Senate

Revised Explanatory Memorandum

Circulated by the authority of the Minister for Financial Services and Superannuation, the Hon Bill Shorten MP

Chapter 1 - Introduction

Outline of chapter

1.1 This chapter provides a summary of reforms introduced by the Consumer Credit Legislation Amendment (Enhancements) Bill 2012 (Enhancements Bill).

Context of amendments

1.2 At its meetings on 3 July and 2 October 2008, the Council of Australian Governments (COAG) agreed to implement a two phase implementation plan to transfer credit regulation to the Commonwealth and introduce new Commonwealth regulation to enhance consumer protection.

1.3 The NCCP Act implemented Phase One of the implementation plan by introducing a Commonwealth statutory framework for the regulation of persons who engage in credit activities, primarily lenders and brokers.

1.4 The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 introduced reforms in relation to home loans (by requiring credit providers to make available a Key Facts Sheet to enable consumers to compare different products more effectively) and credit card contracts (to address specific practices that had developed in relation to these products, for example, by introducing a payment allocation hierarchy, so that the highest interest bearing component of a consumer's liability would be repaid first).

1.5 The Enhancements Bill introduces a number of specific changes to improve its effectiveness. It provides additional obligations and protections in respect of three classes of credit products: reverse mortgages, small amount credit contracts and consumer leases (to address particular risks identified with each of those products).

Summary of new law

1.6 The Enhancements Bill amends the NCCP Act to provide protections to consumers when they use credit and to assist consumers to make more efficient use of credit contracts and consumer leases.

1.7

1.8 These reforms will:

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enhance the regulation of credit by a number of specific reforms (for example, introducing a remedy for unfair or dishonest conduct by credit service providers);

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implement the Government's election commitments in relation to reverse mortgages through the introduction of a statutory protection against negative equity, pre-contractual disclosure requirements and other protections relevant to seniors;

•

introduce protections for consumers who enter into small amount credit contracts (including a cap on the maximum amount credit providers can charge under these contracts); and

•

address the current regulatory gap in respect of consumer leases.

1.9 The Enhancements Bill also amends the Australian Consumer Law (ACL), to correct a minor grammatical error.

Detailed explanation of new law

Commencement

1.10 Sections 1 to 3 and any other provision for which a commencement date is not specified commence on the day the Enhancements Bill receives the Royal Assent.

1.11 Schedules 1, 3 and 5, and both Part 2 of Schedule 2 and items 12, 13, 14, 16, 17, 18, 21, 22, 24, 25 and 26 of Schedule 2 apply from 1 March 2013. Part 1 and items 15, 19, 20 and 23 of Schedule 2 commence on the day the Enhancements Bill receives Royal Assent. Schedule 1 contains general enhancements to the National Credit Code (Code). Schedule 2 contains amendments relating to reverse mortgages. Schedules 3 and 5 contain amendments relating to small amount credit contracts and consumer leases respectively.

1.12 Schedule 4 applies from 1 July 2013. Schedule 4 introduces a cap on costs for small amount credit contracts, and a complementary cap for all other credit contracts.

1.13 Schedule 6 applies the day after the Enhancement Bill receives the Royal Assent. Schedule 6 specifies the way in which the provisions in Schedules 1 to 5 will apply to conduct and to contracts before and after the commencement of those Schedules.

1.14 Schedule 7 commences on a single day to be fixed by Proclamation, however, if the provision(s) do not commence within the period of 12 months beginning on the day the Enhancements Bill receives the Royal Assent, they commence on the day after the end of that period. This schedule contains amendments to the Australian Consumer Law (ACL), to correct a minor error by replacing references to 'consumer goods' with 'goods' or 'goods supplied to a consumer' (as appropriate), in the lay-by and repair notice provisions.

1.15 These new reforms will:

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enhance the regulation of credit by:

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improving the capacity of borrowers to obtain hardship variations;

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introducing a remedy for unfair or dishonest conduct by credit service providers;

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restricting the use of high impact terms and representations by licensees;

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giving ASIC and consumers comprehensive standing in relation to contraventions of the Code; and

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implement the Government's election commitments in relation to reverse mortgages through the introduction of:

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a statutory protection against negative equity;

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pre-contractual disclosure requirements (including a requirement on licensees to provide the consumer with different scenarios in relation to the impact of a reverse mortgage on the equity in their home before they enter into a reverse mortgage);

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other protections relevant to seniors (including an obligation to make reasonable attempts to personally contact a defaulting debtor); and

•

introduce protections for consumers who enter into small amount credit contracts by:

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imposing a cap on the maximum amount credit providers can charge under these contracts (complemented by a more restrictive cap on all other credit contracts);

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introducing a number of presumptions and obligations in relation to suitability under the responsible lending conduct provisions in Chapter 3 of the NCCP Act to address concerns about specific practices that are likely to increase the dependency of consumers on small amount lending; and

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requiring credit providers and providers of credit assistance to disclose the availability of alternatives; and

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addressing the current regulatory gap in respect of consumer leases, by requiring lessors to comply, where appropriate, with similar obligations to those that currently apply to credit providers.

Application provisions

1.16 Schedule 6 of the Enhancements Bill specifies the conduct and the contracts to which the provisions in Schedules 1 to 5 will apply.