Presentation on theme: "ASIC, ACCC and Consumer Protection Information Session"— Presentation transcript:
1 ASIC, ACCC and Consumer Protection Information Session Australian Consumer Law and the National Credit LawGreg KirkASIC, ACCC and Consumer Protection Information Session18 November 2010
2 Agenda ACL in Financial Services UCT – legal and policy issues ASIC’s regulatory approachNew National Credit Laws key elementsResponsible LendingApplying the two new laws, a case study on mortgage exit fees
3 What does ACL mean for ASIC? Introduced in 3 tranchesTrade Practices Amendment (Australian Consumer Law) Act (No. 1) 2010Trade Practices Amendment (Australian Consumer Law) Act (No. 2) 2010Competition and Consumer Legislation Amendment Bill 2010A single Australian Consumer Law with multiple regulatorsASIC retains primary responsibility for financial products and services
4 Table of old and new sections ACLSectionsIssue or powerNew12BF to BLUnfair Contract TermsExisting12CBUnconscionable conduct - supply financial source12CCUnconscionable conduct - in business12DBFalse & Misleading Representation12DCFalse & Misleading Representation - offensive conduct12DFMisleading conduct in relation to financial services12GBA-GBBCivil Penalties12GLDDirector Disqualification12GY-GYCSubstantiation Notice12GLCPublic Warning Notice12GNBNon-party Consumer Redress12GX-GXGInfringement NoticeASIC ALREADY HAD SOME CONSUMER LAW PROVISIONS IN PART 2 DIV 2 ASIC ACTSEE BLUE SECTIONSTHE 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; andit 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):CreditBanking transaction accountsInvestment products?Except…General and life insuranceConstitutions 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; andwould 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; orsets the upfront price; oris 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 concernA 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 workA measure for addressing particular identified problemsPossibly different approaches where the questionable term is one off or industry wideCurrent work with industry – projects to cut out boilerplate
13 National Consumer Credit Protection Act Commenced 1 July 2010Key elementsUCCC becomes the NCCLicensing for all playersRegulation of mortgage brokersIntroduction of Responsible LendingMandatory EDR
14 Responsible LendingConduct reasonable inquiries about requirements and objectivesVerify the customer’s financial situationAssess the customer’s capacity to repay without substantial hardshipDo 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 AssistRegulatory Guides and Information Sheets on all key elementsDownloadable PodcastsSubscribe to credit newsletterASIC Infoline –
17 Some priorities going forward Verification audits in relation to license applicationsPolicing the boundaryComplaintsEmphases in our BAU activitiesDebt collection, hardshipGatekeepersEntities new to regulation
18 Issue based work Mortgage Early Exit Fees Responsible Lending credit cards,short term lending,home loans especially fringeConsumer Credit InsuranceBook UpDebt consolidation
19 Applying the NCC and the ACL Mortgage Early Exit Fees Twin JurisdictionSection 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 feesASIC 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 fees27 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 201010 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 priceTwo 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 feeTypes of costs and losses which may not be included in an exit feeThe circumstances in which a lender may vary an exit feeHow lenders can explain their early exit fees transparentlyBreak fees on fixed rate mortgages.
24 Questions and more information Complain to ASIC’s infolineJoint regulatory guidance on UCT and other guidance forthcomingCoordinated relationships with fellow regulators