Slade Brockman (WA, Liberal Party) Share this | Hansard source

I too rise to speak on the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Bill 2019. I will follow on from the contribution of Senator Askew to highlight or perhaps expand on some of the points she made. In the wash-up of the Hayne royal commission, as we look at some of the revelations that shocked the Australian community and shocked members of this place in terms of the depth and breadth and systemic nature of some of the problems in the industry, we also must remember that 30 years of continuous economic growth had many underpinnings, but one was a robust and highly performing financial sector. We can't ignore that fact as we now deal with the repercussions and recommendations of the Hayne royal commission. So, whilst there were problems and there are problems, and those problems need to be addressed, there is also a fundamental underpinning of a very good structure across the financial system, across our banking system. It is a competitive market with a number of smaller players, who I personally think need to be encouraged and supported by our regulatory regime, but we also have four major institutions in that space. So we do have to remember both the good and the bad. When we are dealing with these issues we must deal with them in a responsible way and in a way that enhances our financial services system. And that is what this bill seeks to do.

In terms of the three issues covered by this bill, obviously insurance contracts are front of mind at the moment as we deal with the recovery following the bushfires in January and ongoing. In the north we've had some significant rain events, which will also call on our insurance providers, and we obviously still have the remainder of the fire season this year to go. So the insurance issues are very much front of mind for many Australians. Schedule 1 of the bill ensures that unfair contract terms in insurance contracts are read in such a way as to protect consumers. So unfair contract terms should not be read in such a way as to be to the detriment of consumers. We need to stop technical restrictions in contract terms that in practice result in a level of functional underinsurance, where people believe themselves to be covered by the overarching nature of the policy they hold. It's about protecting consumers who, in this context, do lack bargaining power and receive a contract on a 'take it or leave it' basis. Particularly where there are thin markets—and they do exist, as many in this place have heard, particularly in the north of Australia—effectively the contracts are 'take it or leave it'—there aren't other providers or companies to go to and negotiate a better deal. Even if there were, chances are it would be another 'take it or leave it' proposition.

Let's face it: insurance contracts can also be very complex for consumers. I believe it's important that we encourage consumers to engage with some of the complexities of the financial services system rather than saying that regulation can foresee all circumstances in a particular contract. But, at the same time, we don't want consumers in these circumstances to be unfairly dealt with where they believe they have insurance and they effectively don't have it due to an unfair exclusion or onerous condition within the contract. This provides a protection in cases where an insurer has attempted to deny a claim or restrict the payout available to a consumer or small business on the basis of an unfair term. For insurance contracts, the regime will be tailored to increase clarity and certainty for industry and consumers. This includes defining the up-front price as premiums and excess or deductions payable, and defining the main subject matter of the contract as what is being insured. This is in line with the royal commission recommendation for point 7.

On the issue of the main subject matter—and I think this is key to this particular schedule—it's the idea that the main subject matter of an insurance contract can never be described as an unfair contract term. So, if the main subject matter is an insurance contract for a particular property—a four-bedroom, brick and tile house—then that is outside the idea of the unfair contract term regime. If a husband and wife purchase life insurance then the individuals involved and the sum that is insured are the main subject matter, and that is outside the unfair contract terms regime. However, other aspects, extraneous matters to the central contract of insurance, will be within the unfair contract terms.

I will move on to the funeral expense facilities which are covered in schedule 2. As Senator McCarthy very eloquently described, the royal commission did find, particularly amongst Indigenous communities, a level of exploitation of people in relation to the payment of funeral expenses in advance. That was certainly something that shocked many of us—the level of unfairness and exploitation that was involved in some of those examples. It wasn't just the Indigenous community; vulnerable consumers across Australia were open to being exploited in this way by some of the funeral expense policy providers. The current exemption in the Corporations Act that has allowed providers to escape the scrutiny of the Australian Securities and Investments Commission will be removed. That will mean that they will now become subject to the Australian financial services licensing regime. That means that the consumer protection provisions of the ASIC Act will now apply to funeral expense policies, clarifying any ambiguities that may exist in the current arrangements. The removal of the exemption will ensure that consumers have appropriate protections when taking out policies to help fund the costs associated with a funeral. The provision of prepaid funerals will also be unaffected by these reforms on the grounds that they will be able to rely on the funeral benefit exemption in the Corporations Act. This bill will come into effect after royal assent, and providers of funeral expense policies that do not have a financial services licence will have until 1 April 2020 to gain one.

Just briefly and finally, schedule 3 of the bill addresses the issue of mortgage brokers. This schedule fulfils the government's commitment to implementing the response to two recommendations from the royal commission. It introduces a best-interest duty for mortgage brokers and reforms mortgage-broker remuneration. The regulation sets out the details of the reform to remuneration. The best-interest duty will require mortgage brokers to act in the best interests of consumers when providing credit assistance in relation to credit contracts. This obligation will bring the law in line with what consumers currently expect of mortgage brokers. Together, the bill and the regulation will make changes to mortgage-broker remuneration by requiring the value of up-front commissions to be linked to the amount drawn down by borrowers instead of the loan amount, by banning campaign and volume based commissions and payments, and by capping soft dollar benefits. The new rules will also limit the period over which commissions can be clawed back from aggregators and brokers to two years and will prohibit the cost of clawback being passed on to consumers.

There was some evidence provided at the royal commission that mortgage brokers were recommending loans based on the commissions they received. These changes will mitigate the incentives for mortgage brokers to suggest loans that are not in the best interest of the consumer.

Again, we have a long way to go in terms of our response to the Hayne royal commission. It was a significant body of work. It is important that we hasten slowly. We need to make sure we get the balance right. We need to make sure that the regulation and changes to the legal framework that we put in place for our financial sector do strike the correct balance. We do not want a financial services sector that has served this country very well to be tied up in too much red tape. However, we also need to ensure that the Australian public have confidence in the financial sector and have confidence that, when they are in dealings with the financial sector, they will be treated in an ethical, a responsible and a legal way.