The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
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Chris Bowen

Assistant Treasurer and Minister for Competition Policy and Consumer Affairs

3 December 2007 - 8 June 2009

Transcript of 20/04/2009

Interview with Leon Byner

Radio 5AA

Monday, 20 April 2009

SUBJECTS: Unfair contract terms legislation

LEON BYNER:

There was a lot of press over the weekend, suggesting that the Labor Party, the Federal Labor Government have had enough and they are going to regulate the banks. To find out a bit of detail, which I know you'll want to know, let's talk to the Minister for Competition Policy, Chris Bowen, Chris thanks for joining us today.

CHRIS BOWEN:

Good morning Leon.

BYNER:

Is this legislation banks-specific?

BOWEN:

No.

BYNER:

Or is it really under this canopy of unfair contracts?

BOWEN:

Absolutely. What we are talking about is the unfair contracts law, which will apply across the economy, banks and other financial institutions will be covered by that, but its not specifically for the banks and what this is about Leon is rebalancing the ledger and giving consumers a bit more of a go.

So where you have standard-form contract - a contract which isn't negotiated, you don't get any say in it, you don't sit down and agree or disagree with various parts - its plonked in front of you, sign here if you want this product or service then you have to sign it. Now there are some unfair things included in these contracts from time to time and the consumer has no recourse; nothing they can do about it. It's 'buyer beware', you signed the contract, so bad luck. So we want to change that, we want to introduce this national unfair contracts law across the country.

It has been in place in Victoria for eight or nine years. It has been the law in the United Kingdom; it is time that all Australians have access to it.

BYNER:

How will this work and we'll go through a couple of very obvious examples. Are we saying here, for example, that when you sign a loan agreement with the bank, does that get scrutiny from this law or is it up to the consumer when they are offered it, to take it somewhere to get it checked to whether it's fair or not or unconscionable?

BOWEN:

Well, what you'll find and what has been found in Victoria and United Kingdom is that business will be a lot more conscious of what might be regarded as fair or unfair when they are writing their contracts. So at the moment they can write a contract they know that if the individual signs it then that's fine there is no legal recourse or remedy if businesses' know that there will be an opportunity to have the law or have the contract examined by the regulators, the ACCC and ASIC nationally, and the state regulators - the department of fair trading and consumer affairs. Then the experience shows us that there will be a lot more care go into those contract terms and businesses will be seeking guidance from the regulators. Look do you think this is unfair if we did this, would you have a problem with that? That sort of thing and so you will find a lot of those, not going through the courts, but being dealt with a lot earlier which is in every bodies best interest.

BYNER:

So are we saying once you sign one of these contracts, they are binding no matter what?

BOWEN:

No, not if it's, well all contracts are binding, but this is the change at the moment when you sign a contract and if your circumstances change or you have a good look at it or you find that the service provision is not what you expected, but you signed a contract and there is absolutely nothing you can do about it, its buyer beware, you signed the contract.

So this change in the law will mean that where you have a standard-form contract not a negotiated one, but a standard-form one, the regulators will able to say, to challenge a particular clause not the whole contract, but a particular clause and say 'hang on a second this clause here we think that is really unfair to the consumer, puts all the risk on the consumer and its not necessary to protect what are your legitimate business interests'. So we are going to argue in the court that that should be struck out.

Most businesses won't let it get to that stage, but if they do get to that stage we'll try and sort it out and take those unfair terms out.

BYNER:

What is the experience in Victoria? Are we saying that customers under that new law are better treated by the financial institutions for example and don't pay some of the fees that people in other states do?

BOWEN:

Well, the Victorian Law hasn't applied to banking and financials services up until now, this will be a change in the national law. What we are doing is going through and modernising our consumer affairs laws Leon and really trying to get a lot more rationality about having one national consumer affairs law across the country.

So the rights of people in Adelaide are the same as rights of people in Sydney and Broken Hill et cetera, and that is not the case at the moment, and as part of that process we are going through and looking at the state laws and saying well what works really well, what's best practice? Then we are taking this Victorian law putting it across the country and improving it as we go and it will apply to banking and financial services.

BYNER:

Now there was a lot of media speculation from Friday up till this morning in many of the national newspapers. That you guys were actually targeting some the theses exit charges.

BOWEN:

Look we are currently working through the detailed implementation of the law. There have been ninety submissions to a discussion paper that I put out last month and I'm reading through them all.

They are from businesses, consumer groups, individuals, and one of the elements that might be regarded as 'unfair' in contracts is punitive cancellation fees. It might be a bank mortgage or it might be a gym contract; might be a mobile phone contract. Where as I say, your circumstances might change, your job might get moved and you have to move and you go down to the gym and say 'I want to cancel the contract', and they say 'that's fine the penalty is x hundred dollars' and you say 'hang on a second that's too much'. The same applies to mortgages. There is a lot of concern, obviously in this environment, people are looking at their loan products and saying 'how can I get better value' and looking around and then finding some pretty high exit fees. There will always be some sort of cost to cancelling a contract. That is fair and appropriate, business needs some sort of protection to say you can't just walk in willy nilly and say I've changed my mind.

What the regulators and the courts will have regard to is what's fair in all the circumstances and if it's way over the top, if its much more than the cost for the retailer, if its just designed to lock you in, then that could well be regarded as unfair.

What I'm looking at the moment is how specific the law should be, should I just say contract terms shouldn't be unfair full stop and leave it at that?

BYNER:

I think that's too vague…

BOWEN:

Or do we have a list, now we could have a black list to say the following terms will always be unfair and the courts would have to implement that, or we could have what is called a grey list. Where you say look these sorts of terms would cause the government some concern and we think they are unfair and we would ask the courts to look at them in the individual circumstances and say is it fair in all the circumstances?

So we are just working through all of that at the moment, as you would imagine a strong range of views in submissions on how it should be done.

BYNER:

So put it this way, we are looking at the way banks treat their customers, telecommunications companies which is a very big one of course?

BOWEN:

Yes.

BYNER:

Because there are many people who have a faulty telephone under contract under two years. The companies refuse to replace them and say we will upgrade you to a new one and then you will have all these charges plus exit fees from the other one, which are not of your making or you have these cheap airlines that change schedules or flights or you get to the airport a minute later and you are virtually forced to get another fare.

BOWEN:

Yes

BYNER:

It's all of that sort of stuff.

BOWEN:

It's all of that sort of stuff and as I stress it applies to every industry every business. That has standard form contracts, but the ones that you are talking about are regularly complained about as I say roped together with gyms. They are regularly complained about as being unfair arrangements.

BYNER:

Alright so when can we expect some action on this?

BOWEN:

I am going to introduce the law into parliament in June. It's a very tight schedule, it's been fast tracked. I don't want to muck around.

BYNER:

Without giving specifics, have any industry groups come to you and said, we don't think we are being unreasonable?

BOWEN:

Yes, all you need to do is look at the submissions on the Treasury website and the banks have said they don't think it should apply to them. Energy companies have said that they don't think it should apply to them.

I'm taking the view Leon that it applies across the board. I would need very very good reasons to exempt any particular sector and I haven't seen any good enough reasons.

BYNER:

Surely Chris in your legislation you only have to give mind to a couple of aspects. One, when you buy something the greater the price you pay, the greater the expectation of time it should work and function…

BOWEN:

Yes.

BYNER:

…and that if through no fault of yours there is a problem and they don't want to accept the responsibility and then you have no other choice but to cancel you shouldn't be the one to pay the premium to do so.

BOWEN:

They are all the sorts of things that would certainly be covered. If the good or service is not up to scratch or if your circumstances change there's not punitive arrangements in place, and in all the circumstances, that it is unfair, then that would give redress.

BYNER:

Alright, Chris Bowen the Minister for Competition Policy and Consumer Affairs.