Senate

National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011

National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011

Revised Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)
This explanatory memorandum takes account of amendments made by the House of Representatives to the bill as introduced.

[1]
See Attachment A for glossary of terms.

[2]
2010 Standing Committee of Officials of Consumer Affairs Simplification of Disclosure Regulation for the Consumer Credit Code, pg 6.

[3]
Lacko, J and Pappalardo, K ' Improving consumer mortgage disclosures - an empirical assessment of current and prototype disclosure forms' (2007) US Federal Trade Commission's Bureau of Economics 13 June 2007.

[4]
ABS Adult Literacy Survey 2006, pg 2. The scale of 1-5 used is based on proficiency measures, with Level 1 being the lowest level of literacy and Level 5 being the highest level of literacy. Level 3 is regarded by the survey developers as the 'minimum required by individuals to meet the complex demands of everyday life and work in the emerging knowledge-based economy.'

[5]
ABS Adult Literacy Survey 2006, pg 2. The scale of 1-5 used is based on proficiency measures, with Level 1 being the lowest level of literacy and Level 5 being the highest level of literacy. Level 3 is regarded by the survey developers as the 'minimum required individuals to meet the complex demands of everyday life and work in the emerging knowledge-based economy.

[6]
Uniform Consumer Credit Code: Mandatory Comparison Rates Final Impact Statement, 7 May 2008.

[7]
June 2008 Financial Services and Credit Reform Green Paper, pg 10.

[8]
The Schumer Box is named after the US Senator Schumer who proposed that all important features of a credit contract be placed in a box on the front of the credit contract.

[9]
2010 Standing Committee of Officials of Consumer Affairs Simplification of Disclosure Regulation for the Consumer Credit Code, pg 6.

[10]
Malbon, J 'Taking Credit: A Survey of Consumer Behaviour in the Australia Consumer Credit Market' (1999) September Law School, Griffith University for the Consumer Credit Code Post Implementation Review Committee on behalf of the Ministerial Council on Consumer Affairs.

[11]
92 per cent of low income consumers and 84 per cent of high income consumers said that they mainly took notice of the key features of the credit contract, Malbon, J 'Taking Credit: A Survey of Consumer Behaviour in the Australia Consumer Credit Market' (1999) September Law School, Griffith University for the Consumer Credit Code Post Implementation Review Committee on behalf of the Ministerial Council on Consumer Affairs.

[12]
Ewing, S 'The Effectiveness of Mandatory Comparison Rates' (2006) Swinburne Institute of Social Research.

[13]
Howells 2005 and Sheehan, G and Wilson, T and Howell, N Brotherhood of St. Laurence, 'Coming to grips with credit contracts', November 2008.

[14]
SCOCA report pg 23-24.

[15]
WA Department of Consumer and Employment Protection, Request for Consultancy Services for the Simplification of Disclosure Regulation-Consumer Credit Code, February 2007, pg 27.

[16]
PIR 1999 pg 9.

[17]
PIR 1999 pg 30.

[18]
Based on advertised rates on 15 November 2010. The benchmark variable rate is the weighted average of the rates offered on full featured variable loans of approximately 100 big and small lenders around Australia.

[19]
O'Shea, P, Simplification of Disclosure Regulation for the Consumer Credit Code: Empirical Research and Redesign, UniQuest, March 2010.

[20]
Uniform Consumer Credit Code: Mandatory Comparison Rates, 7 May 2008, Pg 35.

[21]
Uniform Consumer Credit Code: Mandatory Comparison Rates, 7 May 2008, Pg 35.

[22]
Uniform Consumer Credit Code: Mandatory Comparison Rates, 7 May 2008, Pg 37.

[23]
CCMC annual report 2008-09, pg 20.

[24]
Based on advertised rates on 15 November 2010. The benchmark variable rate is the weighted average of the rates offered on full featured variable loans of approximately 100 big and small lenders around Australia.

[25]
Based on advertised rates on 15 November 2010. The benchmark variable rate is the weighted average of the rates offered on full featured variable loans of approximately 100 big and small lenders around Australia.

[26]
The SOA is a similarly tailored document that outlines the financial advice given to the individual, the information on which it's based, how the financial adviser gets paid and any interests or relationships that could influence them. The key similarity with the proposed key facts document is that it is tailored financial advice, not general advice.

[27]
This estimate is based on the time that a financial adviser would spend on documenting the individual's information and advice. It does not include the costs of making appropriate inquiries about the consumer or doing the associated analysis.

[28]
Uniform Consumer Credit Code: Mandatory Comparison Rates, 7 May 2008, Pg 37.

[29]
Based on advertised rates on 15 November 2010. The benchmark variable rate is the weighted average of the rates offered on full featured variable loans of approximately 100 big and small lenders around Australia.

[30]
1999 UCCC PIR pg 9.

[31]
2005 Precontractual Disclosure and the Uniform Consumer Credit Code Consultation Package 2005, Ministerial Council for Consumer Affairs (MCCA), pg 2.

[32]
Report Inquiry into Competition in the banking and non-banking sectors, House of Representatives Standing Committee on Economics, November 2008, pg xvii.

[33]
Fujitsu Consulting submission to the Inquiry into Competition in the banking and non-banking sectors, House of Representatives Standing Committee on Economics 2008.

[34]
Mates Rates Mortgages submission to the Inquiry into Competition in the banking and non-banking sectors, House of Representatives Standing Committee on Economics 2008 and transcript to the inquiry: http://www.aph.gov.au/hansard/reps/commttee/R11145.pdf.

[1]
Many institutions reduced or removed over-limit exemption fees in late 2009. Some reduction in fees is likely to be reflected in the exception fee income for 2009, though it is likely that figures for 2010 will also be affected.

[2]
Exception fees may be charged when there are insufficient available funds to cover a transaction, resulting in a dishonour or approval to overdraw; credit card payments are late; or credit card limits are exceeded. Data obtained does not break down the total fees into those categories.

[3]
The NAB has around 12 per cent of credit cards in Australia. NAB is the only major lender to abolish this fee.

[4]
37% of consultation respondents to an online poll considered allocation of repayments the most important issue, second was minimum repayments at 20%.

[5]
Choice has published articles on this specific issue in October 2006 (Card Games), January 2010 (Which Credit Card for You), May 2010 (Low Interest, High Anxiety) and August 2010 (Stings in the Tail).

[6]
Choice article of March 2010, 'Stings in the tail: financial institutions are using unfair practices to squeeze every last cent of interest from customers.'

[7]
Responses to Consumer Credit Phase 2 Green Paper.

[8]
Money and Power, The Case for better regulation in banking, The Australia Institute submission to Green Paper, Page 18

[9]
ACNielson, ANZ, Understanding Personal Debt and Financial Difficulty in Australia, Nov 2005, p4

[10]
Congratulations, You're Pre-Approved! Consumer Action Law Centre 2008.

[11]
Sheehan, G Wilson, T and Howell, N Coming to grips with credit contracts - Steps to protect vulnerable borrowers, Brotherhood of St. Laurence and Griffith University, November 2008, pp 4-5

[12]
Genevieve Sheehan, Therese Wilson and Nicola Howell,, Coming to Grips with Credit Contracts, Brotherhood of St Laurence

[13]
O'Shea, Paul, Simplification of Disclosure Regulation for the Consumer Credit Code: Empirical Research and Redesign, UniQuest, March 2010

[14]
CDM is the Current disclosure model which is the current disclosure mandated by the Code. It can be a separate document but is usually a copy of the loan contract and includes a financial table or schedule.

[15]
PDM is the Proposed Disclosure Model proposed in the 2005 Uniform Consumer Credit Code Management Committee consultation package. It consists of a Financial Summary Table and a Statement of Other Information.

[16]
RDM is the Redesigned Disclosure Model. It consists of a redesigned Financial Summary Table which refers to the contract schedule. It also includes a set of standard terms.

[17]
SCOCA Simplification of Disclosure Regulation for the Consumer credit Code: Empirical Research and Redesign - Final Report, March 2010, p6

[18]
CDM is the Current disclosure model which is the current disclosure mandated by the Code. It can be a separate document but is usually a copy of the loan contract and includes a financial table or schedule.

[19]
PDM is the Proposed Disclosure Model proposed in the 2005 Uniform Consumer Credit Code Management Committee consultation package. It consists of a Financial Summary Table and a Statement of Other Information.

[20]
RDM is the Redesigned Disclosure Model. It consists of a redesigned Financial Summary Table which refers to the contract schedule. It also includes a set of standard terms.

[21]
Consumer Reports, Consumer Reports Survey Finds Credit Card Issues Improving In Wake of Credit CARD Act of 2009: But Some Perils Linger, www.consumersunion.org

[22]
The example is based on an interest rate of 20% per annum.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).