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Australian Consumer Law and the National Credit Law Greg Kirk ASIC, ACCC and Consumer Protection Information Session PowerPoint Presentation
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Australian Consumer Law and the National Credit Law Greg Kirk ASIC, ACCC and Consumer Protection Information Session. 18 November 2010. Agenda. ACL in Financial Services UCT – legal and policy issues ASIC’s regulatory approach New National Credit Laws key elements Responsible Lending

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Australian Consumer Law and the National Credit Law

Greg Kirk

ASIC, ACCC and Consumer Protection Information Session

18 November 2010

agenda
Agenda
  • ACL in Financial Services
  • UCT – legal and policy issues
  • ASIC’s regulatory approach
  • New National Credit Laws key elements
  • Responsible Lending
  • Applying the two new laws, a case study on mortgage exit fees
what does acl mean for asic
What does ACL mean for ASIC?
  • Introduced in 3 tranches
    • Trade Practices Amendment (Australian Consumer Law) Act (No. 1) 2010
    • Trade Practices Amendment (Australian Consumer Law) Act (No. 2) 2010
    • Competition and Consumer Legislation Amendment Bill 2010
  • A single Australian Consumer Law with multiple regulators
  • ASIC retains primary responsibility for financial products and services
unfair contract terms
Unfair contract terms
  • New provisions in ASIC Act ss12BF-12BM
  • Main provision - s12BF. A term of a consumer contract is void if:
    • the term is unfair;
    • the contract is in standard form; and
    • it relates to a financial product or supply of financial services.
which financial products and financial services
Which financial products and financial services?
  • Any financial products and financial services (ASIC Act definition):
    • Credit
    • Banking transaction accounts
    • Investment products?
  • Except…
    • General and life insurance
    • Constitutions of companies, MIS, other bodies.
meaning of unfair
Meaning of unfair?
  • A term is unfair if it:
    • causes significant imbalance in the parties’ rights and obligations;
    • is not reasonably necessary to protect the legitimate interests of the advantaged party; and
    • would cause financial or other detriment.
  • A court must consider transparency and the contract as a whole.
exclusions
Exclusions
  • A term is not subject to the UCT provisions if it:
    • defines the main subject matter of the contract; or
    • sets the upfront price; or
    • is required or expressly permitted by law.
examples of unfair terms
Examples of unfair terms
  • Some potential examples in the legislation:
    • penalising one party but not the other for breach or termination;
    • allowing one party unilaterally to determine if there has been a breach or to interpret its meaning;
    • allowing one party, but not the other, to renew or not renew the contract.
terms of concern
Terms of concern
  • A term stating:“No officer, servant or agent of the company has any authority to vary, add to or omit any of the terms and conditions of the contract or lease”.
  • Possible conflict with National Credit Code entitlement to seek hardship variations.
powers of attorney
Powers of attorney
  • Terms relating to powers of attorney
    • “In the event of default, the Grantor [Buyer] irrevocably appoints the Lender and each officer of the Lender severally its attorney with the power to exercise its powers even if the attorney has a conflict of duty in exercising its powers or has a direct interest in the means or result of the exercise of its powers”.
  • Extent of lenders ability to negatively influence the financial position of the consumer, above and beyond the level of debt under the loan/lease agreement.
asic s regulatory approach to ucts
ASIC’s regulatory approach to UCTs
  • A new tool for use where appropriate in all of our work
  • A measure for addressing particular identified problems
  • Possibly different approaches where the questionable term is one off or industry wide
  • Current work with industry – projects to cut out boilerplate
national consumer credit protection act
National Consumer Credit Protection Act
  • Commenced 1 July 2010
  • Key elements
    • UCCC becomes the NCC
    • Licensing for all players
    • Regulation of mortgage brokers
    • Introduction of Responsible Lending
    • Mandatory EDR
responsible lending
Responsible Lending
  • Conduct reasonable inquiries about requirements and objectives
  • Verify the customer’s financial situation
  • Assess the customer’s capacity to repay without substantial hardship
  • Do not offer or suggest credit products that are unsuitable
responsible lending credit cards
Responsible Lending: Credit Cards

ASIC review of existing practice in relation to credit card issuance and limit increases

Survey of 15 card issuers

Industry practice – high volume, streamlined, little manual intervention

Responsible lending requirements focus on individual assessments

Guidance in RG 209

resources to assist
Resources to Assist
  • www.asic.gov.au/credit
  • Regulatory Guides and Information Sheets on all key elements
  • Downloadable Podcasts
  • Subscribe to credit newsletter
  • ASIC Infoline – 1300 300 630
some priorities going forward
Some priorities going forward
  • Verification audits in relation to license applications
  • Policing the boundary
  • Complaints
  • Emphases in our BAU activities
    • Debt collection, hardship
    • Gatekeepers
    • Entities new to regulation
issue based work
Issue based work
  • Mortgage Early Exit Fees
  • Responsible Lending
    • credit cards,
    • short term lending,
    • home loans especially fringe
  • Consumer Credit Insurance
  • Book Up
  • Debt consolidation
applying the ncc and the acl mortgage early exit fees
Applying the NCC and the ACL Mortgage Early Exit Fees
  • Twin Jurisdiction
    • Section 78 of the NCC: unconscionable establishment fees (s78(3)) and unconscionable “fees payable on early termination” (s78(4))
    • Unfair Contract Terms: section 12BF of the ASIC Act 2001
mortgage early exit fees
Mortgage Early Exit Fees
  • 2008 review of mortgage entry and exit fees
    • ASIC published a report which found that:
      • early termination fees on mortgages in Australia were high in comparison with the UK and US;
      • some early termination fees could probably not be justified by the underlying cost to the lender;
      • but, home loan entry fees in Australia were lower in comparison to those overseas.
mortgage early exit fees21
Mortgage Early Exit Fees
  • Regulatory guidance on early exit fees
    • 27 June 2010: ASIC released Consultation Paper CP 135 seeking stakeholder feedback on how ASIC proposes to administer the NCC and UCT provisions as they apply to mortgage early exit fees.
    • Consultation period closed on 9 August 2010
    • 10 November 2010: Regulatory Guide 220 published setting out ASIC guidance on NCC and UCT provisions.
mortgage exit fees legal issues
Mortgage Exit Fees – legal issues
  • Deferred Establishment Fees

- for the NCC are they establishment fees or fees payable on early termination

- for the ACL, are they a part of the upfront price

  • Two routes to the same outcome – fees that reflect losses caused by the early termination
mortgage exit fees
Mortgage Exit Fees

Provides guidance about:

  • what is a fee “payable on early termination”?
  • Types of costs and losses that may be included in an exit fee
  • Types of costs and losses which may not be included in an exit fee
  • The circumstances in which a lender may vary an exit fee
  • How lenders can explain their early exit fees transparently
  • Break fees on fixed rate mortgages.
questions and more information
Questions and more information
  • Complain to ASIC’s infoline

1300 300 630

emailinfoline@asic.gov.au

  • Joint regulatory guidance on UCT and other guidance forthcoming
  • Coordinated relationships with fellow regulators