Wednesday, 9 December 2020
National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020; Second Reading
That this bill be now read a second time.
This bill amends the National Consumer Credit Protection Act 2009 to support the timely flow of credit to the Australian economy and introduce additional protections for consumers accessing high-cost credit.
The importance of credit to households and businesses makes timely access to credit vital to Australia's ongoing economic success, particularly as the economy recovers from the COVID-19 crisis.
To improve the flow of credit to the economy, the bill amends the act so the existing responsible lending obligations apply only to small amount credit contracts and consumer leases.
This bill will replace the prescriptive one-size-fits-all approach that has evolved in relation to the interpretation of responsible lending and provide flexibility for lenders to assess each applicant for credit on a case-by-case basis. However, this flexibility will not diminish the consumer protections in place and, for some products, enhances these protections.
The bill provides the minister with the power to determine new lending standards. The new regime will apply to non-bank lenders, as banks will continue to be regulated by APRA.
The new lending standards for non-bank lenders will align with the APRA standards as well. They will ensure lenders have sound credit assessment and approval processes to assess consumers' capacity to repay debts without substantial hardship.
The new framework will allow all lenders to streamline and improve their credit assessment processes and rely on information provided by consumers unless there are reasonable grounds to believe the information is unreliable.
These changes maintain strong consumer protections. Lenders that fail to comply with the credit assessment processes they have put in place will breach their standards, giving borrowers access to AFCA for free dispute resolution and restitution.
Protections are being increased on services offered by credit assistance providers, with the bill expanding the best interests obligations—which are already scheduled to be applied to mortgage brokers from 1 January 2021—to other credit assistance providers. This will ensure credit assistance providers act in consumers' best interests and place consumers' interests before their own.
The bill also improves consumer outcomes through the introduction of new obligations for providers of small amount credit contracts and consumer leases.
While these products can be useful for consumers in certain circumstances, repeat borrowing can lead to debt spirals where repayments consume a greater portion of income, becoming increasingly unaffordable.
To limit the harm that has been associated with these products, schedules 2 to 6 of the bill limit the fees that small amount credit contract and consumer lease providers can charge. Specifically, the bill prohibits small amount credit contract providers charging monthly fees that are incurred after a small amount credit contract is discharged and requires the small amount credit contract to have equal repayments and equal repayment intervals. Importantly the bill also introduces a cap on costs for consumer leases, bringing the regulation of consumer leases into line with other credit products regulated under the act.
The bill also requires small amount credit contracts and consumer leases to comply with regulations that will limit the proportion of income consumers can devote to these products. In particular, the regulations will prohibit small amount credit contracts and consumer lease providers from providing a SACC or lease that would result in:
These 'protected earnings amounts' will maintain access to credit while ensuring enhanced protection for the most vulnerable consumers. Unsolicited SACC invitations to current and former customers, as well as door-to-door selling of consumer leases, are also prohibited under the new regime.
To ensure the benefits of the government's reforms flow through to the economy as quickly as possible, changes to the responsible lending obligations will commence 1 March 2021.
The SACC and consumer lease reforms and the extension of the best interests obligations will commence six months following royal assent. However, the bill's anti-avoidance provisions will commence immediately to ensure firms do not opportunistically restructure their business to avoid the government's reforms.
Full details of the measure are contained in the explanatory memorandum.