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Chapter 7
Unsolicited residential sale of credit dependent products
7.1
The committee received five submissions about a proposal in the Exposure
Draft Enhancements Bill to extend existing restrictions under the National
Credit Code on the unsolicited residential sales of credit.[1] While the measure is not
contained in the Enhancements Bill as presented to the House of Representatives
on 21 September 2011, the committee notes advice from the Direct
Selling Association of Australia that on 7 October 2011 Treasury circulated
revised draft legislation, allocating two weeks for industry comment.[2]
The committee therefore outlines the concerns with the proposal as presented in
evidence before the committee, for use by Government and Parliament should the
proposal be further considered.
7.2
Currently, under section 156 of the National Credit Code, it is an
offence for credit providers to visit a place of residence to offer credit
contracts without prior invitation. Subsection 156(2) expressly states that the
offence does not apply to the unsolicited residential sale of credit dependent
products. That is, credit providers may approach residential property, without
invitation, to offer a credit contract to finance the purchase of
simultaneously advertised goods. Colloquially, such sales are known as 'direct
sales' or 'door-to-door sales' that include the provision of credit.
7.3
As outlined the Exposure Draft, the proposal would repeal existing section 156
and replace with a section that would prohibit the unsolicited residential sale
of credit dependent products. The committee was not provided with a copy of the
draft legislation as circulated by Treasury on 7 October 2011. However, the committee
note that the proposal was set out a clause 156 of the Exposure Draft, which is
extracted in full at Appendix 5.
7.4
As contained in the Exposure Draft, clause 156 would also limit the
circumstances in which the conduct would be considered to be invited.[3]
Concerns with the proposal
7.5
The submissions addressing the proposal are highly critical. The Direct
Selling Association of Australia argued that if introduced the proposal would
'effectively prohibit' door-to-door credit dependent sale of products.[4]
The view was shared by A Better Chance Pty Ltd.[5]
7.6
The commentary that accompanied the Exposure Draft stated that it is necessary
to prohibit the unsolicited residential sale of credit dependent products to 'address
the particular risks associated with sales presentations in the home of the
consumer as a result of an uninvited visit'.[6]
However, this view was not supported by evidence submitted to the committee.
7.7
The Direct Selling Association of Australia argued:
[t]he proposed changed is unnecessary as existing legislation
in the National Consumer Credit Protection Act and the National Credit Code
already contains significant consumer protections to prohibit unfair and
unconscionable practices as well as a stringent licensing regime for credit
providers...The existing ACL and National Credit Code provisions adequately
cover any issues of consumer vulnerability and there is no evidence of
widespread consumer complaint or prosecutions that could justify any wholesale
policy shift.'[7]
7.8
A Better Chance Pty Ltd also noted the protection afforded to consumers
under the NCCP Act and the National Credit Code, and further submitted that the
introduction of the proposed measures was 'premature', as the effect of the
NCCP Act and the National Credit Code on credit provider practice has not yet been
evaluated.[8]
Similarly, UCFS Australia questioned the evidence base for the proposal,
stating that:
[t]he proposal...assumes that the comprehensive provisions of
the Australian Consumer Law so recently agreed by COAG in relation to unsolicited
consumer agreements have already failed despite very limited opportunity to
assess their effectiveness in relation to industry behaviour and despite the
fact that the provisions remain untested by an Australian regulator.[9]
7.9
It was also questioned whether the proposal would facilitate an
appropriate balance between consumer protection and a robust credit industry.
Tony Davis and Associates characterised the proposal as 'dramatic overkill' and
stated that '[t]he objective of protecting vulnerable consumers is greatly
disproportionate to the impact the proposed section would have on certain
business within the alternative marketing industry.'[10]
Commending the Government for not including the proposed measure in the
Enhancements Bill, the AFC commented that the organisation 'looks forward to
providing responses to the Discussion Paper on this issue with a view to
ensuring a regulatory response that appropriately identifies and addresses
market failure and consumer risk in this area.'[11]
7.10
Concerns were also raised with the consultation process. While noting discussion
in the Green Paper about the regulation of unsolicited sales, the Direct
Selling Association of Australia commented that no consultation had occurred
prior to the release of the Exposure Draft.[12]
Committee view
7.11
As the proposal is not part of the Enhancements Bill as of the date of
this report, the committee does not draw conclusions about the possible
restrictions on the unsolicited residential sale of credit dependent products. However,
the committee draws to the Government's attention the concerns with the
possible restriction should the proposal be further considered.
Mr Bernie Ripoll MP
Chair
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