation, particularly as new products come onto the market. New products evolve and perhaps require a slightly different approach, and we have seen some very creative approaches to the provision of credit, probably in the last few years in particular, and a lot of people do not fully understand what they are getting into when they enter into some of these schemes.

That being said, the Australian credit regulations have been admired internationally and are attributed as the reason Australia has largely avoided the subprime lending trends that have plagued so many nations abroad. I think we in the coalition were fairly rigorous in ensuring strong consumer credit protection laws but, as I said, with new products and new, creative ways of packaging credit coming in, there is a need for government to constantly revisit these laws and make sure that they do what they are intended to do.

Whilst these regulations are currently strong and effective, they are not uniform across the states and territories of Australia, which results in some confusion and certainly increases compliance costs for everyone involved, both the providers of credit and those who seek to use those products. It is not so much a matter of having a nanny state mentality, trying to protect everyone to the ultimate degree, but I think the public expect that governments will make sure that people do not unwittingly enter into credit arrangements that are less than desirable. I do think there are situations where people can unwittingly do so, certainly where the details of those credit arrangements are not always obvious—and, more importantly, the end result of some of the detail is not immediately obvious. It is important to make sure that providers of credit do not offer shonky deals and that the unscrupulous are not allowed to continue to get away with packaging of credit that does real harm to people in our community.

The state and territory governments have traditionally had legislative power to determine consumer credit matters. Indeed, this is still the case. However, in 2008 a Council of Australian Governments agreement enabled the Commonwealth to share concurrent power, enabling the creation of the legislation before us today. At this point it is important also to note that this was not the first attempt to reach such an agreement at COAG level. The coalition government’s efforts to establish national uniform laws in this regard were hampered by disagreement among many of the Labor controlled state governments while we were in office federally.

The changes proposed in this legislation are substantial. For those involved in the provision of credit, they have the potential to massively overhaul many standard procedures. They also introduce the uniform threat of criminal sanctions, including jail terms, for lenders who engage in unscrupulous behaviour. The scope of these bills and the outlook for further reforms clearly indicate that there will be important changes to the law. It is not simply a case of the Commonwealth bringing together the unified state and territory laws without more.

The coalition supports this legislation as it seeks to protect consumers and also to promote certainty and reduce compliance for businesses. In general terms, this legislation will govern the activities of lenders, brokers, credit intermediaries and debt collectors. At this point, however, it will not apply to point-of-sale retailers. That came out of the consultations and the committee process and I am sure is very much welcomed by point-of-sale retailers. Under this new arrangement, credit providers, brokers and intermediaries will be required to register with the Australian Securities and Investments Commission between November 2009 and December 2009. I understand this registration process can be carried out online and that the system has been designed to make the process as simple as possible. Following registration, participants will need to apply for an Australian credit licence within six months from 1 January 2010.

Any individual or organisation that is licensed is expected to meet the standards of behaviour set out in the legislation when providing credit to a consumer. The responsible lending provisions are aimed at ensuring that borrowers are not provided with unsuitable credit facilities. Licensees will need to ensure that they carry out an individual assessment as to the borrower’s ability to repay the loan and to meet their financial obligations for each application they receive. In a recent article in the Australian Financial Review one commentator noted that:

… the bill seems aimed at reckless lending in the US and Europe rather than the less acute problems seen in Australia. This may result in even conscientious and responsible, low-income households being forced into the arms of loan sharks as mainstream lenders observe the law to the letter.

It is an interesting point to note and probably one that should be borne in mind, as well as the all-important regulations that have been devised and that accompany this bill. But there is always a tension between the need to regulate and the need to encourage people to take responsibility for their own financial dealings—indeed, any dealings. And I think there is a greater need to educate. Credit providers have been very creative about the way they package loans. We have not seen that to the degree that we have seen it in other countries but, nevertheless, things are changing constantly and many people out there in the community do not fully understand the detail and the implications of some of this packaging of credit.

As said before, Australia has a world-class banking system. Our big four banks make up a third of the world’s strongest, and our record of subprime lending has been limited to one per cent as opposed to the famous figure of 15 per cent in the United States market. The so-called NINJA loans, where mortgages were given to people with no income, no job and no assets, has not been a problem in Australia to anywhere near the extent that it is in the United States. These lending practices have occurred in many parts of the world and have widely been attributed as the cause behind the current global financial collapse.

It has been accepted by both sides of this House that Australia’s banking system is amongst the best regulated in the world. I do not think there is much disagreement on that point. Indeed, those opposite have often said when abroad that our lending practices have prevented a fallout of the magnitude being felt by the banks around the globe. It should, then, also be recognised by both sides of the House that such prudential regulations should duly be attributed to the hard work of the member for Higgins and the coalition financial team when we were in office.

It is important that we seek to find the right balance in the protection of consumers. In any of these situations that we are confronted with as lawmakers and legislators, I want to stress that it is usually a small minority that are spoiling it for the rest of the community. We have to balance that tension, as I said, between protecting consumers from this small number of unscrupulous lenders and the need to give sufficient flexibility so that Australian lenders can continue to provide a service to the Australian community.

The other key features of the responsible lending provisions relate to the full disclosure of relevant information through a credit guide. Licensees are required to tell borrowers about all credit related costs, commissions and the borrower’s right to redress under the legislation. It is fundamentally important that all available information is made accessible to the borrower so that all involved parties are in the best position possible to decide the suitability of the particular credit product. Where a licensee is providing refinancing for consumers facing current financial hardship, a presumption has been introduced that such a refinancing is unsuitable ‘if the consumer would have to sell their primary residence to meet the financial obligations of the new finance arrangements’.

The protection of the household has also been extended in the national credit code, which departs from the uniform consumer credit code in that licensees are now prohibited from taking security over essential household goods. Where a consumer does find themselves in a position where they cannot meet their financial obligations, there are now more remedies available. Previously, consumers with a loan of $312,400 or less were entitled to apply for a change to the terms of their credit contract. This figure is based on 110 per cent of the average loan size for a new dwelling in New South Wales. The formula has now been removed and set to a fixed amount of $500,000 which may be changed by regulation. This will allow many more people who are experiencing hardship through illness or loss of employment, for example, to seek changes to their contract. A lender is not automatically required to approve such changes to the credit contract if the changes are unlikely to result in the borrower meeting their obligations. I am sure this will be very welcome for many consumers who find themselves caught up in circumstances not really of their own making—and that can happen to any one of us. I think it is a good thing, and I notice some of the major banks are announcing a much more flexible approach to borrowers who find themselves in genuine difficulty.

A new dispute resolution system is being introduced as part of this change to ensure that consumers do not need to proceed through expensive and lengthy litigation. The licensee is to have an internal dispute resolution mechanism and must also be a member of an ASIC-approved external dispute resolution scheme. If a dispute remains unresolved then the court system will be the third option, where a streamlined procedure for small claims of less than $40,000 will ensure that the borrower will not require legal representation, and the hearing will be conducted with informal procedures. I think, again, this is a very good move because it does not matter how much black-letter law we introduce into this place; if there is not fair access to the law and legal remedies, it is debatable how much that black-letter law is really worth to the average person out in the community. This allows for a process that does not require people to have a massive amount of money to engage a legal representative to take their case.

This legislation creates an interesting interplay between state and Commonwealth legislative powers. While the state and territory uniform consumer credit codes will cease to operate, the state and territory governments retain power to legislate on consumer credit matters. I think that is important. If we have a federation, we have to respect that and we have to work together. That being said, having read through a number of the submissions to the Senate Standing Committee on Economics inquiry into this legislation, there are clearly many stakeholders who are still concerned about this overlap. One of the objectives in this legislation reform process is to reduce red tape and compliance issues for licensees. However, it is plain to see that this objective could be risked if a state government chose to enact separate and additional legislation. I would hope that this issue of clarity and certainty is resolved in future COAG discussions.

The commencement of the responsible lending provisions has been delayed until 1 January 2011. The Mortgage & Finance Association of Australia pointed out in its submission to the Senate inquiry that this delay has the potential to leave open a window where consumers become less protected. The MFAA noted:

… in those states and territories where there is already operative broker legislation, viz WA, NSW, Victoria and ACT, consumers will be in a worse position than they currently are, as it is proposed state jurisdictions will be ‘turned off’ on 31 October 2009.

Perhaps that needs to be examined more closely. I hope that the gap between the state provisions ending and the federal ones beginning has been or will be addressed, to ensure that businesses are at all times clear of their obligations and borrowers will not be caught in a limbo area where they have no redress to the law for unscrupulous practices or where they have not been fully advised of the detail of the contracts they are entering into or their consequences.

As I mentioned earlier, the protection of consumers starts with ensuring that they are fully informed about their choices. But I think that this process needs to start much earlier. We need to ensure that all young adults have access to financial education so that they are informed about the basics of credit and borrowing before they are ever in the situation where important decisions need to be made. We are seeing young people being targeted by advertising. The temptation to buy things on credit is probably increasing. Young people need to understand how to manage their financial affairs and to understand the consequences of what they are doing. The process of educating people about personal financial matters should start at school and be carried on throughout the community. This is a process that I would encourage banks and other financial institutions and institutional lenders to become involved in. After all, it is really in everybody’s interests that credit is not provided to those who clearly cannot afford to repay it.

Australia is already a world leader in terms of prudent financial regulations. As we seek to further strengthen this network of consumer protection through legislation and regulation, I believe that it is equally important that we empower consumers so that they may protect themselves. The old saying is that knowledge is power, and once borrowers become fully educated about financial matters they will also become empowered and will not need to rely on black-letter law or the legislative process in this parliament or others. While it is necessary that we have strong deterrents in place and consequences for unscrupulous lending, preventing such practices should be our primary aim. It is much harder for a lender to take advantage of educated borrowers, and with greater education the market for substandard credit products will be greatly reduced. I am sure that that will be very welcome throughout the community.

The coalition supports the legislative program aimed at protecting consumers but eagerly awaits the release of the all-important regulations which, according to the Australian Finance Conference, contain ‘crucial scope, exemptions and operational content’.

As we move ahead in this reform process it is important that we also make a secondary attempt to increase financial awareness within the community, especially with the younger population, who face a world of increasing reliance on credit. It is the borrower who will make the final decision as to what credit product best suits their need, and they are the ones who need to be empowered to take responsibility for this decision. The national consumer credit protection framework is an important first step in ensuring that the borrowers of the future cannot fall foul of unprincipled lending practices.

In closing, this debate gives me the opportunity to raise the issue of reverse mortgages. This is one of the creative products that have become available in recent years. It is not a bad product, but people need to fully understand how it works. Sadly, in my electorate, I have seen a couple of older Australians take up reverse mortgages without fully understanding them—and yet there are very strong prudential requirements around these loans. But they have not fully understood what they mean. In one case, if they broke their arrangement, a penalty of about $80,000 applied. It can be a very good product. It can be very helpful in some circumstances. But the reason for this legislation is to make sure that people fully understand the terms of these contracts and that they fully understand the consequences of entering into them, and I think that is the crux of such legislation. It is to be hoped that it assists the community in managing their financial arrangements better.

Belinda Neal (Robertson, Australian Labor Party) Share this | Link to this | Hansard source

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)

Chris Hayes (Werriwa, Australian Labor Party) Share this | Link to this | Hansard source

This government is implementing a credit reform package that delivers the government’s commitment to nationalised consistency and the modernisation of Australia’s credit laws. The package will for the first time in this country provide one single standard of a nationally consistent regime that will apply for consumer credit regulation. That is very important, particularly for those of us who represent the mortgage belts within our respective electorates and for those of us who have a significant number of our constituents involved in securing credit for running their lives and their families. The other thing to bear in mind is that this also applies in relation to those of our constituents who are involved in small business. So this is very significant and something that the House should take note of. The national consumer credit protection package comprises three bills: the National Consumer Credit Protection Bill 2009, the credit bill; the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009, the transitional bill; and the National Consumer Credit Protection (Fees) Bill 2009. This credit reform package has substantial benefits and its implementation is, quite frankly, long overdue. Significantly, the package will provide for an improved consumer protection regime and will move to cut the red tape and the inconsistencies that have emerged in the business practice of providing credit.

The package has its genesis in the reforms that followed that historic COAG meeting of October 2008, where there was agreement to implement a two phased approach for the Australian government to take over responsibility for regulation of consumer credit. That is quite a significant change. Some may refer to that as a modern federalism but, in an economy underpinned by 21 million people, it is a change which is overdue. I should say at this point that it is recognised that there are many brokers and lenders out there, and many that I personally know—I have some of their businesses in my electorate—who already operate that way and meet the highest requirements. They are very ethical, they follow codes of practice set within their industries and they also have a view that the person they are lending to is not just a consumer of credit but a customer who they should seek to look after. That is important to note. This is not about beating up on those credit providers and brokers; this is to ensure there is a form of national recognition and a form of national consistency in how we go about regulating the activities of credit providers and credit brokers.

These bills also make it easier and less costly for consumers to follow various remedies where there have been inappropriate practices or irresponsible lending. The reform package includes several key components which I will now summarise. The credit bill will establish for the first time a comprehensive licensing system in this country that will apply a regime across all areas of credit providers—lenders; the providers of consumer credit broking services. For the first time, they will have to be licensed. They will have to take out what will be known as an Australian credit licence. This will be a robust licensing requirement; it certainly will provide enhanced, comprehensive and consistent protections to consumers in all elements of the consumer credit transaction. Because it is a licensing arrangement, where a licence will be taken out and renewed, it will have the ongoing effect of ensuring continual improvement and enhancement of standards that apply within the industry. Therefore, the consumer market can have some confidence not only that those who are obtaining Australian credit licences will be obliged for the sake of their ongoing licence applications to uphold a code of conduct but also that there will be a consistently applied legal regime setting out how they go about their business in either providing credit or broking as credit providers.

This arrangement will pretty quickly sort out those fringe players in the industry. I think we have all seen a number of examples of them. I would seriously doubt whether there would be one member in the chamber who has not had people visit or call their office concerned about the standard of contract that they have entered into. The fact is there are predatory players out there and their business is simply to provide credit and collect the fees. That does occur. We know of many examples where people have been provided with credit with little or no capacity to repay. That is not the problem of the person providing the credit, because they actually get their fee. They have signed these people to contracts but what they have done is tie families to impossible financial commitments, and not only does that create stress but also these inappropriate lending procedures impact on individual people and certainly on the local economy.

In order to gain a licence the person will need to be able to demonstrate that they are a fit and proper person to hold a licence. There will be other provisions attached to the licence, because it could be a broking service and there could be other people involved. There will be very stringent licensing requirements for the proper training of staff who will be engaged in the providing of credit or the supervising of the providing of credit. There will also be stringent requirements for organisations to supervise the agents or franchises that they might have under these arrangements. It should be noted that ASIC will publish guidelines for the industry, and they will actually demonstrate what people need to do to secure their licences. This will be of considerable benefit to those many small businesses out there involved in the industry, doing the right thing and ensuring that they meet the appropriate codes of conduct at the moment. They do not want to be bound by endless red tape, and this is a way of cutting through that and simplifying it as much as possible. The new credit laws in Australia will require lenders and advisers involved in these credit regimes to actually comply with these requirements.

This measure is an important and welcomed development. It certainly will be welcomed in Werriwa, being an outer metropolitan seat in the mortgage belt of Sydney. Next weekend, on Saturday night, I am attending a function for Lifeline. As you will be aware, Lifeline has a range of services, including counselling people in respect of suicide, and another arm of Lifeline at the moment is providing financial counselling services. The function on Saturday night is actually in honour of all those many volunteers that spend an inordinate amount of time looking after the interests of others in our community. To Mr Peter Mihajlovic, the CEO of Lifeline Macarthur, and all his volunteers, I wish them well and look forward to seeing them on Saturday night. On behalf of a very grateful community, I would like to thank him and all his team for what they do in looking after the interests of people in our community, particularly when it comes to issues such as counselling in relation to either suicide or depression, or in many instances now in respect of financial matters.

It is important to understand that because this is the development of a new federal procedure there will be some issues involved in moving away from a state system to a federal system. That is why specific transitional arrangements have been made for a turning-off procedure for current credit laws as they apply through some states and territories. As a consequence, certain procedures will ensure that there can be delayed action for the obligations flowing under the credit licences up until January 2011.

I will be very brief now. I also indicate that the provisions of these laws will make it significantly easier for customers of credit providers to ensure that their contracts are sound and fair. Remedies are available to them which will make it easier for them to ensure that their positions can be put through either the Federal Magistrates Court or state magistrates courts without the need for legal representation. By accessing the code underpinned by this, this arrangement is another way of making it easier for the obligations of credit providers to be realised and to ensure that those consumers who have credit are the beneficiaries of this legislation. I commend the bills to the House.

Tony Zappia (Makin, Australian Labor Party) Share this | Link to this | Hansard source

I rise to speak in support of 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. These are very important and very welcome bills. The three bills comprise the federal government’s national credit reform package, which will see responsibility for the regulation of consumer credit move from the states to the Commonwealth. These reforms were agreed upon with the states at the October 2008 meeting of the Council of Australian Governments. The National Consumer Credit Protection Bill 2009 develops a framework to license credit providers, brokers and intermediaries. Once licensed, these parties will need to adhere to responsible lending conduct requirements.

The National Consumer Credit Protection Bill 2009 also provides appropriate enforcement power to the Australian Securities and Investment Commission, which will be the regulator of the new national credit regime. It also puts in place court arrangements, remedies for consumers, penalties for licensing misconduct and the regulation of margin loans. The National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009 ensures a smooth changeover of the national credit regime for existing credit contracts and disputes. The National Consumer Credit Protection (Fees) Bill 2009 provides the mechanism to support administrative fees for various matters—for example, the lodging of documents with ASIC.

There are two key issues covered in this legislation that I will focus on. The first of these is the importance of a national consumer credit regime. The Rudd government was elected with a promise to cut red tape within Australia to make doing business across state lines easier. To deliver this promise, the COAG Business Regulation and Competition Working Group was established at the first COAG meeting after the election of the Rudd government in 2007. The working group is co-chaired by ministers Tanner and Emerson. It identified 27 priority reforms to break down red tape barriers between states and move Australia to a seamless national economy. Related to that particular issue, we now live in a global economy. We now have a number of measures in place, as we recently saw with the G20 meeting in London, where we need not only consistency in national laws but consistency in international laws. To think that in 2009 we in Australia are still operating under a system where each of the six states and the two territories have independent laws relating to the same matter is totally absurd and is certainly making life for business and consumers very difficult. That is why these bills are indeed welcome.

The reforms create nationwide consistency in areas such as occupational health and safety laws. I recall the debate in this place only in recent weeks referring and relating to workplace safety, a matter on which there ought to be consistency across the country. Licensing of tradespeople is something that I see time and time again as contractors win contracts between states. A contractor from one state may well win a contract in another state. They find continuous difficulty in many of their tradespeople not being licensed in the other state; therefore, it creates all kinds of barriers and problems. It seems to me that we need to overcome those problems, and this is the kind of move that goes a long way towards doing that. This bill addresses the registering of business names, maritime regulation, food regulation and, of course, the implementation of a national consumer credit regime.

The progress report of the working group at the July 2009 COAG meeting in Darwin showed that, of the 27 priority reforms, two are already in place, 23 of the remaining 25 reforms are on schedule as laid out in the working group’s implementation plan and the remaining two areas, where reform has been slower than anticipated, will go to COAG to ensure they are advanced. Through this legislation the national consumer credit regime is one of those 23 reforms on track to be implemented as planned. This progress shows that the Rudd government is not just a government that talks about reform but a government that delivers on reform and implements the measures needed to make it easier for small business to do business across Australia. The Howard government talked a lot about cooperative federalism and what was being accomplished through COAG, but we did not see many results. Whether it be the management of the Murray River, a national consumer credit regime or any one of the other reforms being implemented through the COAG working group, it is the Rudd government that achieves results in making it easier to do business across the nation. In doing that, it highlights the support that this government has for the business sector in Australia. Time and time again I hear in this chamber members opposite talking about how they are the friends of business in this country—how they are the ones who support business. Regrettably, their words are not matched with action. When it comes to supportive action for the business community of Australia, this government is acting.

A national consumer credit regime is very important because business does not stop at state lines, as I said earlier on. It makes sense for national and international credit providers to be working under one standard regime throughout Australia. Many of the businesses that exist in this country now operate with offices and branches across the country; it is common business practice. If they do not have offices, they might have agents working in other parts of the country. We need to have that consistency. But we also need to have a reduction in the regulatory burden that is being placed on businesses. To have to register the same business in each state and perhaps the two territories is not only costly but time consuming and, quite frankly, in today’s modern era should be unnecessary. That is what we should aim for and this bill goes a long way to achieving that.

The bill also provides greater clarity and convenience for consumers. Consumers who move interstate or purchase from interstate providers will know they are dealing with one standard set of consumer credit laws. It will also provide them with easier mechanisms through which they can lodge a complaint. Regardless of which state the credit provider is located within, they will have the option of lodging a complaint through the ASIC office in their own state. On several occasions I have been contacted by my constituents in Makin seeking assistance with consumer issues arising from their dealing with interstate companies, which are of course covered under that particular state’s consumer laws. It is always difficult trying to provide real assistance to them because of that and because you are dealing with a company that is based interstate. Therefore, having consistency will be of great benefit to consumers wherever they might be located in Australia.

I also note that, as part of its implementation of all these changes, ASIC will be employing about 100 new staff. I welcome the advice that some of these staff will be based in Adelaide. Given the impact of the global financial crisis on employment in the financial services sector, I welcome the move by ASIC to hire new staff and to regulate the new consumer credit regime.

The second aspect of this bill I would like to address in detail is responsible lending. Credit providers licensed under this regime will need to engage in responsible lending conduct and must not provide credit products and services that are unsuitable to consumers’ needs and that the consumer does not have the capacity to repay. If there is one specific action that has led to the global economic crisis, it would have to be irresponsible lending. The crisis began as a crisis in the US home mortgage sector, where consumers were offered loans that were unsuitable to their needs and that the consumer obviously did not have the capacity to repay. These loans were based on the premise that, when the unsuitable lender did eventually default, the mortgage provider was covered either by the increase in the property’s value since the loan was made or by the fact that the liability for the loan had been packaged into a financial product and on-sold to another institution, thus spreading the risk of the bad loan.

The crisis that began in the US housing sector spread throughout the financial industry and then to the broader economy. It all began with irresponsible lending practices. The crisis began because in both housing and consumer credit consumers were offered loans they had no capacity to repay. Sadly, this is often done by agents who act on commission and have no regard for the long-term consequences of the loan that they might be encouraging or facilitating for consumers.

The Australian financial services industry has not been hit as hard by the global economic crisis as its counterparts in nations like the USA, Great Britain, Ireland and Iceland. It would be fair to say that one of the reasons for this is the lending practices within Australia have been better regulated than those in other countries. In fact, the Prime Minister and Treasurer both had positive responses when holding up the regulation of Australia’s financial system as a model for the rest of the world at G20 meetings earlier this year. Just because our industry is better off than most does not however mean that we should be complacent or assume that it does not need reform. This national consumer credit regime is certainly a positive step. There are other measures in this bill that I also welcome such as the regulation of margin lending loans, which played such a significant role in the demise of firms such as ABC Learning and Babcock and Brown, which no longer exist in the form they did before the global economic crisis.

The national consumer credit regime will be good for business, it will be good for consumers, it will help restore the confidence that Australians have in their financial system and it will be another significant step in the Rudd government’s reform package that will, in partnership with the states, truly create a new era in federal-state relations in Australia. I commend the bill to the House.

Chris Bowen (Prospect, Australian Labor Party, Minister for Financial Services, Superannuation and Corporate Law) Share this | Link to this | Hansard source

in reply—I thank the member for Makin and the other members who have contributed to this debate: the members for Oxley, Werriwa, Robertson, Aston and Pearce. I agree with the comments by the member for Makin, and particularly note his welcoming of the fact that a considerable number of the ASIC staff to be dealing with the new credit regime will be based in Adelaide. He is correct. I recently visited the ASIC Adelaide office and a very considerable number of staff will be added to the Adelaide office, and they are very much looking forward to the increased responsibility they have as part of this reform.

This reform is long overdue. There is no good or rational reason for different regimes relating to credit in Australia. We should have one national regime and, when this National Consumer Credit Protection Bill 2009 and cognate legislation pass, we will have one national regime. This is an important part of our federalist approach of reviewing regulations and ensuring much greater harmony cross state and territory borders, and ensuring a national approach to regulation wherever possible. This bill also introduces for the first time a national responsible lending regime. We always knew that this would be controversial. We always knew that there would be some who would say we should have gone further and some who would say we should not have gone as far. Nevertheless, we do believe we have struck a reasonable balance and that there will be considerable benefits for consumers in having a national responsible lending regime. At the same time, compliance costs for business will be kept to a minimum and reduced as a result of having one national consumer credit regime.

I thank all honourable members who have contributed to this debate. I do thank the member for Aston, the shadow minister, for his contribution and constructive approach, outlined to the House and also discussed with me and my office outside the House. He has raised a number of issues. He raised the issue of whether director loans should be exempt on the same basis that employee loans are exempt. I have indicated to him outside the House that I would be happy to consider that. I will say inside the House that I will consider it as the bill proceeds through both houses.

He also made comment in relation to debt buyers and raised the issue of whether there should be an exemption for debt buyers as opposed to debt collectors in the bill. I have received preliminary advice on this matter which indicates that debt buyers need to be considered separately to debt collectors. Debt collectors are only involved if there is a default on the loan. To exempt them, I am advised, would create a potential loophole where many of the obligations under the bill could be avoided by a lender immediately assigning all of their credit contracts to a third party, who would not need to be licensed. I am happy to discuss this matter with the member for Aston in good faith, as I accept that he has raised it in good faith, but there would be very considerable concerns that would need to be worked through in relation to the proposal and suggestion that he has made.

The member for Aston also referred to the need to fast-track the process of dealing with positive credit reporting. He would be aware that the government is working through a report in relation to that matter and will be responding in due course. The matter is proceeding through the processes of government. I note the concerns of the member for Aston in relation to the start date of 1 January. I must note that I am not convinced of the need to postpone commencement. When it comes to both registration and licensing, I would note that the Treasury and ASIC are working very closely indeed with industry, to ensure that authorised deposit-taking institutions and companies that currently hold an AFSL will be aided as much as possible in transitioning to the new arrangements and the regulatory burden of making the transition should be minimal.

The member for Pearce raised a concern that there would be a regulatory gap of 12 months in relation to brokers. The member for Pearce may not have been aware of the recent announcement that that would not be the case. Brokers and other non-ADI lenders would be dealt with through a fast-track regime, or a regime which more closely reflected the regional start date, where there are considerable difficulties for ADIs in meeting the start date.

In conclusion, this is a very important reform. It is a reform that governments have spoken of for many years and indeed for many decades but it is a reform which has eluded governments. We are proud that we have been able to deliver this reform, subject to the wishes of both houses of parliament. We thank our state colleagues for their cooperation and for the very constructive way in which they have engaged in discussions, particularly with my predecessor as minister for corporate law, the Hon. Senator Nick Sherry, and with me, in progressing this reform. I commend these very important forms to the House.

Question agreed to.

Bill read a second time.

Message from the Governor-General recommending appropriation announced.