Kimberley Kitching (Victoria, Australian Labor Party, Shadow Assistant Minister for Government Accountability) Share this | Hansard source

The Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Bill 2019 has been a while coming. It took the government 27 starts before it voted for a royal commission, and it seems to be taking it a commensurately long time to implement the recommendations of that royal commission. This bill finally implements four of the government's long list of unmet commitments from its response to the banking royal commission. This bill, when it finally passes the parliament, will bring the government to a grand total of 10 out of the 76 recommendations with the actions completed.

This bill does three things. Schedule 1 of the bill extends unfair contract term laws to cover insurance contracts. Schedule 2 of the bill brings funeral insurance into the general financial consumer protections regime. And schedule 3 of the bill introduces a best-interest duty for mortgage brokers and provides for regulations to reform mortgage broker regulation. I will step out the effect of each of these changes and why they are important.

Schedule 1 of the bill brings insurance contracts from the Insurance Contracts Act 1984 into the unfair contracts regime established under the ASIC Act. This is important because of the widespread use of standard form contracts by many businesses. These are essentially used on a 'take it or leave it' basis. I need to be clear. Although this is a reasonable business practice, it leaves customers with no power to negotiate with businesses if elements of a standard form contract are unfair. This is why Labor introduced the unfair contract terms regime in 2010, to protect consumers from exploitation and unfairness. Under the regime, terms in standard contract terms are nullified if they are found to be unfair, but until now insurance contracts have been exempt from this regime.

This has been highlighted as an issue for a while now. Commissioner Hayne, in his final report back in February, recommended that unfair contract terms be extended to cover insurance contracts. It was recommendation 6 of the Australian Competition and Consumer Commission's interim report into northern Australian insurance in 2018. It was recommendation 3.1 of the 2018 Parliamentary Joint Committee on Corporations and Financial Services bipartisan report into the life insurance industry. It was recommendation 11 of the 2017 Senate Economics References Committee's inquiry into the general insurance industry. And it was proposal 10 of the 2017 Australian Consumer Law Review.

There are some clear indications of harm. A 2012 government report estimated that, from available data on insurance claims, the detriments faced by customers as a result could be up to $10 million per annum. Since 2012 we have only seen the number and intensity of floods and bushfires increase. Australian insurance customers have suffered at least $20 million in detriments from unfair contract terms, and there has been report after report recommending that this government take action on this issue.

There is a clear question of priorities, of course, as well. Why has the government delayed introducing this legislation? I guess it's better late than never. The new law will bring insurance contracts into the unfair contract terms regime, but there are some sensible further refinements to address the unique issues relating to insurance contracts. Terms that define the main subject matter of an insurance contract will be excluded from the regime. Terms determining the upfront prices, excesses and deductibles will be excluded where they are disclosed in a transparent manner. And the duty of utmost good faith will continue to apply to insurance contracts. These refinements will ensure that insurers can offer insurance contracts with the knowledge necessary to set prices and assess risks, while consumers are protected by the new features of the regime.

In relation to funeral insurance, schedule 2 of the bill ensures that consumer protection provisions of the Australian Securities and Investments Commission Act 2001 apply to funeral expenses policies. The amendments do not impact the treatment of prepaid funerals, which continue to operate as funeral benefits. Some of the most distressing stories arising from the royal commission were in relation to funeral insurance. Labor welcomes this change. Commissioner Hayne was searing in his condemnation of so-called funeral expenses policies.

We also need to recognise the particular importance of Aboriginal and Torres Strait Islander people living in remote and regional Australia who are likely to purchase funeral insurance. The story of the so-called Aboriginal Community Benefit Fund is particularly extraordinary—a for-profit funeral insurance company that was neither run by Indigenous Australians nor run for their benefit or the benefit of their communities. This company, now trading as Youpla Inc., sold funeral insurance products to Indigenous Australians which lead to them paying more in premiums than their families could ever potentially claim in benefits. This company until recently had a direct relationship with Centrelink's Centrepay system, allowing them to deduct premiums directly from Centrelink payments. This company built a business model on exploiting the genuine desire of Indigenous Australians to ensure that their families were not left penniless at their passage. While Labor welcome the amendments in this schedule and see that they will put an end to a particularly sorry business model, we want to ensure that the approximately 19,000 policyholders who bought funeral insurance products in good faith are not left in limbo.

Schedule 3 of the bill introduces a best-interests duty for mortgage brokers that will ensure the consumer's interests are prioritised when a mortgage broker provides credit assistance. This will mean that a duty will apply in relation to the provision of consumer credit assistance. The policy also provides a regulation-making power to regulate mortgage broker remuneration. The draft regulations set out by the government require that the value of upfront commissions be linked to the amount drawn down by borrowers instead of the loan payment, ban campaign and volume based commissions and payments, and cap soft dollar benefits. Further, the period over which commissions can be clawed back from aggregators and mortgage brokers will be limited to two years, and passing on this cost to consumers will be prohibited.

We support these reforms and note that the Productivity Commission has found that the competitiveness of Australia's home loan market is now dependent on mortgage brokers. It will be important to ensure that these reforms work as intended. I note that the government has committed to a review of the mortgage broker reforms in three years time and yet this commitment appears nowhere in the legislation. While Labor will not be blocking passage of this bill, we will be working hard to ensure that this review takes place as promised.