Referral of the inquiry
1.1
On 10 December 2020, the Senate referred the provisions of the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 (the bill) to the Economics Legislation Committee (the committee) for inquiry and report by 12 March 2021.
Purpose of the bill
1.2
The Assistant Treasurer and Minister for Housing, the Honourable Michael Sukkar MP, in his second reading speech stated that, while the primary purpose to amending the National Consumer Credit Protection Act 2009 (the Credit Act) is to provide timely flow of credit to the Australian economy, the bill will also:
…replace the prescriptive one-size-fits-all approach that has evolved in relation to the interpretation of responsible lending and provide flexibility for lenders to assess each applicant for credit on a case-by-case basis. However, this flexibility will not diminish the consumer protections in place and, for some products, enhances these protections.
1.3
The minister explained that to improve the flow of credit, particularly as the economy recovers from the COVID-19 crisis, the existing responsible lending obligations will apply only to small amount credit contracts (SACCs) and consumer leases.
1.4
These amendments will enable new lending standards to be determined by the legislative instrument that will align with existing prudential standards—APS 220. The Australian Prudential Regulation Authority (APRA) will continue to regulate banks (Australian Deposit-taking Institutions (ADIs)), whereas the new standards will apply to non-bank lenders (non-ADIs). The minister stated that lenders that fail to comply with the credit assessment processes will have breached their standards, giving borrowers access to the Australian Financial Complaints Authority (AFCA) for free dispute resolution and restitution within AFCA’s updated monetary limits.
1.5
The bill will also provide a number of other amendments designed to improve and protect customers specifically in relation to SACCs and consumer lease products.
Responsible lending obligations
1.6
Schedule 1 of the bill amends the Credit Act to:
make the responsible lending obligations apply only to small amount credit contracts (SACCs), small amount credit contract‑equivalent loans by ADIs, and consumer leases;
provide the minister with the power to determine standards, by legislative instrument, for credit licensees' systems, policies, and processes in relation to certain non-ADI credit conduct; and
extend the best interests obligations that currently apply to mortgage brokers to other credit assistance providers.
1.7
These reforms form part of the Australian government's economic recovery plan in response to the COVID-19 pandemic.
Small amount credit contracts and consumer leases
1.8
Schedules 2 to 6 of the bill amend the Credit Act to reform the consumer protection framework for consumers of SACCs and consumer leases. Per the EM, these reforms aim to enhance protections while also allowing these products to continue to fulfil an important role within the economy.
1.9
The Explanatory Memorandum (EM) states these reforms implement the government's response, as announced on 28 November 2016, to the recommendations made by the review panel in its final report following its review of the small amount credit contract laws (the SACC Review).
Date of effect
1.10
For schedule 1, the date of effect for the amendments is generally the later of 1 March 2021 and the day after Royal Assent; however, the amendments related to the best interests obligations (schedule 1, Part 3) commence 6 months after that day.
1.11
For schedules 2, 3, 5, and 6, the date of effect for the amendments is generally the day after the end of the period of six months beginning on the day the bill receives Royal Assent. The anti-avoidance measures in schedule 4, and the application provisions in schedule 7, however, commence on the day after the bill receives Royal Assent.
1.12
Schedule 7 implements application provisions setting out situations or timeframes in which the amendments apply or do not apply.
Background and consultation
Overview
1.13
On 25 September 2020, the Treasurer, the Honourable Josh Frydenberg MP, announced that the Australian government would undertake consumer credit reform. He said:
As part of the Morrison Government’s economic recovery plan, we are reducing the cost and time it takes consumers and businesses to access credit ... Now more than ever, it is critical that unnecessary barriers to accessing credit are removed so that consumers can continue to spend and businesses can invest and create jobs.
What started a decade ago as a principles based framework to regulate the provision of consumer credit has now evolved into a regime that is overly prescriptive, complex and unnecessarily onerous on consumers. The Government will simplify the system by moving away from a “one-size-fits-all” approach while at the same time strengthening consumer protections for those that need it.
1.14
Key elements of the reforms announced by the Treasurer included:
removing responsible lending obligations from the Credit Act, with the exception of SACCs and consumer leases, where heightened obligations will be introduced;
ensuring that ADIs will continue to comply with APRA's lending standards requiring sound credit assessment and approval criteria;
adopting key elements of APRA’s ADI lending standards and applying them to non-ADIs;
protecting consumers from the predatory practices of debt management firms by requiring them to hold an Australian credit licence when they are paid to represent consumers in disputes with financial institutions;
allowing lenders to rely on the information provided by borrowers, replacing the current practice of ‘lender beware’ with a ‘borrower responsibility’ principle; and
removing the ambiguity regarding the application of consumer lending laws to small business lending.
1.15
The Department of the Treasury (the Treasury) sought feedback from stakeholders on the proposed reforms through a public consultation process on the associated exposure draft legislation and explanatory material. This consultation process lasted from 4 November 2020 to 20 November 2020—no submissions have been published by the Treasury. Notwithstanding this, the EM notes that 58 formal submissions were received during this consultation period.
1.16
The following two sections split the key high‑level reforms contained within the bill and discusses each separately. The first section covers the removal of responsible lending obligations for licensees, except for SACCs and consumer leases; and the second discusses the reforming of consumer protection laws for SACCs and consumer leases.
Responsible lending obligations
Overview
1.17
Following the global financial crisis of 2007-08, in June 2009, the then Rudd Labor government introduced the National Consumer Credit Protection Bill 2009 into the House of Representatives. Following its passage through both houses, and subsequent Royal Assent on 15 December 2009, the Credit Act came into force.
1.18
The Credit Act established a licensing regime for persons engaging in credit activities and, in accordance with chapter 3, imposed responsible lending obligations on all holders of Australian credit licenses (licensees) in relation to their dealings with consumers.
1.19
These obligations supplemented the general conduct obligations for licensees to operate efficiently, fairly, and honestly, and required those licensees who provide credit, or credit assistance, to meet additional requirements in relation to their lending and leasing conduct. The Treasury estimates that, currently, $34 billion in new consumer credit issued each month is subject to these responsible lending obligations under the Credit Act.
1.20
The responsible lending obligations require licensees to assess that a credit contract, or lease, is not unsuitable for the consumer's requirements and objectives, and that the consumer has the capacity to meet the financial obligations under the credit contract or lease. In doing so, reasonable inquiries must be made about the consumer's requirements, objectives, and financial situation, and reasonable steps taken to verify the consumer's financial situation. This approach aims to ensure that licensees do not provide, suggest, or assist with credit contracts or leases that are unsuitable for the consumer.
1.21
These obligations are currently set at the level of an individual loan decision, and, as argued by the bill's EM, impose a regulatory burden on both lender and borrower when an individual consumer applies for credit. The EM notes that subsequent guidance provided on how to interpret the law requires lenders to make 'detailed inquiries' and to 'extensively verify' the information provided, and that this influences how long it takes, and how much it costs for credit assessments to be completed.
1.22
Furthermore, the EM states that the responsible lending obligations under the Credit Act broadly duplicate prudential lending obligations imposed by APRA through its prudential standards. Hence, it states that ADIs are currently required to conform to two regulatory regimes, both with broadly similar aims, resulting in duplication and an unnecessary regulatory burden without any substantial benefit to consumer protections.
1.23
The EM also highlights that, although the responsible lending obligations were originally intended to provide a risk‑based principles framework, over time the principles have been further defined through increased guidance from regulators which has led to a 'one‑size‑fits‑all' approach to individual credit assessments, regardless of the specific circumstances of the individual or the nature of the credit product. Given this, the EM concludes that:
…the current regulatory settings impose a greater regulatory burden on lenders and borrowers than was originally envisaged, over and above what may customers would seem to require, impacting both the timely access to, and the cost of, available credit, without substantial evidence that the increased cost of the regulatory burden is offset by a commensurate reduction in consumer harms.
1.24
In evidence to the House of Representatives' Standing Committee on Economics, in August 2020, the Governor of the Reserve Bank of Australia, Mr Philip Lowe, also specifically spoke about this issue:
I think the principles in the legislation are sound, but I think the way we've translated those principles into reality needs looking at again. If we can't do that properly, maybe we need to look at the legislation. We can't have a world in which, if a borrower can't repay the loan, it's always the bank's fault. On a portfolio basis, we want banks to make some loans that actually go bad, because if a bank never makes a loan that goes bad it means it's not extending enough credit. The pendulum has probably swung a bit too far to blaming the bank if a loan goes bad…
1.25
In determining the Australian government's policy approach to resolve this identified problem, the Treasury undertook a cost-benefit analysis of three options: maintain the status quo; implement a new credit framework and a risk‑based approach to lending responsibly; and implement a bespoke credit framework that prescribes a tiered lending approach to borrowers of varying creditworthiness. Following their analysis, the Treasury decided its preferred approach was to implement a new credit framework and risk‑based approach to lending responsibly; i.e. option 2.
1.26
Under this preferred approach, the responsible lending obligations would be removed, except for SACCs and consumer leases. ADIs would remain subject to prudential standards set and enforced by APRA, and non-ADIs would be subject to a replacement system-based regime for responsible lending. Further, the best interests obligations, which currently apply only to mortgage brokers, would be extended to additional credit assistance providers.
1.27
The Treasury notes that the new requirements on non‑ADIs will incorporate the relevant provisions from prudential standard APS 220 Credit Risk Management, and that it will work closely with APRA to ensure that future changes to any of the relevant provisions in APS 220 will be reflected in the non ADI framework to 'ensure a level playing field across the industry going forward'.
1.28
The Treasury notes that the new regulatory approach will allow consumers to continue to access AFCA in relation to their loan, and that AFCA can award damages for 'direct financial loss' (within AFCA’s monetary limits) which the consumer suffers as a result of lender conduct. It submits that this would 'ensure that any consumer harm which is caused by lenders continues to have a remedy'.
1.29
Further, the new obligations will not apply to lending which is, in part, for a small business purpose. This has the effect of making permanent the temporary measure which was introduced at the start of the COVID-19 pandemic in 2020.
1.30
Table 1 of the EM lists the costs and benefits identified by the Treasury for each option.
Treasury's consultation
1.31
The EM submits that feedback to the Treasury from industry stakeholders regarding the responsible lending obligations has consistently indicated that they are 'imposing a level of regulatory burden not commensurate with the policy outcomes'.
1.32
The EM provides a lengthy discussion on the feedback the Treasury received, separated into key stakeholder categories, on Australia's responsible lending laws during targeted consultation processes.
Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry
1.33
On 14 December 2017, the then Governor-General of the Commonwealth of Australia, His Excellency General the Honourable Sir Peter Cosgrove AK MC (Retd), appointed former High Court Judge, the Honourable Kenneth Madison Hayne AC QC (the Commissioner), to inquire into and report on misconduct in the banking, superannuation and financial services industry (the Banking Royal Commission).
1.34
The Commissioner submitted his final report to the then Governor-General on 1 February 2019, and it was tabled in parliament on 4 February 2019. Amongst other matters, the Commissioner commented on, and made a recommendation regarding, the responsible lending obligations within the Credit Act.
Inquiries and verification
1.35
In the final report, the Commissioner highlighted that the Credit Act obliges licensees to: make reasonable inquiries about a consumer's objectives and requirements; make reasonable inquiries about a consumer's financial situation; and take reasonable steps to verify a consumer's financial situation. He stated that both income and expenditure must be considered, and reiterated what he said in his interim report that 'verification means doing more than taking the customer at his or her word'.
1.36
Although noting that reviews undertaken by APRA during 2016 and 2017 had identified deficiencies in the processes used to verify borrowers' expenses, such as relying on the Household Expenditure Measure (HEM), the Commissioner stated that a number of banks had subsequently strengthened their lending processes and procedures with the aim of improving their compliance with the responsible lending obligations under the Credit Act.
1.37
To the extent that these processes and procedures resulted in a tightening of credit, the Commissioner concluded that 'it [would be] a consequence of complying with the law as it has stood since the [Credit Act] came into operation'. On this point, however, the Commissioner highlighted that the Treasury previously stated that '[t]here is little evidence to suggest that the recent tightening in credit standards, including through APRA's prudential measures or the actions taken by ASIC in respect of [responsible lending obligations], has materially affected the overall availability of credit'.
Not unsuitable
1.38
The Commissioner noted that consumer advocacy groups urged him to recommend an amendment which would require lenders to determine whether a loan contract, or limit increase, was 'suitable' for the consumer; i.e. as opposed to the existing requirement to assess that a contract is 'not unsuitable'.
1.39
Although noting that the double negative 'not unsuitable' appears to be clumsy and that a cursory look may not reveal any substantial difference between the two approaches, the Commissioner highlighted that the 'not unsuitable' test is aimed at avoiding harm; whereas an assessment of suitability focuses on whether entering a contract would be beneficial to the borrower.
1.40
Given the above, in conclusion the Commissioner was not persuaded that the test should be changed and recommended that the Credit Act not be amended to alter the obligation to assess unsuitability.
Small amount credit contracts and consumer leases
1.41
SACCs are for loans up to $2 000, where the terms of the contract is between 16 days and 12 months. These contracts are commonly used by consumers with lower incomes, or those unable to access mainstream sources of credit. Given this vulnerable demographic, there are a number of additional consumer protections that apply.
Independent review of the Small Amount Credit Contract Laws
1.42
On 7 August 2015, the then Abbott Coalition government announced a review of SACC laws contained in the Credit Act and regulated consumer leases (the SACC Review). 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.
1.43
The review panel concluded that the existing laws applying to SACCs needed refinement and, in 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.
1.44
On 28 November 2016, the then Turnbull Coalition government released its response to the final report of the SACC Review. Of the 24 recommendations, the then government accepted 14 in full; partially accepted three; accepted three with amendments; supported one in-principle; noted one; and did not accept two.
1.45
In particular, the then government supported:
retaining the existing price caps on SACCs;
extending the SACC protected earnings amount requirement to all consumers and lowering it to 10 per cent of the consumer’s net income (currently, for those consumers who receive 50 per cent or more income through payments from Centrelink, total SACC repayments are capped at 20 per cent of a consumer’s gross income);
introducing a cap on total payments on a consumer lease equal to the base price of the good plus 4 per cent of that price per month; and
introducing a protected earnings amount requirement for consumer lease providers of 10 per cent of net income for all consumers, equivalent but separate to the requirement for SACCs.
Senate Economics Legislation Committee's inquiry into the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2019 (No. 2)
1.46
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 Senate Economics Legislation Committee for inquiry and report. The SACC bill was a private members' bill co‑sponsored by Senators Jenny McAllister and Stirling Griff.
1.47
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 government's response to the SACC Review, as discussed in the preceding section.
1.48
Introduction of the SACC bill into the Senate followed four bills having previously been introduced into the House of Representatives by non‑government members, each of which also replicated the provisions of the exposure draft legislation.
1.49
The committee recommended that the Senate not pass the SACC bill and that the government, firstly, table its response to the recommendations made by the Senate Economics References Committee's (reference committee) inquiry into credit and financial services targeted at Australians at risk of financial hardship; and, secondly, reports and builds upon outcomes derived from the consultation period of the exposure draft and continues to diligently progress sensible reform and strengthen regulation in the area of SACCs and consumer leases.
1.50
Labor committee members and Senator Sterling Griff delivered a dissenting report which, although also recommending that the government respond to the reference committee's prior inquiry's recommendations, recommended that the Senate pass the SACC bill.
Provisions of the bill
Schedule 1—Changes to the responsible lending obligations
1.51
Schedule 1 of the bill amends chapter 3 of the Credit Act so that responsible lending obligations apply only to SACCs and consumer leases (and small amount credit contract-equivalent loans provided by ADIs).
1.52
ADIs entering other types of credit contracts will still be subject to the prudential regulatory framework under the Banking Act 1959, including prudential standards enforced by APRA; and lending standards will be imposed on non‑ADIs as part of a risk‑based regulatory framework based on similar obligations to those imposed on ADIs.
1.53
The bill provides for the minister to make these non‑ADI lending standards by way of legislative instrument. These requirements will be system‑level obligations rather than focusing on individual loans, and will specify requirements for credit licensees' systems, policies, and processes relating to non‑ADI credit conduct.
1.54
Per the EM, these requirements reflect the Australian government's decision to move away from a prescriptive framework for lenders and borrowers, and aims to support risk‑based lending 'attuned to the needs and circumstances of the borrower and credit product'.
1.55
The bill also extends the best interests obligations, which are already legislated for mortgage brokers, to certain other credit assistance providers. The EM explains that this is to 'ensure appropriate consumer protections remain in place'.
1.56
This extension will require licensees and their credit representatives to act in the best interest of consumers when providing credit assistance in relation to credit contracts and consumer leases; and, where there is a conflict of interest, give priority to consumers in providing credit assistance in relation to credit contracts and consumer leases.
Comparison of key features of new law and existing law
1.57
Table 1.1, below, highlights the key differences between the existing law and the proposed new law.
Table 1.1: Comparison of current law and new law
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Responsible lending obligations
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Chapter 3 responsible lending obligations only apply to small amount credit contracts and consumer leases (and small amount credit contract equivalent loans provided by ADIs) beginning on 1 March 2021 (or the day after Royal Assent, if it occurs later). This is the case for both credit providers and credit assistance providers.
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Chapter 3 responsible lending obligations apply to all consumer credit contracts (including small amount credit contracts) and consumer leases. This is the case for both credit providers and credit assistance providers.
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ADIs are not subject to Chapter 3 responsible lending obligations (other than for small amount credit contract equivalent loans) beginning on 1 March 2021 (or the day after Royal Assent, if it occurs later).
Existing prudential standards continue to apply.
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ADIs are subject to Chapter 3 responsible lending obligations and a prudential standards regime set and enforced by APRA under the Banking Act 1959.
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Non‑ADI credit conduct is not subject to Chapter 3 responsible lending obligations from 1 March 2021 (or the day after Royal Assent, if it occurs later). This conduct does not include small amount credit contracts and consumer leases.
Non‑ADI credit conduct is subject to non‑ADI credit standards made by legislative instrument. These will be similar to standards imposed on ADIs.
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Non‑ADIs are subject to Chapter 3 responsible lending obligations.
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Best interests obligations
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A best interests duty and obligation to resolve conflicts of interest in the consumer’s favour apply to certain other credit assistance providers.
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A best interests duty and obligation to resolve conflicts of interest in the consumer’s favour are legislated to apply to mortgage brokers only.
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New non-ADI credit standard
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The minister is able to make non‑ADI credit standards, by way of legislative instrument, specifying requirements for a credit licensee’s systems, policies and processes relating to certain non‑ADI credit conduct.
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No equivalent.
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Source: Explanatory Memorandum, pp. 10–11.
Detailed explanation of reforms
Licensees that provide credit assistance in relation to credit contracts
1.58
Upon commencement, a number of existing obligations in Part 3–1 of the Credit Act will only apply to licensees providing credit assistance in relation to SACCS and small amount credit‑equivalent loans provided by ADIs. These relate to:
obligations of credit assistance providers before providing credit assistance for credit contracts (section 115);
preliminary assessments of unsuitability of credit contracts (section 116);
reasonable inquiries about the consumer (section 117);
when a credit contract must be assessed as unsuitable (sections 118 and 119);
providing consumers with preliminary assessments (section 120); and
prohibitions on suggesting or assisting consumers to enter, remain, or increase credit limits under unsuitable credit contracts (sections 123 and 124).
1.59
The bill extends the best interests obligations that apply to mortgage brokers to certain other credit assistance providers. This does not alter the existing arrangements already in place for mortgage brokers, and is intended to improve consumer outcomes by requiring a broader cross‑section of credit assistance providers to act in the consumer's best interest.
1.60
The extension requires certain other licensees and their credit representatives to act in the best interests of consumers when providing credit assistance in relation to credit contracts and consumers leases; and, where there is a conflict of interest, give priority to consumers' interests. Importantly, licensees that authorise credit representatives must also take reasonable steps to ensure that those persons comply with the new obligations.
1.61
These obligations do not apply to credit assistance provided in relation to credit for predominantly business purposes; nor do they generally apply to licensees that provide credit assistance where they are also the credit provider.
Licensees that are credit providers under credit contracts
1.62
Upon commencement, a number of existing obligations in Part 3–1 of the Credit Act apply only to licensees that are credit providers under SACCs and small amount credit contract-equivalent loans provided by ADIs. These relate to:
obligations to assess unsuitability (section 128);
assessment of unsuitability of a credit contract (section 129);
reasonable inquiries about a consumer (section 130);
when credit contracts must be assessed as unsuitable (section 131);
giving consumers the assessments (section 132); and
prohibition on entering, or increasing the credit limit of, unsuitable credit contracts (section 133).
1.63
Item 1 of schedule 1 of the bill introduces the term 'low limit credit contract' into the Credit Act to encompass SACCs and SACC-equivalent loans by ADIs. This has the effect of retaining the responsible lending obligations for each credit contract provided by an ADI which would be a SACC if it were not provided by an ADI.
Non-ADI credit standards
1.64
Upon commencement, the minister will be able to make credit standards, via legislative instrument, for non-ADIs. These standards will specify requirements for credit licensees' systems, policies, and processes which relate to certain credit conduct by these entities.
1.65
Non-ADI credit conduct relates to credit contracts where the contract is not a SACC and the credit provider is not an ADI. Per the EM, these standards are adopted from the APRA standards with the goal of maximising the alignment between ADI and non-ADI regimes. Further, the EM argues that by having these credit standards determined by legislative instrument, the law can adapt over time and consistency can be maintained on an ongoing basis across ADIs and non-ADIs.
1.66
The EM states that these standards will enable credit assessments to move away from a prescriptive framework and support risk‑based lending that is 'attuned to the needs and circumstances of the borrower and credit product'.
1.67
The non-ADI credit standards may apply generally or in a limited manner, and may make different provisions in relation to different situations, activities or classes of licensees and credit providers.
1.68
The EM notes that, where a licensee fails on a repeated basis to comply with the requirements of the systems, policies and processes it has established, the licensee will contravene a civil penalty provision with a maximum penalty of at least 5 000 penalty units. The EM clarifies that a single failure will not contravene the civil penalty provision, and will not enable ASIC's licensing enforcement powers; however, it states that the contravention of the Credit Act means consumers retain access to redress through other mechanisms, such as AFCA.
Licensees and reverse mortgages—projection and prohibition
1.69
The bill retains the requirement for licensees to provide equity projections; however, upon commencement the obligation must be met before a licensee provides credit assistance; enters a reverse mortgage; increases the credit limit of a reverse mortgage; or makes an unconditional representation about a consumer's eligibility.
1.70
Further, a licensee must show the consumer a comparison of his or her stated expected aged care costs with the equity projection. Importantly, the licensee is only required to ask the consumer for an estimate of these future costs, and is not required to form its own view. The licensee must also show the consumer the comparison in person and provide a printed copy.
1.71
The bill also introduces a new prohibition on licensees from entering into reverse mortgages where the loan to value ratio would exceed a certain amount, based on the borrower's age. Specifically, a licensee must not enter into a reverse mortgage with a borrower who:
is under 56 years of age, where the loan to value ratio of the mortgage exceeds 15 per cent; or
is at least 56 years of age, where the loan to value ratio of the mortgage exceeds the sum of 16 per cent and 1 per cent for each year the borrower is more than 56 years of age.
1.72
Notwithstanding this prohibition, the bill provides an exception where a licensee reasonably believes that a reverse mortgage, or an increase in the credit limit of a reverse mortgage, is appropriate because of an applicant's special circumstances.
Schedules 2 and 6—Small amount credit contract reforms
1.73
Schedules 2 and 6 of the bill implement the Australian government's response to the recommendations made in the SACC Review. Per the EM, these reforms aim to:
…enhance the consumer protection framework for consumers of small amount credit contracts. In particular, the amendments reduce the risk that consumers of these credit contracts—many of whom are financially vulnerable—are unable to meet their basic needs or default on other necessary commitments as a result of entering into the contract.
1.74
Key amendments in schedules 2 and 6 of the bill include:
updating the mechanism for restricting the repayments that are allowed under a SACC (also known as the protected earnings amount);
repealing the rebuttable presumption that a SACC is unsuitable if the consumer has entered into two or more SACCs in the past 90 days, or the consumer is in default under a SACC;
requiring SACCs to have equal repayments and equal repayment intervals over the life of the loan;
expressly prohibiting licensees from charging monthly fees in respect of the residual term of a loan where a consumer fully repays the loan early;
prohibiting licensees from making unsolicited communications to consumer to apply for, or enter into, a SACC in certain circumstances;
requiring licensees to document, in writing, their assessment, or preliminary assessment, that a SACC is not unsuitable for a consumer; and
requiring licensees to display and give information to consumers about SACCs in accordance with the requirements determined by ASIC in a legislative instrument.
1.75
Table 1.2, below, highlights the key differences between the existing law and the proposed new law.
Table 1.2: Comparison of current and new law
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Licensees must not enter into a small amount credit contract with a consumer if the repayments under the contract would not meet the requirements prescribed in the regulations.
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Licensees must not enter into a small amount credit contract 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.
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The rebuttable presumption is repealed
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A small amount credit contract is presumed to be unsuitable for a consumer if:
the consumer has had two or more other small amount credit contracts in the past 90 days; or
is in default under another small amount credit contract.
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Small amount credit contracts must have equal repayments and equal repayment intervals over the life of the loan, subject to certain limited exceptions.
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No equivalent.
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Licensees cannot charge a consumer monthly fees in respect of the residual term of the small amount credit contract where the consumer fully repays the loan early.
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No equivalent.
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Licensees are prohibited from making unsolicited communications to a consumer that contain an offer or invitation to enter into or apply for a small amount credit contract in certain circumstances.
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No equivalent.
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Licensees must document in writing their assessment that a small amount credit contract is not unsuitable for a consumer.
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No equivalent.
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Licensees must display information and give information to consumers about small amount credit contracts in accordance with requirements determined by the Australian Securities and Investments Commission (ASIC) in a legislative instrument.
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Licensees must display information about SACCs in accordance with the requirements prescribed by the regulations.
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Source: Explanatory Memorandum, pp. 73-74.
Detailed explanation
The protected earnings amount
1.76
The existing section 133C of the Credit Act allows regulations to be made which prescribe requirements for SACCs made to certain classes of consumers. Regulations made under this section aim to ensure that where a consumer receives at least 50 per cent of their gross income from social security payments, 80 per cent of the consumer's gross income is protected and cannot be used to repay SACCs. This protected proportion is referred to as the 'protected earnings amount'.
1.77
Item 10 of schedule 2 of the bill repeals subsection 133CC(1) of the Credit Act and replaces it with a general provision that prohibits licensees from entering into SACCs if the repayments would not meet the requirements prescribed by regulations. This change gives effect to the Australian government's response to recommendation 1 of the SACC Review.
1.78
The key aspect of this reform is that regulations made for the purposes of the new subsection 133CC(1) do not require a prescribed earnings amount in respect of a prescribed class of consumers. Instead, the new regulations can apply more broadly to ensure that all consumers are covered by a protected earnings amount.
1.79
Per the EM, it is expected that the regulations will provide separate protected earnings amounts for consumers who receive 50 per cent, or more, of their net income from social security payments and those who do not.
1.80
For consumers who receive 50 per cent or more of their net income from social security payments, a licensee must not enter into a SACC or consumer lease with the consumer if the total repayments under the SACC or consumer lease would exceed 20 per cent of their net income; and within that 20 per cent, the total repayment under the SACC would exceed 10 per cent of their net income. For all other consumers, a licensee must not enter into a SACC with the consumer if the total repayments under the SACCS would exceed 20 per cent of their net income.
1.81
To deter contraventions of these requirements, failure to comply attracts a civil penalty of up to 5 000 penalty units and constitutes the commission of an offence with a financial penalty of up to 50 penalty units.
1.82
To create a financial incentive for licensees to comply with the repayment requirements, item 11 of schedule 2 of the bill introduces a loss of charges mechanism for licensees who enter into SACCs in contravention of these requirements. This change gives effect to the government's response to recommendation 23 of the SACC Review.
1.83
Under this mechanism, a licensee who enters into such a SACC loses their entitlement to any permitted establishment and monthly fees that would otherwise be payable under the contract if the court had made a declaration that the licensee has contravened the civil penalty provision in subsection 133CC(1) in relation to the contract; or the licensee is found guilty of an offence under subsection 133CC(2) in relation to that contract.
Removing the unsuitability presumption
1.84
Under the Credit Act, there is currently a rebuttable presumption that a SACC is unsuitable for a consumer if the consumer is in default under another SACC; or the consumer has had two or more other SACCs in the previous 90‑day period.
1.85
The SACC Review determined that this presumption is ineffective in addressing the harm caused by repeat borrowings and debt spiral and, hence, should be replaced with an amended protected earnings requirement.
1.86
Items 3, 4, 6 and 7 of schedule 2 of the bill repeal the provisions in the Credit Act that create the rebuttable presumption, and give effect to the government's response to recommendation 2 of the SACC Review.
Requirement for equal repayments and intervals
1.87
Item 12 of schedule 2 of the bill adds section 133CD to the Credit Act which requires that a licensee must not enter into, or offer to enter into, a SACC with a consumer unless:
the contract provides for equal repayments;
the due dates for each repayment are set at equal intervals over the life of the loan; and
the interval between the date on which the credit would first be provided and the due date of the first repayment is no more than twice the length of the interval between each repayment.
1.88
The purpose of new section 133CD is to address the existing practice of front‑loading repayments whereby licensees maximise revenue by front‑loading repayments and extending the overall term of the contract with lower repayments in the later stages. The EM notes that, by artificially extending the term of the SACC in this way, the provider increases costs to the consumer by gaining additional revenue when the risk of default is lower.
1.89
Failure to comply with the new requirements attracts a civil penalty of up to 5 000 penalty units, and the commission of an offence and a strict liability offence.
1.90
This reform gives effect to the government's response to recommendation 5 of the SACC Review.
Prohibition on charging monthly fees after early repayment
1.91
Item 13 of schedule 2 of the bill inserts section 31C into the National Credit Code (Schedule 1 of the Credit Act) (the Credit Code) and prohibits providers of SACCS from requiring or accepting payment of an unexpired monthly fee by a consumer, where the consumer fully repays the balance of a SACC before the end of the original term of the loan.
1.92
This reform is aimed at addressing concerns regarding how credit providers structure payments of permitted monthly fees, such as requiring all permitted monthly fees to be paid up-front or required permitted monthly fees to be paid in advance of the month in respect of which the fee applies. Further, this change also aligns protections for SACCs with those of other credit contracts.
1.93
Failure to comply with the new requirement constitutes the commission of an offence and a strict liability offence, and a contravention of a key requirement for which a penalty may be imposed by a court under part 6 of the Credit Code. The EM notes that this provides an additional avenue for consumers to seek redress.
1.94
This change brings the protections for SACCs into line with those that apply for other credit contracts, and implements the government's response to recommendation 7 of the SACC Review.
Prohibiting unsolicited communications
1.95
Under item 12 of schedule 2 of the bill, a licensee must not make, or arrange for the making of, an unsolicited communication to a consumer that contains an offer to the consumer to enter into a SACC; or an invitation to the consumer to apply for a SACC, where the consumer is, or was, a debtor under a SACC.
1.96
Per the EM, this prohibition is not intended to capture communications that are directed to consumers at large. Instead, its purpose is to ensure that licensees cannot make unsolicited communications to vulnerable consumers; and applications for SACCs are made actively and not in response to being prompted.
1.97
To promote compliance with the new prohibition, item 12 of schedule 2 of the bill introduces a loss of charges mechanism for licensees who enter into SACCs in contravention of the new prohibition. Further, a civil penalty of up to 5 000 penalty units applies, and contravention constitutes a commission of an offence, with a financial penalty of up to 100 penalty units.
1.98
The prohibition on unsolicited communications and the introduction of a loss of charges mechanism give effect to the government's response to recommendations 8 and 23 of the SACC Review.
Documenting assessments that a contract is not unsuitable
1.99
Item 12 of schedule 2 of the bill introduces a new requirement for licensees to document, in writing and in accordance with any requirements determined by ASIC in a legislative instrument, any assessment that a SACC is not unsuitable for a consumer, and the inquiries and verifications made in relation to such an assessment. This new requirement does not impose any record‑keeping requirements where a SACC is assessed as unsuitable for a consumer.
1.100
The object of this reform is to improve the transparency and accountability of decisions made by licensees, and supplements the existing responsible lending obligations under the Credit Act. Failure to comply with the new requirements attracts a civil penalty of up to 5 000 penalty units.
1.101
This reform implements the government's response to recommendation 20 of the SACC Review.
Protection of account statements
1.102
Item 3 of schedule 6 of the bill introduces a restriction on the use and disclosure of 'constrained documents', which includes account statements obtained by licensees in connection with a SACC or proposed SACC. Such statements are currently required to be obtained by providers of SACCs and licensees who provide credit assistance in relation to SACCs, and forms part of the licensee's obligation to verify a consumer's financial situation.
1.103
Under the new restriction, a person must not use or disclose an account statement, or information contained in an account statement, unless the use or disclosure is:
necessary for the person to comply with the person's obligations under the Credit Act;
required or authorised by, or under, a law of the Commonwealth, or of a state or territory, or a court or tribunal order;
for the purposes of considering a hardship notice;
for the purposes of assisting ASIC to perform its functions or exercise its powers; or
for the purposes of allowing the AFCA to perform its functions or exercise its powers.
1.104
The reform gives effect to the government's response to recommendation 19 of the SACC Review, and has the object of ensuring that consumers' personal information is not misused by a licensee or its representative. Failure to comply with the new restrictions attracts a civil penalty of up to 5 000 penalty units, and constitutes the commission of an offence and a strict liability offence.
Enhancing warning statements
1.105
Item 9 of schedule 2 of the bill replaces the existing requirement for licensees to display information, known as warning statements, as required by the regulations with a new requirement to display information, and give information to consumers, in accordance with any requirements determined by ASIC in a legislative instrument.
1.106
Specifically, ASIC may determine the information that a licensee must display and give to consumers; and how, when, and in what form a licensee must display and give information to consumers. The EM states that the power for ASIC to determine these requirements is necessary to 'ensure the information provided is effective in highlighting risks with these contracts and assisting customers to make better use of alternative where available'.
1.107
By providing relevant information about the financial implications of entering into a SACC, this reform aims to assist consumers make informed decisions and provide a better understanding of the alternatives that may be available.
1.108
The existing civil and criminal penalties continue to apply to the new requirement and, hence, contraventions attract a civil penalty of up to 5 000 penalty units, and also constitute the commission of an offence with a financial penalty of up to 50 penalty units.
1.109
This change implements the government's response to recommendation 21 of the SACC Review.
Schedules 3 and 6—Consumer lease reforms
1.110
Schedules 3 and 6 of the bill introduce:
a cap on the amount a lessor can charge in connection with a consumer lease;
the concept of 'consumer leases for household goods' in the Credit Act, and the following obligations in respect of those leases:
the requirement for lessors to collect and consider consumers' account statements for the 90 days prior to entering into a consumer lease for household goods with the consumer;
the requirement for lessors to disclose to lessees the base price of goods hired under the lease and the difference between the total amount payable by the lessee in connection with the lease and the base price;
the prohibition of lessors from undertaking door-to-door selling of consumer leases for household goods;
the requirement for licensees to document, in writing, their assessment or preliminary assessment that a consumer lease for household goods is not unsuitable for a consumer; and
the requirement for licensees to display and give information to consumers in accordance with the requirements determined by ASIC in a legislative instrument; and
a new regulation-making power to set a protected earnings amount for consumer leases for household goods.
1.111
Table 1.3, below, highlights the key differences between the existing law and the proposed new law.
Table 1.3: Comparison of current law and new law
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|
|
|
There is a cap on the total amount that would be payable by the lessee in connection with the consumer lease.
|
No equivalent.
|
|
Lessors of household goods must obtain and consider a consumer's account statements for the preceding 90 days in the course of verifying the consumer's financial situation.
|
There is a general obligation on lessors to take reasonable steps to verify a consumer's financial situation, which in many cases would already involve obtaining and considering a consumer's account statements.
|
|
There is a regulation-making power to prescribe protected earnings amount for consumer leases for household goods.
|
No equivalent.
|
|
Lessors of household goods are prohibited from visiting a place of residence for the purpose of inducing a person who resides there to apply for or obtain a lease, except by prior arrangement.
|
No equivalent.
|
|
Lessors of household goods are required to disclose the base price of the goods being 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, p. 97.
Detailed explanation
Introducing a cap on costs
1.112
Item 31 of schedule 3 of the bill introduces a cap on costs for all consumer leases regulated under the Credit Act. Specifically, it requires that a lessor must not enter into, or vary, a consumer lease so that the total amount that would be payable by the lessee in connection with the lease is more than the permitted cap for the lease.
1.113
The permitted cap for a consumer lease is the sum of:
the base price of the goods hired under the lease;
the permitted delivery fee (if any) for the consumer lease;
the permitted installation fees (if any) for the consumer lease; and
the sum of the above amounts, multiplied by:
in the case of a consumer lease for a fixed term–0.04 for each whole month of the consumer lease to a maximum of 48 months; or
in the case of a consumer lease for an indefinite period–1.92.
1.114
This reform further aligns the consumer protections for consumer leases with those for SACCs, and aims to prevent lessors, and other parties, from charging lessees excessive fees and charges.
1.115
Failure to comply with the permitted cap, or the permitted monthly cap, constitutes the commission of an offence, with a financial penalty of up to 100 penalty units. Further, a contravention also constitutes a contravention of a key requirement for which a penalty may be imposed by a court under part 6 of the Credit Code.
1.116
This reform gives effect to the government's response to recommendations 11, 12, 13, and 14 of the SACC Review.
Consumer leases for household goods
1.117
Item 35 of schedule 3 of the bill introduces into the Credit Code the concept of a 'consumer lease for household goods'. Such a lease is a regulated consumer lease where any of the goods hired under the lease are household goods; however, this does not include a consumer lease where any of the goods hired under the lease include:
a vehicle that is not for use on a road and is of a kind intended primarily for use by persons with restricted mobility; or
goods that are ordinarily used for accommodation.
1.118
The object of this definition is to ensure that lessors cannot avoid the new obligations relating to consumer leases for household goods by including non‑household goods in the same lease contract as a household good.
Introducing a protected earnings amount
1.119
Item 7 of schedule 3 of the bill prohibits lessors from entering into, or offering to enter into, a consumer lease for household goods if the amount required to be paid under the lease would not meet the requirements, such as the protected earnings amount, prescribed by the regulations.
1.120
Per the EM, it is expected that the regulations will provide separate protected earnings amounts for consumers who receive 50 per cent or more of their income from social security payments and those who do not.
1.121
For consumers who receive 50 per cent or more of their net income from social security payments, a licensee must not enter into a SACC or consumer lease with the consumer if the total repayments under the consumer's SACCs and the total payments under the consumer's proposed consumer lease and any existing consumer leases would exceed 20 per cent of the consumer's net income; and within that 20 per cent, the total repayments under the SACCs would exceed 10 per cent of the consumer's net income.
1.122
For all other consumers, a licensee must not enter into a consumer lease with the consumer if the total payments would need to be paid under the consumer's leases would exceed 20 per cent of the consumer's net income.
1.123
Failure to comply with the new requirements attracts a civil penalty of up to 5 000 penalty units; and also constitutes the commission of an offence, with a financial penalty of up to 50 penalty units.
1.124
Similar to the approach used to promote regulatory compliance with SACCs, the bill introduces a loss of charges mechanism which allows consumers to recover all the fees and charges above the base price that would otherwise be payable under a lease, if the lessor fails to comply with the payment requirements prescribed by the regulations.
1.125
These reforms implement the government's response to recommendations 15 and 23 of the SACC Review.
Obtaining and considering account statements
1.126
Item 6 of schedule 3 of the bill introduces an obligation on lessors offering consumer leases for household goods to obtain and consider a consumer's account statements that cover the immediately preceding period of 90 days. The same obligation is also introduced for licensees that provide credit assistance in relation to consumer leases.
1.127
These requirements mirror existing provisions relating to SACCs, and the EM notes that they 'address concerns that lessors are not making adequate inquiries about a consumer's expenses and capacity to pay before entering into the lease with the consumer'.
1.128
Schedule 6 of the bill also introduces restrictions on the use, and disclosure, of constrained documents, including account statements obtained by lessors in connection with consumer leases for household goods or proposed consumer leases for household goods.
1.129
The object of these restrictions is to ensure that personal information is not misused by a lessor or its representatives. Under the restrictions, a person must not use, or disclose, an account statement, or information contained in an account statement, unless the use or disclosure is:
necessary for the person to comply with the person's obligations under the Credit Act;
required or authorised by, or under, a law of the Commonwealth, or of a state or territory, or a court or tribunal order;
for the purposes of considering a hardship notice;
for the purposes of assisting ASIC to perform its functions or exercise its powers; or
for the purposes of allowing the AFCA to perform its functions or exercise its powers.
1.130
Failure to comply with these new restrictions on using or disclosing constrained documents attracts a civil penalty of up to 5 000 penalty units, and also constitutes the commission of an offence and a strict liability offence.
1.131
These changes implement the government's response to recommendation 19 of the SACC Review.
Documenting assessments that a contract is not unsuitable
1.132
Item 7 of schedule 3 of the bill introduces a requirement for lessors of consumer leases for household goods to document, in writing, and in accordance with any requirements determined by ASIC any assessment that a consumer lease is not unsuitable for a consumer; and the inquires and verifications made in relation to that assessment.
1.133
This complements the existing responsible lending obligations which require lessors to assess whether a consumer lease will be unsuitable for a consumer before entering into the consumer lease with the consumer; or making an unconditional representation to the consumer that the lessor considers that the consumer is eligible to enter into a consumer lease.
1.134
The object of the change is to enhance the transparency and accountability of decisions made by lessors that a proposed contract is not unsuitable. This new requirement does not apply where a lessor assesses that a consumer lease is unsuitable.
1.135
Contravention of the new requirement attracts a civil penalty of up to 5 000 penalty units, and is consistent with the existing civil penalties in the Credit Act.
1.136
This reform implements the government's response to recommendation 20 of the SACC Review.
Prohibition on door-to-door selling of consumer leases
1.137
Item 34 of schedule 3 of the bill prohibits lessors visiting a place of residence for the purpose of inducing a person who resides there to apply for, or obtain, a consumer lease for household goods, unless there is a prior arrangement with a person who resides at the property.
1.138
The purpose of this new prohibition is to address unfair sales practices often used by lessors in the course of door‑to‑door selling at residential properties. The EM notes that 'in particular it recognises the potential for the sales environment to make it difficult for the consumer to refuse to enter into the lease and ask the lessor to leave'.
1.139
A contravention of the new prohibition constitutes the commission of an offence and a strict liability offence, and a contravention of a key requirement for which a penalty may be imposed by a court under part 6 of the Credit Code.
1.140
This reform implements the government's response to recommendation 18 of the SACC Review.
Warning statements
1.141
Item 7 of schedule 3 of the bill requires licensees who offer consumer leases for household goods to display information and give information to consumers in accordance with any requirements determined by ASIC in a legislative instrument.
1.142
Such requirements may state the information that a licensee must display and give to consumers; and how and when the licensees must display and give the information to consumers.
1.143
The object of these obligations is to ensure that consumers receive 'relevant and effective information about the financial implications of entering into or using a consumer lease for household goods'.
1.144
Contravention of these new requirements attracts a civil penalty of up to 5 000 penalty units, and constitutes the commission of an offence with a financial penalty of up to 50 penalty units.
1.145
This reform implements the government's response to recommendation 21 of the SACC Review.
Base price disclosure
1.146
For consumer leases of household goods, item 30 of schedule 3 of the bill requires lessors to disclose:
the base price of the goods hired under the lease; and
the difference between the base price of the goods hired under the lease and the sum of:
the total amount payable in connection with the lease, but not including an amount set out in subsection 175AA(4); and
the establishment fee, if any, as described in paragraph 175AA(4)(a).
1.147
The object of this is to assist lessees make informed decisions about a lease by ensuring they are aware of its financial implications, and that the difference between the cost of a good (i.e. the base price of the good) and how much the lessee is paying to lease the good is clearly shown.
1.148
A contravention of section 174 of the Credit Code, including these new disclosure requirements, attracts a civil penalty of up to 5 000 penalty units, and also constitutes the commission of a strict liability offence with a financial penalty of up to 100 penalty units. Further, a contravention of the new disclosure requirements also constitutes a contravention of a key requirement for which a penalty may also be imposed by a court under part 6 of the Code.
1.149
This reform gives effect to the government's response to recommendation 22 of the SACC Review.
Schedules 4 and 5—Anti-avoidance measures
Prohibition of avoidance schemes
1.150
Schedules 4 and 5 of the bill introduce anti-avoidance measures to prohibit schemes that are designed to avoid the application of the Credit Act in relation to small amount credit contracts and consumer leases; and regulate consumer leases for an indefinite period under the Credit Act.
1.151
These measures address the issue highlighted by the SACC Review that the introduction of conduct obligations resulted in some lenders and lessors seeking to avoid them through various practices. The measures implement the Australian government's response to recommendation 24 of the SACC Review.
1.152
Table 1.4, below, highlights the key differences between the existing law and the proposed new law.
Table 1.4: Comparison of current law and new law
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|
|
|
A person must not enter into, begin to carry out a scheme or carry out a scheme for an avoidance purpose.
|
No equivalent
|
|
Consumer leases for an indefinite period are regulated under the Credit Act.
|
No equivalent—consumer leases for an indefinite period are excluded from the regulation under the Credit Act.
|
Source: Explanatory Memorandum, p. 120.
Detailed explanation
Prohibition of avoidance schemes
1.153
Schedule 4 of the bill introduces new rules which prohibit schemes designed to prevent a contract from being a SACC or consumer lease. The general prohibition provides that a person must not enter into a scheme, begin to carry out a scheme, or carry out a scheme if, having regard to specified matters, it would be reasonable to conclude that the purpose, or one of the purposes of the person engaging in that conduct was an avoidance purpose.
1.154
Per the EM, the following are considered avoidance purposes:
prevent a contract from being either a SACC or a consumer lease;
cause a contract to cease to be a SACC or a consumer lease;
avoid the application of a provision of the Credit Act to a SACC or consumer lease; and
avoid the application of a provision of the Credit Act to a contract that has ceased to be a SACC or consumer lease.
1.155
Failure to comply with any of the new prohibitions attracts a civil penalty of up to 5 000 penalty units; and also constitutes the commission of an offence, with a financial penalty of up to 100 penalty units if fault is proven.
Consumer leases entered into for an indefinite period
1.156
Currently, the Credit Code does not apply to consumer leases entered into for an indefinite period. Schedule 5 removes the provision in the Credit Code which excludes consumer leases entered into for an indefinite period from being regulated under the Credit Act.
1.157
Notwithstanding the above, the Credit Code will only apply to a consumer lease entered into for an indefinite period that meets the definition of a consumer lease under section 169 of the Credit Code; is otherwise a consumer lease to which part 11 of the Credit Code applies; and is within the constitutional limitations.
1.158
The government is introducing this change to reflect the risk that the introduction of the new obligations imposed by schedule 3 of the bill, such as the introduction of a cap on the total amount that can be charged in connection with a consumer lease, will incentivise lessors to offer unregulated products where there is no cap.
1.159
A contravention attracts a civil penalty of up to 5 000 penalty units, and constitutes the commission of an offence with a financial penalty of up to 100 penalty units.
Legislative scrutiny
1.160
In its Scrutiny Digest 2 of 2021, the Senate Standing Committee for the Scrutiny of Bills (the Scrutiny Committee) raised concerns with the bill regarding a number of significant matters which are determined by delegated legislation.
1.161
The Scrutiny Committee highlighted that legislative instruments made by the executive are not subject to the full range of parliamentary scrutiny inherent in bringing proposed changes in the form of an amending bill, and was of the view that significant matters should be included in primary legislation unless a sound justification for the use of delegated legislation is provided.
1.162
Given the above, the Scrutiny Committee requested advice from the Treasurer regarding why it was considered necessary and appropriate to leave a number of significant matters to delegated legislation, and whether the bill could be amended to included high‑level guidance, at a minimum, on the face of the primary legislation in relation to:
the manner of giving a comparison of equity projections and aged care costs to a consumer;
the content of the non‑ADI credit standards;
conditions whereby repayments under a SACC are taken as equal; and
circumstances in which regulations may prescribe that specified kinds of communications are not unsolicited for the purpose of the prohibition proposed in section 133CF.
1.163
The Scrutiny Committee noted that schedule 4 of the bill establishes a prohibition on schemes that are designed to avoid the application of the Credit Act in relation to SACCs and consumer leases, and that ASIC would be provided the power to exempt a scheme or class of schemes from all, or specified parts, of the prohibitions. Given this the Scrutiny Committee requested detail advice as to:
why it was considered necessary and appropriate to leave the prescription or determination of avoidance schemes and matters relevant to making a conclusion that a scheme is an avoidance scheme to delegated legislation;
why it is proposed to confer on ASIC the broad power to exempt schemes from the operation of the prohibition of avoidance schemes in proposed section 323A;
whether the bill can be amended to include high-level guidance, at a minimum, regarding schemes that will be presumed to be entered into for an avoidance purpose on the face of the primary legislation and the circumstances where it would be appropriate for ASIC to exempt such schemes;
why it is proposed to place a legal burden of proof on the defendant by including presumptions in relation to these civil penalty provisions; and
why it is not sufficient to reverse the evidential, rather than legal, burden of proof in this instance.
1.164
The Scrutiny Committee also raised concerns regarding the reversal of the evidential burden of proof in proposed subsections 133DB(4A) and (4B), stating that it expects any such reversal to be justified. The Scrutiny Committee noted that this has not been addressed in the explanatory materials accompanying the bill and, hence, requested advice from the Treasurer as to why it is proposed to use offence‑specific defences, which reverse the evidential burden of proof, in this instance.
Regulatory and financial impact
Schedule 1—Changes to the responsible lending obligations
1.165
The EM states that schedule 1 will have a nil financial impact.
1.166
The EM describes the reforms as deregulatory in nature, in that they will not impose compliance costs. Conversely, it states that the reforms will benefit lenders; borrowers; and credit assistance providers.
Schedules 2 to 6—Small amount credit contract and consumer lease reforms
1.167
The EM states that schedules 2 to 6 will have a nil financial impact.
1.168
The EM submits that annual compliance costs are estimated to be $15.91 million because the reforms will require providers of SACCs and consumer leases to modify systems, processes and procedures; and undertake ongoing monitoring and maintenance to ensure compliance with the new obligations.
1.169
The Regulation Impact Statement (RIS) details for schedules 2 to 6 are described as a ‘Review’. Under the Australian Government Guide to Regulatory Impact Analysis on the Office of Best Practice Regulation (OBPR), it describes that in ‘some special cases in the RIS process, one of which is that a RIS is not required for a regulatory proposal if an independent review, or other similar mechanism, has undertaken a process and analysis equivalent to a RIS. In such a case, the independent review can substitute for the RIS. This approach aims to remove duplication between comprehensive review processes and RISs.
1.170
The Office of Best Practice Regulation notes that in these circumstances the office does not assess the quality of the analysis in the Independent Review or RIS-like process. OBPR is, however, required to assess the Independent Review for relevance to the recommended option(s) that have been certified as being informed by a process and analysis equivalent to a Regulation Impact Statement.
Conduct of the inquiry
1.171
The committee advertised the inquiry on its website and wrote to relevant stakeholders and interested parties inviting submissions by 3 February 2021. The committee received 112 submissions, which are listed at appendix 1.
1.172
The committee held public hearings in Canberra on 19 February 2021 and 26 February 2021. The names of witnesses who appeared at these hearings are at appendix 2.
1.173
The committee thanks all individuals and organisations that contributed to the inquiry.
1.174
Hansard references throughout this document relate to proof Hansard, unless otherwise stated. Please note that page numbering may differ between proof and official Hansard.