Credit Contracts and Consumer Finance Bill

The consultation draft of the Credit Contracts and Consumer Finance Bill ("the bill") has been released. It proposes wide-ranging changes to the law and has implications reaching beyond just providers of consumer credit.

All financial service providers will benefit from acquainting themselves with the Bill and anyone can make submissions by 11 May 2013 before it is formally introduced to Parliament for it's first reading. We have posted the Bill to the Legislation and Useful Links section of this website.

Underpinned by an explicit consumer protection policy, Part 1 of the Bill introduces several sweeping new concepts such as 'lender responsibility principles' to be consistent with improvements in other consumer law through the Consumer Law Reform Bill and with aspects of Australia's National Consumer Credit Protection Act 2009; and extensive guidelines on oppressive credit transactions.

It also proposes significant changes to the disclosure (including rolling disclosure) of credit terms and the setting of reasonable fees, addresses oppressive conduct, hardship applications and reforms processes around repossessions. For those members who are providers of consumer credit we would point you to section 83G - "the effect of debtor's complaint or application on grounds of unforeseen hardship on creditors' rights to enforce credit contract" & 83L, "creditor must not enter premises if complaint not resolved or unforeseen hardship application not decided".

Generally, the Bill promotes confident and informed participation in markets for credit for consumers and the development of fair, efficient and transparent financial markets. Part 1 comes into force 6 months after the Act receives the Royal assent.

Part 2 of the Bill amends the Financial Service Providers (Registration and Dispute Resolution) Act 2008, by amending the purpose of the Act to complement other reforms being progressed in the financial markets and seeks to protect the integrity of the financial service provider's regime.

Of particular interest to us at Financial Dispute Resolution is the removal of the requirement for the reserve scheme. (As advised by FairWay Resolution, the operator of the reserve scheme, has been approved as an approved scheme so that the transition to the approved scheme will be seamless, cost and hassle free to reserve scheme members). Part 2 of the Act comes into force on 1 July 2014.

A casual reader could conclude that the Bill is directed at providers of consumer credit, but it has implications for the core documentation and processes of all financial service providers.

The Code of Professional Conduct for Authorised Financial Advisers has become a central guide for FDR to apply (in stages) to the conduct of all financial service providers. The principles of the new Bill and ensuing Code for Responsible Lending further "sheets in" the need for all financial service providers to be able to demonstrate to those reviewing conduct (such as dispute resolution schemes or the regulator) that their customers fully understand and accept the service or product that aligns with a fully researched needs analysis and is devoid of any conflicts of interest.

Among other things, the Bill goes some way to addressing what we have concluded is a fundamental systemic issue within the entire financial services industry-lengthy, complex and often inaccessible terms and conditions and disclosures which many consumers would never read, let alone understand.

Note, submissions are due by May 11th.