Nick Xenophon (SA, Independent) Share this | Hansard source

I move:

(2)   Schedule 1, page 25 (after line 20), at the end of the Schedule, add:

National Consumer Credit Protection Act 2009

3 Before section 31 of the National Credit Code (in Division 4 of Part 2)

Insert:

30C Credit fees or charges relating to credit contracts

(1)   A credit fee or charge payable by a debtor to a credit provider must be reasonable.

(2)   ASIC may, if satisfied on the application of a debtor or guarantor that a credit fee or charge is not reasonable, apply to the court for an order annulling or reducing the credit fee or charge and for any other ancillary or consequential orders.

(3)   In determining whether a credit fee or charge is not reasonable, ASIC must have regard to whether the amount of the credit fee or charge materially exceeds:

  (a)   the credit provider's reasonable costs of undertaking the activity or service to which the credit fee or charge relates; or

  (b)    the credit provider's average reasonable costs of undertaking the activity or service to which the credit fee or charge relates in respect of that class of contract.

(4)   In considering an application by ASIC under subsection (2), the court must have regard to whether the amount of the credit fee or charge the subject of the application materially exceeds:

  (a)   the credit provider's reasonable costs of undertaking the activity or service to which the credit fee or charge relates; or

  (b)    the credit provider's average reasonable costs of undertaking the activity or service to which the credit fee or charge relates in respect of that class of contract.

This amendment is also the subject of a private senator's bill that I introduced in the last sitting week. I hope it will be subject to an inquiry. I urge my colleagues to support this because it is quite straightforward in what it is intending to do. I am grateful for the advice I have received on this from Associate Professor Zumbo, from the University of New South Wales School of Business. He has been a long-time champion for small businesses and for the rights of consumers.

This provision seeks to modify the current Consumer Protection Code and is entirely consistent with what this legislation is trying to achieve—that is, to empower consumers, to give them more information and to level the playing field for consumers. The current rules state that ASIC has the power to strike down any unconscionable terms in relation to early termination fees for residential loans, unconscionable fees and unfair contract terms. This provision seeks to introduce a reasonableness test into the National Consumer Credit Protection Act 2009 for any credit fee charge payable by a debtor to a credit provider.

I know there have been concerns about the level of bank fees, not just exit fees, that are charged. This amendment states that any fee or charge that relates to the provision of credit, whether it is a personal loan, a mortgage or a credit card, must be reason­able as compared to the cost of undertaking the activity by the credit provider. That means that smaller lenders may have a different fee structure. They might be charging more for termination fees or penalty fees than a bigger institution. Having a reasonableness test—so there is some material link between what is being charged and what it is actually costing that institu­tion—is entirely consistent with the National Consumer Credit Protection Act in its current form. It is about giving some certainty. It is about having a specific test that targets the whole issue of unreasonable fees.

The whole issue is one of materiality. ASIC's Regulatory guide 220issued in November 2010 is welcomed but it does not give the clarity that I believe is required. You need to have a link between the materiality of charges that a lending institution is hitting a consumer with and the issue of reasonableness. To say that you must apply the test to consider the issue of materiality I think would make a big difference. This amendment states:

In determining whether a credit fee or charge is not reasonable, ASIC must have regard to whether the amount of the credit fee or charge materially exceeds:

(a)   the credit provider's reasonable costs of undertaking the activity or service to which the credit fee or charge relates; or

(b)    the credit provider's average reasonable costs of undertaking the activity or service to which the credit fee or charge relates in respect of that class of contract.

Again, that is the question of reasonableness and materiality.

I understand that the government and the opposition do not support this, but I would like to hear them say whether there is enough specificity and clarity under the current ASIC guidelines. This is a reasonable amend­ment that will give clarity and cer­tainty to lending institutions and consumers and will prevent the sort of gouging we see with various credit fees.