Chapter 1


Chapter 1

Introduction

1.1        The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 was referred to the Senate Economics Legislation Committee ('the committee') on 22 September 2011 for inquiry and report by 23 November 2011. On 10 November 2011, the committee was given an extension of time to report until 30 November 2011. On 25 November 2011, the committee was given a further extension until 7 December 2011.

1.2        On 22 September 2011, the House of Representatives referred the bill to the Parliamentary Joint Committee on Corporations and Financial Services ('the PJC') for inquiry and report. The PJC tabled its report on 2 December 2011.

1.3        The PJC received 53 submissions to its inquiry. It held a public hearing in Canberra on 24 October 2011 where it took evidence from 19 different organisations.

1.4        The Senate Economics Legislation Committee received 38 submissions to its inquiry. Only two of these submissions were not provided to the PJC inquiry.[1] On the other hand, the PJC received submissions from key stakeholders containing important evidence that this committee did not.[2]

1.5        The committee decided that, given the PJC was planning a public hearing and was to report earlier, it would not conduct a public hearing on this occasion. The committee resolved to base its report and its findings on that of the PJC. By and large, the recommendations made in this report mirror those in the PJC's report.

1.6        The committee thanks all those who made submissions to this inquiry.

The bill

1.7        The bill would amend the National Consumer Credit Protection Act 2009 (NCCP Act). The NCCP Act implemented a national framework for the regulation of consumer credit by the Commonwealth. The Explanatory Memorandum (EM) states that the bill seeks to amend the NCCP Act to:

  • make it easier for debtors to seek a variation of the repayments under their contract due to financial hardship;
  • assist consumers to make more informed choices on reverse mortgages, including a statutory protection against negative equity and improved disclosure requirements;
  • cap the maximum amount that credit providers can charge under credit contracts, introduce new disclosure requirements in relation to small amount contracts (such as 'payday' loans) and restrict multiple borrowings and refinancing of those contracts; and
  • provide greater regulatory consistency between consumer leases and credit contracts to address regulatory arbitrage arising from the current lower level of obligations applying to consumer leases.[3]

1.8        The bill also amends the Corporations Act 2001 to clarify that the chair of an annual general meeting can vote undirected proxies in a non-binding shareholder vote on remuneration where the shareholder provides express authorisation.[4]

Background to the bill

1.9        The bill is part the second phase of the Council of Australian Governments' (COAG) agreement to transfer to the Commonwealth responsibility for the regulation of all consumer credit products, including mortgages, mortgage brokering, margin lending and payday lending. The first phase was completed in July 2010 with the commencement of the National Consumer Credit Protection Act 2009 (NCCP Act), the National Credit Code,[5] the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 and the National Consumer Credit Protection (Fees) Act 2009.

1.10      COAG agreed that phase two of the transfer would address issues relating to the operation of state and territory consumer credit regulations that had not been resolved at the time responsibility was transferred to the Commonwealth.[6] This includes the regulation of payday lending, credit cards, store credit, personal loans and investment and small business lending.[7]

1.11      The phase one reforms included the introduction of 'responsible lending requirements' within chapter 3 of the NCCP Act. These requirements ensure that before credit is provided, a credit licensee must assess the suitability of the proposed credit product for the borrower and the borrower's capacity to repay.[8] The requirements are intended to 'lift industry-wide lending standards and further enhance consumer protection'.[9]

1.12      In March 2011, the Australian Securities and Investments Commission (ASIC) released Regulatory Guide 209 which details the procedures that credit licensees must complete in order to comply with the responsible lending requirements. These are:

  • to make reasonable inquiries about the consumer's financial situation and their requirements and objectives;
  • to take reasonable steps to verify the consumer's financial situation; and
  • to make an assessment whether the credit contract is 'not unsuitable' for the consumer (based on the inquiries and information obtained in the first two steps).[10]

1.13      This report refers to 'responsible lending obligations' (RLOs). They refer to chapter 3 of the NCCP Act and the procedures contained in ASIC's Regulatory Guide. The RLOs have applied from 1 January 2011 for authorised deposit-taking institutions (ADIs) and registered finance corporations. For all other credit providers, the obligations applied from 1 July 2010.[11]

Structure of the report

1.14      This report has three chapters:

  • Chapter 2 canvasses the main arguments in support of, and in opposition to, the bill's amendment to cap the maximum amount that lenders can charge on credit contracts. The committee, and the PJC, both received extensive comment on this issue, particularly as the amendments relate to the short-term lending industry.
  • Chapter 3 examines the committee's evidence on the bill's provisions relating to hardship variations, reverse mortgages, remedies for unfair or dishonest conduct and consumer leases.

Navigation: Previous Page | Contents | Next Page