Transcript ASIC [PPT 501KB] - The Australian Consumer Law

Australian Consumer Law
and the National Credit
Law
Greg Kirk
ASIC, ACCC and Consumer Protection
Information Session
18 November 2010
Agenda
1.
2.
3.
4.
ACL in Financial Services
UCT – legal and policy issues
ASIC’s regulatory approach
New National Credit Laws key
elements
5. Responsible Lending
6. Applying the two new laws, a case
study on mortgage exit fees
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
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
Existing
12CC
Unconscionable conduct - in business
Existing
12DB
False & Misleading Representation
Existing
12DC
False & Misleading Representation - offensive conduct
Existing
12DF
Misleading conduct in relation to financial services
New
12GBA-GBB Civil Penalties
New
12GLD
Director Disqualification
New
12GY-GYC
Substantiation Notice
New
12GLC
Public Warning Notice
New
12GNB
Non-party Consumer Redress
New
12GX-GXG
Infringement Notice
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?
• 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?
• 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
• 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
• 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
• 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
• 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
• 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
• 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
• 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
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
• 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
• 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
• 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
• 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
• 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 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
• 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
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
• Complain to ASIC’s infoline
1300 300 630
[email protected]
• Joint regulatory guidance on UCT
and other guidance forthcoming
• Coordinated relationships with
fellow regulators
consumerlaw.gov.au