Referral of the inquiry
1.1
The package of four bills was introduced in the House of Representatives and read a first time on 8 September 2022.
1.2
On 28 September 2022, the Senate referred the provisions of the: Financial Accountability Regime Bill 2022 (FAR bill); Financial Sector Reform Bill 2022 (FSR bill); Financial Services Compensation Scheme of Last Resort Levy Bill 2022 (CSLR Levy bill); and the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022 (CSLR Collection bill), to the Senate Economics Legislation Committee (the committee) for inquiry and report by 20 October 2022.
1.3
On 20 October 2022, the committee tabled a progress report seeking an extension of the reporting date to 24 October 2022.
Purpose of the bills
1.4
This package of bills finalises a number of remaining recommendations from the Financial Services Royal Commission and 2016 Review of Small Amount Credit Contract Laws (SACC Review) including:
the establishment a Financial Accountability Regime (FAR) to replace and extend the Banking Executive Accountability Regime (BEAR);
the establishment of a Compensation Scheme of Last Resort (CSLR); and
the amendment of the National Consumer Protection Act 2009 (Credit Act) to strengthen the consumer protection framework for consumers of small amount credit contracts (SACCs) and consumer leases.
1.5
The single overarching Explanatory Memorandum (EM) to the four bills states that a key objective of the FAR is to improve the operating culture of entities in the banking, insurance, and superannuation industries and to increase transparency and accountability across these industries—both in relation to prudential and conduct related matters.
1.6
At the same time as ensuring that community expectations are met through
the new regime, the FAR would also ensure that appropriate consequences will follow. The FAR would achieve this by placing accountability obligations on certain accountable entities and persons.
1.7
The package of bills that would establish and fund the CSLR are designed to provide compensation, as a mechanism of last resort, to consumers who have received a relevant determination in their favour by the Australian Financial Complaints Authority (AFCA), where that determination remains unpaid.
1.8
A well-functioning framework for resolving disputes within the financial system is necessary to safeguard consumer trust and confidence, and ensure the system continues to meet the needs of its users.
1.9
The package of bills would also deliver on the government’s commitment to ensure safe and well-regulated consumer markets and protections for credit contracts (also known as payday loans) and consumer leases.
1.10
The key objective of the consumer credit reforms is to strengthen the consumer protection framework for consumers of small amount credit contracts and consumer leases through the introduction of new obligations for providers of these credit products.
1.11
The intent of the reforms in Schedule 4 of the FSR bill was explained by
the Assistant Treasurer and Minister for Financial Services,
the Hon. Stephen Jones MP, on 28 September 2022:
Key reforms include strengthened caps on the amount of income a consumer can spend on repayments before they are ineligible to enter into certain credit products; caps on the cost of consumer leases; equal repayment intervals for small amount credit contracts; and prohibitions on certain types of unsolicited communications and referrals.
Combined with anti-avoidance provisions, these reforms will enhance
the existing consumer protections, including responsible lending obligations, while making sure these credit products are more affordable and less harmful.
1.12
Addressing the recommendations of the 2016 SACC Review, the proposed amendments are expected to enhance the consumer protection framework for consumers of small amount credit contracts and consumer leases. In particular, the changes would reduce the risk that consumers of these credit arrangements—many of whom are financially vulnerable—will be unable to meet their basic needs or default on other necessary commitments as a result of entering into the arrangement.
Background
1.13
The reform measures proposed in these bills have their genesis in the Banking Royal Commission, the Review of the financial system external dispute resolution and complaints framework and the SACC Review.
Financial Accountability Regime
1.14
The FAR is the government’s implementation of the Royal Commission’s recommendations relating to extending the BEAR to other Australian Prudential Regulation Authority (APRA) industries and to have APRA and
the Australian Securities and Investments Commission (ASIC) jointly administer the extended regime.
1.15
Commissioner Hayne noted that the provisions modelled on the BEAR should be expanded to all APRA-regulated financial services institutions. He further stated that after these provisions have been applied to the balance of authorised deposit-taking institutions (ADI’s) and to registrable superannuation entity (RSE) licensees, they should be applied to the largest insurers and thereafter, the balance of insurers.
1.16
The overarching EM for the bills notes the recommendations that were responsible for the establishment of the FAR:
recommendation 3.9—to extend provisions modelled on the BEAR to registrable superannuation entity licensees;
recommendation 4.12—to extend provisions modelled on the BEAR to insurers regulated by APRA;
recommendation 6.6—to have APRA and ASIC jointly administer the BEAR;
recommendation 6.7—to make it clear that authorised deposit-taking institutions and their accountable persons must deal with both APRA and ASIC in an open, constructive and cooperative way; and
recommendation 6.8—to have APRA and ASIC jointly administer the extended regime.
Compensation Scheme of Last Resort
1.17
The Supplementary Final Report to the Review of the financial system external dispute resolution and complaints framework (the Ramsay Review) observed that existing arrangements were not adequate to ensure that users of
the financial system were compensated for losses where an external dispute resolution scheme, tribunal or court makes a finding of misconduct and a subsequent award in favour of the consumer. The Ramsay Review recommended the establishment of an industry-funded and forward looking CSLR that targets the areas of the financial sector with the greatest evidence of need.
1.18
The Banking Royal Commission subsequently endorsed the three principal recommendations regarding the establishment of a CSLR.
Independent review of the Small Amount Credit Contract Laws
1.19
On 7 August 2015, the former Coalition Government announced a review of SACC laws in the Credit Act and regulated consumer leases. The then government asked the review panel to examine and report on
the effectiveness of the law relating to SACCs, and to make recommendations on whether any of the provisions which apply to SACCs should be extended to regulated consumer leases.
1.20
The review panel concluded that the existing laws applying to SACCs needed refinement and, its final report, made 24 recommendations to enhance
the regulatory regime with the aim of promoting financial inclusion and making the laws fit-for-purpose going forward.
Previous inquiries
1.21
The committee has undertaken several previous inquiries into other bills that have proposed various measures similar to the measures being considered in this inquiry.
Senate Legislation Committee inquiry into the Financial Accountability Regime Bill 2021 [Provisions] and related bills
1.22
A similar package of bills (2021 bills) was introduced in the House of Representatives on 28 October 2021. On 25 November 2021, the Senate referred the provisions of the Financial Accountability Regime Bill 2021, Financial Sector Reform (Hayne Royal Commission Response No. 3 Bill 2021, Financial Services Compensation Scheme of last Resort Levy Bill 2021, and Financial Services Compensation Scheme of Last Resort (Collection) Bill 2021, to the Senate Economics Legislation Committee for inquiry and report by 15 February 2022.
1.23
The inquiry received 33 submissions as well as additional information and answers to questions on notice. The committee held one public hearing in Canberra for the inquiry on 27 January 2022 in which stakeholders provided detailed feedback on the proposed FAR and CSLR.
1.24
The package of bills did not proceed past the second reading stage and lapsed at the dissolution of the 46th Parliament on 11 April 2022.
Senate Economics Legislation Committee inquiry into the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 [Provisions]
1.25
On 10 December 2020, the Senate referred the provisions of the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 to the committee for inquiry and report by 12 March 2021.
1.26
The inquiry received 112 submissions as well as additional information and answers to questions on notice. The committee held public hearings in Canberra on 19 February 2021 and 26 February 2021.
1.27
The bill did not proceed past the second reading stage in the Senate and lapsed immediately before the commencement of the 47th Parliament on 25 July 2022.
Senate Economics Legislation Committee inquiry into the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2)
1.28
On 5 December 2019, the Senate referred the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2) (the SACC bill) to the committee for inquiry and report. The SACC bill was a private members’ bill co-sponsored by Senators Jenny McAllister and Stirling Griff.
1.29
The SACC bill proposed a number of amendments to the Credit Act to adjust consumer protections relating to SACCs and consumer leases and replicated the government's exposure draft legislation that was previously released for consultation in October 2017. The purpose of that exposure draft legislation was to implement the then government's response to the SACC Review.
1.30
The committee received 42 submissions as well as additional information and answers to questions on notice. The committee held a public hearing for
the inquiry in Melbourne on 13 March 2020.
Provisions of the bill
Overview of the amendments
Financial Accountability Regime
1.31
The establishment and regulation of the FAR would be given effect through two bills which share an EM:
Financial Accountability Regime Bill 2022;
Financial Sector Reform Bill 2022.
1.32
The bills would introduce a new accountability regime for the banking, insurance, and superannuation industries. The new regime would provide for a strengthened accountability framework for certain entities in these industries, and their directors and most senior and influential executives (accountable persons).
1.33
The bills contain a number of provisions which would impose four core sets of obligations on accountable persons and entities:
accountability obligations;
key personnel obligations;
deferred remuneration obligations; and
notification obligations.
1.34
Schedules 1 and 2 of this FSR bill would make consequential amendments to various Commonwealth laws to support the new FAR and provide transitional arrangements relating to the repeal of the BEAR under the Banking Act 1959.
1.35
As part of establishing the new regime, the BEAR would be repealed once
the FAR starts applying to the banking industry. However, some obligations under the BEAR will continue to apply to the banking industry after
the application of the FAR to enable the effective transition from the BEAR.
Compensation Scheme of Last Resort
1.36
The establishment and operation of the CSLR would be given effect through three bills which share an EM:
Financial Sector Reform Bill 2022;
Financial Services Compensation Scheme of Last Resort Levy Bill 2022; and
Financial Services Compensation Scheme of Last Resort (Collection) Bill 2022.
1.37
The objective of the CSLR is to provide compensation to eligible consumers where they have an AFCA determination in their favour and where
the relevant financial firm has not paid the consumer in accordance with
the determination.
1.38
Together the CSLR Levy bill and CSLR Collection bill would form the levy framework that underpins the industry funding model for the financial services CSLR. The framework would create a tax to be levied against relevant industry entities to fund the CSLR.
1.39
Schedule 3 to the FSR bill would establish a financial services CSLR to compensate consumers where the Australian Financial Complaints Authority (AFCA) has made a determination in their favour that remains unpaid.
1.40
Under the proposed scheme, the annual levy covers amounts that the CSLR operator estimates would be payable to applicants under the compensation scheme and to AFCA as unpaid complaints handling fees, as well as amounts to build and maintain a capital reserve, and to cover the CSLR operator’s and ASIC’s administrative costs.
1.41
The CSLR’s levy framework contains a primary funding mechanism (annual levies to be collected in advance of the financial year in which claims are to be paid), and if required, a secondary funding mechanism (further levies) if
the annual levy collected is insufficient or likely to be insufficient to meet
the initial estimate of costs, fees and claims. The levy framework also contains a special funding mechanism (special levy) that would involve Ministerial determination where the revised estimate of costs, fees and claims exceeds
the sub-sector levy cap. Amounts to be paid under the levy framework would be subject to an overall scheme levy cap of $250 million.
1.42
For the scheme’s first levy period, the Commonwealth would provide funding to the CSLR operator to meet the initial estimate of claims, fees, and costs.
Consumer credit reforms
1.43
Schedule 4 to the FSR bill would amend the Credit Act to enhance
the consumer protection framework for consumers of small amount credit contracts and consumer leases, while ensuring that such products can continue to fulfil a role in the economy.
1.44
Schedule 4 of the FSR bill would implement the government’s response to
the recommendations of the SACC review by:
providing a new regulation-making power that can be used to ensure that all consumers are covered by a protected earnings amount—for example, by reducing the existing loan repayment cap from 20 per cent of a person’s gross income to 10 per cent of a person’s net income;
requiring SACC providers to have equal repayments and equal repayment intervals over the life of the loan to prevent providers from artificially extending the life of a loan;
prohibiting SACC providers from charging monthly fees in respect to any residual term of the loan where a consumer repays the loan early;
prohibiting unsolicited offers to prompt certain consumers to apply for a SACC;
introducing a new prohibition on SACCs providers making referrals under certain circumstances; and
requiring SACC providers to give information to consumers about SACCs in accordance with ASIC requirements.
1.45
A comparison of key features of the new law and current law are listed in
the table below:
Table 1.1: Summary of amendments — Small amount credit contracts
|
|
|
|
Licensees must not enter a small amount credit contract (SACC) with a consumer if the repayments under the contract would not meet the requirements prescribed in the regulations.
|
Licensees must not enter into a SACC with a consumer if:
• the consumer is included in a class of consumers prescribed by the regulations; and
• the repayments do not meet the requirements prescribed by the regulations.
|
|
The rebuttable presumption is repealed.
|
A SACC is presumed to be unsuitable for a consumer if:
• the consumer has had two more other SACC credit contracts in the past 90 days; or
• is in default under another SACC.
|
|
SACC’s must have equal repayments and equal repayment intervals over the life of the loan, subject to certain limited exceptions.
|
No equivalent.
|
|
Licensees cannot charge a consumer monthly fees in respect of the residual term of the SACC where the consumer fully repays the loan early.
|
No equivalent.
|
|
Licensees are prohibited from making unsolicited communications to a consumer that contain an offer or invitation to enter into or apply for a SACC in certain circumstances.
|
No equivalent.
|
|
Licensees must document in writing their assessment that a SACC is not unsuitable for a consumer.
|
No equivalent.
|
|
Licensees must display information and give information to a consumer about SACC’s in accordance with requirements determined by ASIC in a legislative instrument.
|
Licensees must display information about SACC’s in accordance with the requirements prescribed by the regulations.
|
|
SACC providers are prohibited from making referrals in certain circumstances.
|
No equivalent.
|
Table 1.2: Summary of amendments - Consumer leases
|
There is a cap on the total amount that would be payable by the lessee in connection with the consumer lease.
|
|
|
Lessors of household good are generally prohibited from making unsolicited communications in public places in relation to consumer leases for household goods.
|
No equivalent.
|
|
Lessors of household goods are required to disclose the base price of the goods been leased and the difference between the base price and the total amount payable by the lessee in connection with the lease.
|
Lessors are required to disclose, among other matters, the total amount of rental payments under the lease.
|
Source: Explanatory Memorandum, pp. 117-118.
Table 1.3: Summary of amendments - Anti-avoidance
|
|
|
|
Consumer leases for an indefinite period are regulated under the Credit Act.
|
No equivalent. Consumer leases for an indefinite period are excluded from regulation under the Credit Act.
|
Source: Explanatory Memorandum, pp. 116-118.
Consultation
Financial Accountability Regime Minister Rules 2022
1.46
The Department of Treasury (Treasury) sought stakeholder views on the Minister Rules for the FAR through a consultation process on the associated exposure draft legislation and explanatory material. This consultation process was conducted from 12 September 2022 to 7 October 2022.
Financial Services Compensation Scheme of Last Resort
1.47
Treasury sought feedback from stakeholders on the proposed reforms through a public consultation process on the associated exposure draft legislation to inform the CSLR’s final design. The draft regulations specify matters relating to the CSLR operator's reporting requirements and identify persons on whom a levy will be imposed. The draft regulations also outline the methods that underpin the calculation for the amount of levy payable and how they differ based on the type of levy being imposed.
1.48
This consultation process was conducted from 8 September 2022 to 7 October 2022.
Financial Accountability Regime – July 2021
1.49
Feedback from Treasury was sought from stakeholders in relation to
the similar package bills in 2021 through a detailed consultation process conducted from 16 July 2021 to 13 August 2021.
Commencement
1.50
The FAR bill would commence on the day after Royal Assent. The regime would apply to the banking industry six months after commencement of
the FAR bill and to any new entrants beyond that, from the time they become an ADI or a non-operating holding company. The regime would apply to
the insurance and superannuation industries 18 months after commencement of the FAR bill, and to any new entrants beyond that, from the time they become licenced.
1.51
Schedule 1 Part 1 and Schedule 2 to the FSR bill would commence the day after Royal Assent, at the same time as the FAR bill commences. Schedule 1 Part 2 to the FSR bill would commence the date the regime applies to the banking industry. That date would be six months after commencement of the FAR.
1.52
Together Schedule 3 to the FSR bill, CSLR Levy bill and the CSLR Collection bill would establish the CSLR. The establishment of the scheme and
the supporting levy framework would commence on the day after Royal Assent. The operator of the scheme could commence making compensation payments under the scheme from 1 July 2023.
1.53
The consumer credit reforms under Schedule 4 of the FSR bill, amending
the Credit Act, would generally commence on the day after the end of
the period of six months beginning on the day the FSR bill receives Royal Assent. The anti-avoidance measures in Schedule 4 to the FSR bill would commence on the day after the FSR bill receives Royal Assent.
Financial impact
1.54
The EM states that the Financial Services CSLR and levy framework measure is estimated to have the following financial impact over the forward estimates period:
Table 1.4: Financial impact of measure ($m)
Source: Explanatory Memorandum, p. 3.
Legislative Scrutiny
1.55
In its Scrutiny Digest 5 of 2022, the Senate Standing Committee on the Scrutiny of Bills (the Scrutiny Committee) raised concerns with the bills regarding a number of significant matters which are outlined in more detail below.
1.56
Scrutiny concerns raised in relation to the 2021 bills were raised by
the Scrutiny Committee in Scrutiny Digest 17 of 2022.
Financial Accountability Regime Bill 2022
Broad discretionary powers
1.57
Clause 16 of the bill provides exemptions to be granted in relation to any of
the obligations set out in Chapter 2. Subclause 16(1) provides that the Minister may, by written notice, exempt an individual accountable entity from obligations under Chapter 2 while subclause 16(2) provides that the Minister may exempt a class of accountable entities by legislative instrument.
1.58
The Scrutiny Committee noted that clause 16 would provide the Minister with a broad power to provide an exemption to an accountable entity, which may be exercised arbitrarily or inconsistently and may impact on the predictability and guidance capacity of the law. This would undermine fundamental rule of law principles. The Scrutiny Committee further noted that EM does not provide any explanation for the broad discretionary power and no guidance is included in the bill as to how the power should be exercised.
1.59
The Scrutiny Committee was concerned that, without guidance on the face of
the bill as to how the exemption power may be exercised, it would be possible for broad-ranging exemptions to be made by the Minister which could undermine the FAR as enshrined in primary legislation passed by
the Parliament. Further, the Scrutiny Committee considered that it would be beneficial if the bill included an inclusive list of criteria specifying circumstances in which an exemption may be granted and general guidance in relation to the conditions which may apply to an exemption.
1.60
In addition, the Scrutiny Committee noted that instruments made under subclause 16(2) should be time-limited to ensure an appropriate level of parliamentary oversight. It considered that either the instrument, or
the exemptions themselves, should sunset after a period of three years to facilitate appropriate parliamentary oversight.
Tabling of documents in Parliament
1.61
Division 1 of Part 2 of Chapter 3 of the bill deals with administrative arrangements. Clause 37 of the bill provides that APRA and ASIC must enter into an arrangement relating to the administration of the bill within six months of the commencement. Subclause 37(2) provides that the arrangement must include provisions relating to the matters specified in the Minister's rules. Once entered into, the arrangement must be published online. If no arrangement is entered into within six months of commencement, the Minister may determine an arrangement by notifiable instrument. A failure to comply with clause 37 does not invalidate the performance or exercise of a function or power by either APRA or ASIC.
1.62
The Scrutiny Committee noted that administrative flexibility is not a sufficient justification for leaving significant matters to delegated legislation and tabling documents in Parliament provides opportunities for debate that are not available where documents are only published online. As such:
… the committee requests the Minister’s advice as to:
whether the bill can be amended to provide that an arrangement entered into under clause 37 of the bill is required to be tabled in each House of the Parliament; and
why it is considered necessary and appropriate to leave details relating to provisions that must be included within a clause 37 arrangement to delegated legislation.
Reversal of evidential burden of proof
1.63
The bill seeks to establish several defences which reverse the evidential burden of proof. Clause 68 of the bill makes it an offence for an accountable entity, significant related entity, or accountable person to disclose information that reveals a direction was given by the regulator to an accountable entity under either clause 64 or 65 of the bill in circumstances where the direction is also covered by a determination made under subclause 67(2). Subclause 68(3) provides an exception to this offence whereby the offence does not apply if
the disclosure was authorised by clauses 69, 70, 71, 72, 73,74 or 75 of the bill, or was required by the order or direction of a court or tribunal.
1.64
The Scrutiny Committee considered that the rationale for evidential burden of proof in relation to the exception set out in subclause 68(3) is not clear from
the EM, with the EM merely re-stating the operation of the provision.
The committee also observed that the EM does not discuss clause 74, even to re-state the operation of the provision, and that is unclear how the fact that an order or direction that has or has not been given by a court or tribunal could be said to be a matter that is peculiarly within the knowledge of the defendant.
1.65
It was the view of the Scrutiny Committee that the content of any exception, exemption, excuse, qualification or justification to a criminal office should be included within primary legislation unless a sound justification for the use of delegated legislation is provided. The committee noted that the EM to the bill does not provide a justification for the use of delegated legislation or for reversing the evidential burden of proof in relation to the matters set out in clause 74, nor does it appear to discuss clause 74, even to re-state the operation of the provision.
The committee considers it is not appropriate to reverse the evidential burden of proof in relation to matters that are not peculiarly within
the knowledge of the defendant. The committee therefore requests
the Treasurer’s advice as to whether proposed clauses 68 and 72 can be amended to include the matters set out in subsections 68(3) and 72(2) as elements of the offence.
Further, the committee requests the Minister’s advice as to:
why it is necessary and appropriate to set out defence to the offences in clause 68 of the bill and subsection 56(2) of the Australian Prudential Regulation Authority Act 1998 within delegated legislation; and
whether clause 74 can be amended to include at least high-level guidance in relation to the matters that may be set out within
the Ministers rules.
Incorporation of documents as in force from time to time
1.67
Subclause 31(5) of the bill provides that the Minister rules may provide for a matter by applying, adopting, or incorporating any matter contained in any other instrument or writing as in force or existing from time to time.
The Scrutiny Committee raised scrutiny concerns in relation to this matter in Scrutiny Digest 17 of 2021 and Scrutiny Digest 2 of 2022.
1.68
The Scrutiny Committee observed that it is not apparent from the EM whether the incorporated materials will be freely and readily available. The committee also questioned why it is necessary to allow the rules to incorporate documents as in force (or existing from time to time) which may change in
the circumstances when an accountable entity can be said to have met
the enhanced notification threshold without any involvement from Parliament.
… the committee requests the Minister’s advice as to:
whether the documents incorporated under subclause 31(5) will be freely and readily available to all persons interested in the law; and
whether the explanatory memorandum can be amended to provide guidance in relation to this matter.
Financial Sector Reform Bill 2022
Reversal of the evidential burden of proof
1.70
Proposed subsection 56(7G) seeks to provide that it is a defence to the offence set out under existing subsection 56(2), if the disclosure is to an accountable entity and the information that was disclosed was contained in the register of accountable persons kept under clause 40 of the FAR bill.
1.71
Proposed subsection 57(7H) seeks to provide that it is not an offence if the disclosure is to an individual and the information that was disclosed was personal information about that person that was contained in the register of accountable persons kept under clause 40 of the FAR bill.
1.72
Proposed subsection 56(7J) seeks to provide that it is not an offence if
the disclosure is by APRA and the information is about either whether
the regulator has disqualified an accountable person under clause 42 of
the FAR bill or any other decision made under Division 2 of Part 3 of Chapter 3 of that bill.
1.73
Proposed subsection 56(7K) seeks to provide that it is not an offence if
the disclosure is in accordance with clause 39 of the FAR bill, which currently provides for information-sharing arrangements between APRA and ASIC.
1.74
Proposed subsection 56(7L) seeks to provide that it is not an offence if
the disclosure is by ASIC for the purposes of the performance or exercise of ASIC's functions or powers, and the information had previously been disclosed to ASIC under clause 39 of the FAR bill.
1.75
Item 17 of Schedule 1 seeks to insert proposed subsection 127(7) into
the Australian Securities and Investments Commission Act 2001 (ASIC Act) to make it an offence if an officer who is, or has been, a member or staff member of ASIC or a Commonwealth officer within the meaning of the Crimes Act 1914 intentionally or recklessly discloses protected information that was acquired in the course of their duties to a person or court and the information was given to ASIC in relation to a function conferred on ASIC under the FAR.
1.76
Proposed subsection 127(7A) provides that it is a defence to this offence if
the disclosure was an authorised disclosure for the purposes of subsection 127(1) of the ASIC Act.
1.77
The Scrutiny Committee considered that it is not appropriate to reverse
the evidential burden of proof in relation to matters that are not peculiarly within the knowledge of the defendant. The committee requested
the Treasurer's advice as to whether items 10 and 17 can be amended so that the matters set out in subsections 56(7G), (7H), (7J), (7K), (7L) and 127(7A) are instead included as elements of the offence.
Significant matters in delegated legislation & broad discretionary power
1.78
Item 62 of Schedule 4 seeks to insert proposed section 323A into the Credit Act. Schedule 4 is intended to enhance the consumer protection framework currently set out within the Credit Act, particularly in relation to consumers of SACC’s and consumer leases. These consumers are considered to be financially vulnerable. To this end, proposed section 323A sets out a general prohibition intended to prevent persons entering into, or carrying out, a scheme which will result in a SACC or a consumer lease being made.
1.79
Proposed section 323D of the bill provides that ASIC may, by disallowable legislative instrument, exempt a scheme, or a class of schemes, from this general prohibition. The exemption is subject to any conditions imposed by ASIC.
1.80
As there is no further guidance within the bill setting out how this broad exemption power will be used, it is the committee’s view that significant matters should be included in primary legislation unless a sound justification for the use of delegated legislation is provided. These significant matters should be included in primary legislation unless a sound justification for the use of delegated legislation is provided.
1.81
The committee is concerned about the use of delegated legislation to provide for exemptions, particularly noting the lack of justification in the EM for
the exemption power and the limited guidance in the bill about how
the exemptions framework will operate. As drafted, it appears that ASIC will have a broad discretionary power to determine, via delegated legislation, when the general prohibition in proposed section 323A will no longer apply. In this regard, the committee noted that delegated legislation is not subject to
the same level of parliamentary scrutiny as amendments to primary legislation.
In light of above, the committee requests the minister’s detailed advice as to:
why it is considered necessary and appropriate to provide a broad power to exempt schemes or classes of schemes from proposed section 323A in delegated legislation;
whether the bill can be amended to provide that instruments made under proposed section 323D are time-limited; and
whether the bill can be amended to include at least high-level guidance on the face of the primary legislation as to the circumstances in which an exemption may be granted and general guidance in relation to the
conditions which may apply to an exemption.
Reversal of the evidential burden of proof
1.82
The bill seeks to establish several defences which reverse the evidential burden of proof. Item 76 of Schedule 4 to the bill seeks to insert proposed subsection 160CB(2) into the Credit Act to provide that it is an offence for a licensee to use or disclose a constrained document or information prescribed by
the regulations. The offence carries a maximum penalty of 100 penalty units.
1.83
A defendant bears an evidential burden in relation to each of the defences outlined in the bill. The Scrutiny Committee considered that it is not apparent that the disclosure of information is a matter peculiarly within the defendant's knowledge, or that it would be difficult or costly for the prosecution to establish the matters.
The committee therefore requests the minister's detailed justification as to the appropriateness of including the specified matters as an offence-specific defence. The committee suggests that it may be appropriate if proposed subsection 160CB(2) were amended to provide that the relevant matters are instead included as elements of the offence. The committee also requests the minister's advice in relation to this matter.
Human rights implications
1.84
As discussed in the EM, the Statement of Compatibility with Human Rights argues that the bills are compatible with the human rights and freedoms recognised in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011, and thus do not raise any human rights concerns.
1.85
In its Report 4 of 2022, the Parliamentary Joint Committee on Human Rights reported that the bill did not raise any human rights concerns.
Regulatory impact
FAR and CSLR
1.86
The EM notes that the Financial Services Royal Commission Final Report has been certified as being informed by a process and analysis equivalent to a Regulation Impact Statement (RIS) for the purposes of the government decision to implement this reform.
1.87
The Financial Services Royal Commission Final Report can be accessed through the Australian Parliament House (APH) website.
Consumer credit reforms
1.88
The EM notes that the Small Amount Credit Contract Laws Review (SACC Review) has been certified as being informed by a process and analysis equivalent to a RIS.
Conduct of the inquiry
1.89
The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting written submissions by 7 October 2022.
1.90
The committee received 43 submissions, including one confidential submission, as well as additional information and answers to questions on notice, which are listed at Appendix 1.
1.91
The committee also received 21 form letters from businesses undertaking consumer leases who detailed the impact that these reforms could have on their viability and advocated for various amendments to the consumer credit reforms.
1.92
The committee held one public hearing for the inquiry on 14 October 2022.
The names of witnesses who appeared at the hearing can be found at Appendix 2.
Acknowledgements
1.93
The committee thanks all individuals and organisation who assisted with
the inquiry, especially those who made written submission and participated in the public hearing.