SUBJECTS: Launch of National Consumer Credit Law, unfair mortgage exit fees
ELEANOR HALL:
The Minister for Corporate Law, Chris Bowen, spoke about the changes to our business editor, Peter Ryan.
CHRIS BOWEN:
For the first time, we are going to see a national regime. Credit has been regulated on a state and territory basis for as long as the Federation has existed and that is not sustainable in the current modern environment, so a national regime.
And secondly, we have taken the opportunity to modernise the laws and strengthen protection. So, for example, we have a responsible lending provision for the first time that lenders must take reasonable steps to ensure that people are capable of repaying their debts. So these are sensible consumer protections administered for the first time on a seamless national basis.
PETER RYAN:
As you say, these are quite sweeping laws, but how will they make a difference to the average consumer?
BOWEN:
Well, I think there is an obligation on both ends of the transaction to ensure responsible lending. Of course, there is an obligation on borrowers to make sure that they don't go over their heads, but there is also a responsibility on lenders to make sure that they are not encouraging irresponsible lending or predatory lending because it is, at the end of the day, the borrower who is going to pay the big penalty and often penalties over many years if they get themselves into difficulties.
RYAN:
Payday lenders are among the biggest predators on households under financial pressure. Are they targeted here as well?
BOWEN:
Yes, it covers the entire range of credit and there are particular concerns about fringe lenders that you refer to, and they are covered by these reforms.
RYAN:
Banks are also in the firing line here and there are plans to take them to court for unconscionable conduct on exit fees where consumers have to pay a lot more to switch loans. So how will that work under this code?
BOWEN:
There's two new arrangements coming into place under our national consumer laws, which apply to financial products and are administered by ASIC. It will be illegal to have an unfair term in your contract and ASIC will be able to take action.
And also, particularly under credit, it will be able to strike out an unconscionable contract term, and so ASIC has released some guidance as to who they will administer that in relation to unfair exit fees from mortgages because we are particularly concerned to ensure that competition in banking is working, and unfair and too high exit fees make it very difficult for that competition to work as it should.
RYAN:
So, up until now the Government has been able to say to consumers who are unhappy with their lender, 'Shop around, find a better deal,' but the big problem of course has been those exit fees.
BOWEN:
Yes, it has made it difficult. People have shopped around, found a lower interest rate, but then had a look at their exit fee if they leave the mortgage early and found that it just doesn't stack up. It is just not worth their while to change to that lower interest rate. So it has been anti-competitive to that extent so we are keen to see those high exit fees go.
Of course, there will always be some form of exit fees. Banks are entitled to recover their cost but very high, unfair fees which are way over cost recovery are what we are trying to stamp out.
RYAN:
The banks would also be in your sights, of course, for a lot of those unsolicited letters offering credit cards or high credit card limits. How will that change?
BOWEN:
Well, the responsible lending provision will cover that to some degree in relation to people who get letters inviting them to increase their credit limit where clearly the lender would know that person is already in financial difficulty.
Credit cards are covered in the second phase of these reforms, so this is Phase One coming into operation on 1 July, and we are about to release a green paper dealing with Phase Two and credit cards are part of that as well. So whether there is any further protection necessary for credit cards is something we are exploring with the industry and with consumer groups.
RYAN:
And will this legislation rub out those predators such as David Tweed who make unsolicited share offers?
BOWEN:
The last question in the Parliament I introduced what is known as the Corporate Law Amendment Bill, and that removes the ability of those sorts of operators for whom I have absolutely no sympathy, and in fact I have contempt, who prey on vulnerable and unsophisticated shareholders. It will remove their ability to access share registers to make offers to shareholders way below market value.