Chapter 1
The Committee Inquiry
Introduction
1.1
On 25 June 2009 the Senate Selection of Bills Committee referred the
bills that make up the 'Consumer Credit Protection Reform Package'[1]
to the Senate Economics Legislation Committee for inquiry and report by 13
August 2009. The reporting date was later extended to 7 September 2009.
1.2
The package comprises the National Consumer Credit Protection Bill 2009,
the National Consumer Credit Protection (Fees) Bill 2009, the National Consumer
Credit Protection (Transitional and Consequential Provision) Bill 2009 and the
Corporations Legislation Amendment (Financial Services Modernisation) Bill
2009. The last bill is somewhat independent of the others and contains a number
of new strategies for the regulation of margin lending, trustee corporations and
promissory notes.
1.3
The bills give effect to the agreement by the Council of Australia
Governments (COAG) to the Commonwealth assuming responsibility for regulation
of all consumer credit.[2]
Conduct of the inquiry
1.4
The Committee advertised the inquiry in the national press and invited
written submissions by 17 July 2009. Details of the inquiry were placed on the
Committee's website and the Committee also wrote to a number of organisations
and stakeholder groups inviting written submissions. The 58 submissions
received by the Committee are listed in Appendix 1.
1.5
Three public hearings were held by the Committee, in Canberra on 21
August 2009 and in Sydney on 24 and 26 August 2009. A list of witnesses
appearing before the Committee is provided at Appendix 2.
1.6
The Committee thanks the submitters and witnesses who participated in
this inquiry.
Timing and passage
1.7
The Government has announced the following timeline for implementation
of the National Consumer Credit Protection (NCCP) reform package:
- From 1 November 2009 credit providers and credit assistants will
have to register for the new system (which Treasury expects to be a fairly
'light touch' process)[3].
- Between 1 January 2010 and 30 June 2010, credit providers and
credit assistants will have to be issued with an Australian Credit Licence
(ACL).
- On 1 January 2010, the main suite of changes, including the
increased hardship threshold, commences for credit providers and credit
assistants other than banks and Australian finance companies.
- On 1 July 2010 some of the new responsible lending obligations
and other improvements that form part of phase 1 commence.
- On 1 January 2011 the full range of responsible lending obligations
commence for everyone (including banks and Australian finance companies).
1.8
Treasury explained some of the important issues relating to this
timeline:
Part of the timing problem is the fact that this bill needs a
referral from the states and territories for constitutional reasons. For them
to actually do their referrals we have to give them a bill in its final form,
or in as near to final form as possible, for them to pass their amending
references. In our view the bill will be in its almost final form at the time
it finishes with the Senate processes, whenever that might be. It will be at
that point when we can hand a version of the bill to the states and territories
and say, ‘Go and do your referrals.’
The later that is, the less time the states and territories
have to pass their referrals.[4]
1.9
There could be difficulties if the Parliament did not pass the bills
before 1 November 2009:
...[the States] definitely need to have [the bills] through
before 1 January, because that is when most of the measures commence. We expect
that some of the states will have difficulties getting their referrals through
by 1 November, but we have contingency plans for how the registration
process can continue to run in the meantime. The critical date for referrals is
1 January 2010 because that is when effectively all the main provisions in the
new national consumer code commence...
If, because of the time it takes to get through the Senate,
there are states that cannot get their references through by 1 January, it
would probably mean a deferral of up to six months.[5]
Evidence given in relation to
timing
1.10
A number of witnesses commented on the impact that the timing and
implementation of the reforms will have on consumers, credit providers and
organisations which provide credit assistance. There were essentially two
broad concerns. Industry representatives were concerned that starting some
aspects of the scheme in January 2010 gave insufficient time for preparation
and training. Others expressed concern about the delay until 2011 of some of
the responsible lending aspects of the bills.
The starting date
1.11
The Business Council of Australia highlighted the need for sufficient
time for businesses to adapt to the costs associated with the new regulations.
They said:
The BCA notes that the new regime imposes many additional
requirements on businesses, including licences, insurance requirements and
significant new disclosure requirements (amongst other things). As a
consequence it will be necessary for businesses to devote significant new
resources towards compliance, including changes to documentation and internal
processes as well as training employees.[6]
1.12
The Australian Bankers' Association has also indicated the importance of
allowing sufficient time for credit providers to prepare for the new
regulations:
...the NCCP will impose a number of new obligations that banks
need to understand, develop procedures and IT systems, new documentation and
train their employees and credit agents to ensure they are fully compliant.
There are severe civil and criminal penalties for
non-compliance with the responsible lending regime and certain other provisions
of the NCCP. The final terms of the NCCP will not be known until October at the
earliest. ASIC has yet to provide its regulatory guidance on responsible
lending and the proposed regulations for the NCCP are not available.
Implementation of compliance procedures, practices,
documentary and staff training requirements cannot really begin efficiently and
effectively in an integrated way until all of these details are known and
settled.[7]
1.13
GE Capital Finance, a leading non-bank provider of consumer finance also
worried that the timetable was unrealistic:
Credit providers are required to comply with the NCCC by 1st January 2010. The NCCC contains a number of changes from the UCCC requirements.
The details of these changes are in some cases to be provided in Regulations
that have not yet been published. Without the "full picture" of these
changes it is impossible for credit providers to design and implement the
necessary changes to IT systems and other business processes efficiently and
effectively.[8]
1.14
The Securities and Derivatives Industry Association expressed their
concerns:
With the possibility Bill and Regulations may be passed in
the Spring sittings, with an implementation date of 1 November (or possibly
later), our Members are very concerned about the severe logistical burdens for
the whole industry – Lenders and Advisers – and their clients... Many of the new
changes will necessitate systems, procedural and operational changes. Heading
into the Christmas/New Year holiday season, many firms impose freezes on
systems developments, making it a particularly difficult time in which to
implement new systems.[9]
Commencement of responsible lending
provisions
1.15
Some consumer advocate groups indicated their disappointment with the
delayed commencement of the responsible lending obligations until 1 January
2011.
The delayed implementation of the Responsible Lending Conduct
provisions of the Bill, which will not come into force until January 2011 is
seriously disappointing. We are particularly concerned about the consequences
of this delay in relation to brokers and fringe lenders.
Consumer groups have lobbied since prior to 2003 for
comprehensive national broker legislation. We are very disappointed to have to
wait another 18 months. Further, unless the States and Commonwealth agree on
urgent action to address the situation, the law may instead go seriously
backwards in four States, including the most populous states, for a period of
twelve months.[10]
1.16
The Mortgage and Finance Association of Australia (MFAA) expressed a
similar concern:
These provisions of the Bill are the heart and soul of the
legislation, so a decision to delay their operation is tantamount to a decision
to delay consumer credit protection for 12 months. But it is more than that
because 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.
MFAA members are already operating in an association
regulatory regime which is at least equivalent, and in some respects superior,
to the proposed legislation. There is no desire on their part to delay the
legislation.[11]
1.17
Later, at the public hearing on 24 August 2009, their Chief Executive
Officer said:
I now know that Minister Bowen has made a statement which
changes that and which brings forward the regulation of brokers to 1 January
2010. I suppose that some of our members might say that that is unequal
treatment, in that some credit providers are being given a year off and we have
to start from year one, but we are quite comfortable with that. As we say in
our submission, our membership requirements are at least equal to and in some
cases better than what is in the legislation, so we do not have a concern about
that.[12]
1.18
Abacus-Australian Mutuals supported the 'solid platform for the
regulation of consumer credit' as laid down by the bills.[13]
However he commented that the effectiveness of the framework will be
significantly reliant on how the regulator – the Australian Securities and
Investments Commission (ASIC) – implements the new reforms.
If ASIC repeats mistakes experienced in the implementation of
the FSR reforms through the formulation of highly prescriptive, ineffective and
inflexible regulation then consumers and lenders will be poorly served...
ASIC is currently publishing a range of consultation papers
that provide drafts of their proposed regulatory guides. These guides are
important signposts to industry, and ASIC deserves some kudos for providing
guides that, on their face, appear to avoid the mistakes of the past. However,
the test may well be in the implementation once the regime commences. We are
hopeful that the regulator will continue to apply its authority in efficient,
flexible ways, allowing institutions like ourselves to adopt different
approaches to issues like staff training rather than reverting to a one‑size‑fits-all
approach. The importance of effective regulatory oversight should not be
underestimated and we will of course continue to work with ASIC to achieve good
outcomes in that respect.[14]
Committee view
1.19
The Committee understands why many groups are keen to have national
legislation in place, to ensure consumers are appropriately protected, as soon
as possible. However, for the legislation to be effective it is necessary to
allow sufficient time for industry to prepare.
1.20
The Committee feels that the Government's two phased approach will allow
sufficient time for the Government and ASIC to undertake further consultation
on the more contentious reforms. However, the Committee is concerned that three
to four months may not be sufficient time for the industry to prepare for the
measures currently scheduled to commence in January 2010.
1.21
The Committee also recognises the importance of allowing sufficient time
for state and territory governments to initiate their referral to the
Commonwealth.
Recommendation 1
The Committee recommends that at least the first three bills
be passed, subject to the Committee's recommendations, before 1 November 2009
to facilitate the necessary referrals by state parliaments.
Recommendation 2
The Committee recommends that implementation of the reforms
due to begin on January 1 2010 be deferred to 1 July 2010 to allow
sufficient time for industry to prepare and ensure state parliaments are able
to facilitate the necessary referrals. However the responsible lending
provisions due to start on 1 January 2011, should still operate from this date.
Recommendation 3
The Committee recommends that State Parliaments ensure their
own ‘turn off dates’ are legislated for so that consumers are not left without
protection before the national licensing scheme is in place.
Structure of the report
1.22
Chapter 2 provides a brief background to the regulation of consumer
credit in Australia and contains an overview of the National Consumer Credit
Protection Reform package. Chapter 3 of this interim report provides an
in-depth analysis of the evidence the Committee received on the first three
bills and its recommendations on them. Chapter 4 addresses the Corporations
Legislation Amendment (Financial Services Modernisation) Bill 2009.
1.23
To assist the Senate's consideration of the recommendations contained in
this report, the Committee has prepared two suggested draft amendments which
demonstrate how Recommendations 5 and 6 could potentially be implemented. The
suggested amendments are attached at Appendix 3.
Navigation: Previous Page | Contents | Next Page