1. ASIC, ACCC and Consumer Protection Information Session
Australian Consumer Law and the National Credit Law
Greg Kirk
ASIC, ACCC and Consumer Protection Information Session
18 November 2010

2. 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

3. 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

4. Table of old and new sections
ACL
Sections
Issue or power
New
12BF to BL
Unfair Contract Terms
Existing
12CB
Unconscionable conduct - supply financial source
12CC
Unconscionable conduct - in business
12DB
False & Misleading Representation
12DC
False & Misleading Representation - offensive conduct
12DF
Misleading conduct in relation to financial services
12GBA-GBB
Civil Penalties
12GLD
Director Disqualification
12GY-GYC
Substantiation Notice
12GLC
Public Warning Notice
12GNB
Non-party Consumer Redress
12GX-GXG
Infringement Notice
ASIC ALREADY HAD SOME CONSUMER LAW PROVISIONS IN PART 2 DIV 2 ASIC ACT
SEE BLUE SECTIONS
THE RED SECTION HAVE NOW BEEN ADDED IN.

5. 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.

6. 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.

7. 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.

8. 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.

9. 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.

10. 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.

11. 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.

12. 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

13. 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

14. 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

15. 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

16. Resources to Assist
Regulatory Guides and Information Sheets on all key elements
Downloadable Podcasts
Subscribe to credit newsletter
ASIC Infoline –

17. 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

18. 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

19. 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

20. 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.

21. 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.

22. 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

23. 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.

24. Questions and more information
Complain to ASIC’s infoline
Joint regulatory guidance on UCT and other guidance forthcoming
Coordinated relationships with fellow regulators

25. consumerlaw.gov.au