House debates

Wednesday, 28 September 2022


Financial Accountability Regime Bill 2022, Financial Sector Reform Bill 2022, Financial Services Compensation Scheme of Last Resort Levy Bill 2022, Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022; Second Reading

4:34 pm

Photo of Angus TaylorAngus Taylor (Hume, Liberal Party, Shadow Treasurer) Share this | | Hansard source

Australia has a strong financial services sector. It's one of the bedrocks of our economy, and we want it to remain that way. It's been remarkably strong over the past decade. In fact, it served us extremely well through the financial crisis. When many financial services sectors suffered badly, around the world, ours was very much amongst the strongest. It's important that it stays that way. It's also important that legislation that builds on the coalition's work on implementing the banking royal commission recommendations be followed through.

We will not delay the progress of these bills through the parliament; however, I should say it is disappointing that the government has sought to expand the scope of these bills from what was introduced before the election, without further consultation. It's extremely disappointing. For these reasons, we will support the bills going to committee to truly examine the impact of these new provisions. We think that's the right way to deal with the fact that there hasn't been consultation on the changes along the way.

Let me start with the banking royal commission. Whilst our financial services system has served us well, we cannot ignore that the royal commission was necessary. We called it, we committed to implement its recommendations, and we committed to taking action on all 76 recommendations and additional commitments contained in the final report of the banking, superannuation and financial services royal commission. Significant progress has been made and the long road to implement these changes is now reaching its conclusion.

On 11 March this year our former government released the Quality of Advice Review's terms of reference and announced the appointment of Michelle Levy as the reviewer. That review has now been delivered, in its draft form at least, and it's expected to finalise its report by the end of the year.

With the reintroduction of these bills, the last of the legislative commitments to implement the royal commission's recommendations will be completed. But with the final pieces of legislation being introduced in the last sitting week, we now have an opportunity to look at what is next for the banking sector. We won't impede the bills coming through the parliament. We do welcome the introduction and the government's decision to retain the primary financial accountability regime and compensation of last resort legislation largely in its same shape and form.

However, it's important to note that the decision to staple consumer credit reform onto the Financial Sector Reform Bill means that more scrutiny is required. It's particularly necessary as these reforms, unlike the primary banking commission legislation, have been substantially revised from the legislation that was before the previous parliament. We won't wave through reforms that could have material impacts on consumers and small business. We will ask for this to move to committee.

There are a couple of other comments I would like to make about this legislation. The Financial Accountability Regime Bill, which is part of the package here, took action to implement five recommendations to the financial services royal commission. In response to the commission, the coalition made a further commitment to extend the executive accountability regime to entities regulated solely by ASIC, particularly in the insurance industry and the broader financial services industry. We will progress this further commitment following the initial implementation of the regime to all APRA regulated entities as well. Those BEAR standards that were established for the banking industry are absolutely appropriate for this extension.

I have a couple of comments to make on the financial services compensation of last resort scheme. We introduced this legislation to facilitate the payment of compensation to eligible consumers who have received a determination from the Australian Financial Complaints Authority, AFCA, which remains unpaid. This forms part of the first tranche of the legislation to implement the government response to the Hayne royal commission.

It will facilitate the payment of compensation to eligible consumers who have received a determination from AFCA. Consumers who have an unpaid AFCA determination relating to personal advice, credit intermediation, securities dealing or credit provision will be eligible to receive up to $150,000 in compensation. That's broadly equivalent to the 85,000-pound limit on compensation that's available under the UK Financial Services Compensation Scheme. In fact, with the recent movements in the pound I suspect it's very generous, relative to the UK scheme. We provided in MYEFO $45 million in new funding under the measure 'Compensation Scheme of Last Resort—establishment' to support that proceeding. We do note that a broad based scheme risks exposing the financial system to significant costs, and we've certainly seen that in the UK. But, like the Financial Accountability Regime Bill, the bills are largely identical to the legislation we introduced when we were in government.

The same applies to the Financial Sector Reform Bill: the components are very close to what we proposed. However, it is important to get the balance right in this area—it's hugely important to get it right. Getting it wrong can have some very unexpected and untoward impacts. We did take action to implement reforms to enhance financial inclusion and to ensure Australian consumers accessing small-amount credit contracts and consumer leases are better protected.

We are disappointed with the alterations we've seen on the initial legislation. Under the legislation we brought forward, new consumer protections would have reduced the risk of consumers being overcommitted to small-amount credit contracts and consumer leases by limiting the proportion of income which can be attributed to these products. Under the coalition's bill those SACC—small-amount credit contract—providers and consumer lessors would be inhibited from providing a SACC or release that would result in a person who receives 50 per cent or more of their net income from Centrelink from devoting more than 20 percentage of their income to SACC and consumer lease repayments, with no more than 10 per cent of this being allocated towards SACC payments. We had established what we think is an appropriate balance.

But under the government's reforms as currently drafted, there are likely to be substantial impacts to loan terms and access to consumer credit. That is a matter of concern to us. While consumers do need to be protected, particularly with rising interest rates and cost of living, it's important to make sure that those customers and lenders who do utilise small-amount credit contracts responsibly are not shut out from the credit that can help them manage their cash flow and deal with unexpected life events. This is not a time when we want to shut down credit provision to consumers; we want to make sure that that credit is available.

I think that as we go into a period where interest rates are pushing their way up, for mortgagees, towards seven per cent, or approaching that kind of level, and with bond rates for May already expected to reach more like 4.3 per cent, this is a time when access to credit is going to be absolutely crucial to people across our regions and across our suburbs. We don't want to see people who most need access to credit for a short-term reason to get through some of life's contingencies locked out of those credit opportunities.

So whilst we won't deny the bill a second reading, it is important that the parliament assess and monitor the impacts of this change on consumers. Subject to those caveats, we commend the bill to the House.

4:43 pm

Photo of Alicia PayneAlicia Payne (Canberra, Australian Labor Party) Share this | | Hansard source

I rise to speak on the Financial Accountability Regime Bill 2022 and the related bills, and I congratulate the Assistant Treasurer and the Treasury for their hard work in getting these bills ready so early in the 47th Parliament.

Without the shadow of a doubt, these bills will make the financial services sector in Australia a fairer place for consumers and will protect vulnerable citizens from predatory business practices. The main part of the package that I wish to focus on today is the introduction of regulations regarding small-amount credit contracts, or SACCs. SACCs encompass things like payday lending and buy-now pay-later lending. For too long these companies have been operating in what is essentially a regulatory wild west. With no government oversight, they've taken advantage of that fact. The activities of these companies prey on Australia's most vulnerable, and their predatory practices put countless low-income families and individuals under severe financial stress.

We've known about the problems associated with SACCs for a while now. The former government commissioned a review into the laws governing SACCs in 2015 which reported back to government in early 2016. Unfortunately, and despite early signs that the former government would implement the recommendations of the report, legislation was never passed. In the 46th Parliament there were a number of attempts by both Labor and the crossbench to bring reform to this sector. Unfortunately, these attempts were not supported by the former government and, as a result, and despite knowing about the problems for at least six years following the review, nothing had been done to fix them. That's six years where this parliament should have acted yet didn't; six years of predatory organisations exploiting weak regulations to rip off consumers and push Australians into financial crisis. Now, in the first few months of the new government, we are acting to do what the former government failed to do. We are acting to strengthen consumer protections and help to ensure that predatory lending practices are stamped out.

If you want to get a picture of the extreme predatory behaviour of some of these companies, you just need to walk down a main street of some of the poorer suburbs of Australia—areas with disproportionate levels of low income. If you walk down streets in suburbs like Dandenong in Melbourne or Campbelltown in Sydney, you will find there are actually ATMs offering instant payday loans. These ATMs are in those areas for a reason. They're not in Manly, they're not in Toorak—they're in the most disadvantaged areas of the country, preying on people's desperation and vulnerabilities. They're there for the sole purpose of making money off the most vulnerable in our society.

SACC providers use glossy marketing and slick campaigns to draw people in. They promise the world but rob you in the fine print. Excessive handling and establishment fees mean that while no interest is charged, by law, people are paying 20 per cent extra on their principal loan as an establishment fee and an extra four per cent each month. This means, for example, that for a loan of $2,000 paid off over 12 months, consumers will pay $3,360.

These loans are insidious and they are becoming unavoidable. They're everywhere. More and more, everywhere that we turn, wherever we shop, we are bombarded with options to buy now pay later or to take out loans to provide an immediate solution to a financial issue. You can even buy now pay later for food deliveries. You genuinely can't make this up. It is the worst excesses of the capitalist system when left unchecked. That these financial companies are offering people unaffordable loans in order for them to buy food is unbelievable.

To give you an idea of some of the harm these lenders do, Care Financial Services from my electorate has provided me with a few incredibly troubling case studies. Of course names have been changed. Frank is in his mid-30s. He works full time and has a partner and young son. About 18 months ago every parent's worst fears became a reality for Frank when his 18-month-old son became ill and was hospitalised for nearly six weeks. Whilst still working, Frank travelled back and forth to be with his son, staying in hotel accommodation during this time. He turned to payday loans to help meet unexpected expenses during this stressful time. He took out about 10 payday loans during the time his son was in hospital and in the weeks after as he struggled to keep up with accommodation costs, household bills and the high repayments incurred on his growing payday loan debts. Frank says payday lenders allowed him to borrow multiple loans, and he doubts they could have reasonably concluded that he had the capacity to repay them. He estimates that he owes more than $6,000 to about 10 different payday loan providers. Some of the loans were taken out to keep up with the debt spiral he was in. Frank says these debts have left him feeling overwhelmed and stuck. He's now on a mental health treatment plan. Unable to keep up with his debts, Frank states he tried to deal with the payday lenders himself, including negotiating payment arrangements, but some of the payday lenders have been difficult to deal with.

Sara is a single parent whose primary income comes from the disability support pension. In early 2019 Sara and her child both needed a computer to study and access course materials at home. Sara went to a local store and saw a computer advertised for just under $1,000. She didn't have the money to buy the computer outright, and asked if there was a layby option. She was advised this wasn't possible but that she could apply for a loan to buy the computer. She took that advice and applied for a $1,000 payday loan. This application was rejected, but the lender advised Sara that she could have a greater chance of obtaining a loan if she applied for a higher amount. The application for a larger loan was approved.

This assessment of sustainability described Sara's monthly expenditure on groceries as just over $220, and there was no mention of her rent obligations. In the documents the lender recorded that the borrower's purpose was to buy a computer for a little over $1,350—a computer that was advertised for just under $1,000. The loan documents also say that a commission of approximately $200 was to be paid by the lender to the store for introducing Sara's credit business. The loan documents state that the total amount payable for the loan was a little over $2,300—for a computer that retails for under $1,000! This is the kind of behaviour that we're dealing with here.

This bill is also relevant to consumer leases. A consumer lease, which is also marketed as a rent-to-buy scheme, lets people rent items—for example, a laptop, whitegoods or furniture—for a set period. The person makes regular payments until the lease ends. Despite often being charged significantly more than the recommended retail price of the goods, at the end of the lease the consumer does not own the goods. In one case the Australian Securities and Investments Commission found that a dryer with a retail price of $345 cost $3,042 through a consumer lease. This is equivalent to an interest rate of 884 per cent. Of course, these leases are usually marketed to people who cannot afford the relatively small amounts of money to purchase these goods upfront.

This package of bills implements a range of measures to reform this sector: firstly, the establishment of an accountability regime for financial sector companies, as recommended by the banking royal commission; secondly, the establishment of a compensation scheme of last resort for victims of financial misconduct, which was also recommended by the banking royal commission; and, thirdly, the implementation of the government's response to the long-outstanding SACC review. The previous government introduced but never passed legislation that responded to some recommendations of the SACC review. The consumer protections in this legislation go further than those proposed by the previous government.

Schedule 4 of the bill introduces a number of amendments to the National Consumer Credit Protection Act to strengthen consumer protections for both SACCs and consumer leases. These include caps that limit what lessors can charge under consumer leases; caps on net income that consumers can spend on SACC and consumer lease payments; requiring SACCs to have equal repayment intervals to prevent providers extending loans to increase the amount of fees they can collect; extending the prohibition of unsolicited offers of SACC products to previously unsuccessful loan applicants and prohibiting certain predatory marketing practices for consumer leases. The bill also introduces broad anti-avoidance provisions.

The CEO of Financial Counselling Australia said of this bill:

Financial counsellors are delighted that this long-awaited legislation has finally been introduced to the Parliament. Every day we see clients with high-cost payday loans and consumer leases that they struggle to pay.

The most important part of this Bill will be in the accompanying regulations that will cap the amount a person can pay for each product to 10% of income. This will make it less likely that people will end up trapped in a never-ending cycle of debt.

I want to use this opportunity to really thank and acknowledge the incredible advocates of these reforms and in particular the thousands of financial counsellors around the country who help people in their lowest moments. These people are dedicating their lives to helping others and they are really at the coalface with the worst excesses of capitalism and their impact on vulnerable Australians. I want to particularly thank the counsellors from Care Financial Counselling in my electorate, the CEO Carmel Franklin and specifically Deb Shroot. Care is an incredible institution that helps thousands every year. In 2021, through Care's counselling, over $1,546,000 of debt held by Canberrans was either waived or reduced, and almost $171,000 of assistance was provided to members of the public in the form of a community loan to help them get through hard times.

As I often say in this place, Canberra has a high median income, and that does make it a particularly difficult place to be poor. It is the most expensive city in Australia in which to rent. The work of Care and other counselling institutions is vital for the financial wellbeing of so many in our community. But Care can't do it alone; they need governments, both federal and territory, to provide help to those who most need it. This bill goes some way to ensuring that the worst abuses don't continue in this space, and it protects consumers from the more predatory aspects of this type of lending. Financial counsellors have been ringing the alarm bell for years. It's their tireless campaigning that has ensured these changes have happened. Again, I want to thank them for fronting up every day and the important work that they do.

I think it would be remiss not to acknowledge that part of the problem here is that people are facing a cost-of-living crisis on terribly low incomes. Last term, when I did the Care financial counselling A Day in the Life program and met some of the clients, it was obvious that people who are living on social security payments are already some of the best budgeters in Australia. They have to be in order to make ends meet on these fixed and relatively low incomes. Part of the problem, it became clear in talking to these people, was not the way that they budgeted but the fact that these incomes were simply too low to live on. I want to acknowledge that government really does have a role in ensuring we have a strong and adequate social safety net. These reforms will go some way to addressing some of the worst things that people on very low incomes in our country are facing, but there is more that we can do to ensure we better address poverty in this country.

4:57 pm

Photo of Bert Van ManenBert Van Manen (Forde, Liberal Party) Share this | | Hansard source

It's a pleasure to rise and speak on the Financial Accountability Regime Bill 2022 and its three associated bills in cognate debate. As you well know, Madam Deputy Speaker Vamvakinou, I have a deep and abiding interest, having had a background in financial services prior to coming into this place, in stuff we are doing in the financial services sector.

Can I say at the outset that we in this country should be proud of our financial services sector, by and large. If we go back to the global financial crisis, it's fair to say that, whilst not everything was perfect, our economy and financial services sector came through it reasonably well. That being said, there were errors, missteps and things that could have been done better, which ultimately led to the banking royal commission. The member for Wide Bay, who's in the chamber, was one of those on our side who pushed for that royal commission. I think it's fair to say that the revelations from the royal commission were disappointing to all of us in this chamber. The reason I say that is that our big financial services companies—our banks, our insurance companies—have a social licence from our community to do what they do, and I expect, as I'm sure everybody else in this place does, those organisations to uphold that social licence and the responsibility that goes with that. The revelations of the financial services commission were enormously disappointing to me, as somebody who'd had a career in that industry before coming to this place. So I'm pleased to see this latest tranche of bills come to the House to further implement the recommendations from that royal commission.

As we look at these bills, it's important to reflect on what they are seeking to achieve. The coalition has already taken action to implement five of the recommendations from the royal commission. The Financial Accountability Regime will extend what is currently known as the Banking Executive Accountability Regime to all entities regulated by the Australian Prudential Regulation Authority and impose a strengthened responsibility and accountability framework within those institutions. In response to the financial services royal commission, the coalition made a further commitment to extend the executive accountability regime to those entities regulated solely by ASIC, and the coalition will progress this further commitment following the initial implementation of the regime to APRA regulated entities.

The BEAR establishes clear standards of conduct by imposing a strengthened responsibility and accountability framework for directors and the most senior executives of ADIs, and the Financial Accountability Regime in the Financial Accountability Regime Bill will extend this responsibility and accountability framework across all APRA regulated industries. In doing so, the FAR is intended to increase the transparency and accountability of our financial entities in these industries, and we would hope, as a result, improve risk culture and governance for both prudential and conduct purposes. The bill introduces these new financial accountability regimes across banking, insurance and superannuation, and it will strengthen the accountability framework for those sectors.

In addition, this set of bills introduces the Financial Services Compensation Scheme of Last Resort, which the coalition, when it was in government, brought to this House in late 2021. It was subsequently referred to a committee for further review, and that committee recommended the bill proceed. With the fluxion of time and the election, that lapsed, and the government is now reintroducing this bill into the House. The compensation scheme of last resort is designed to provide compensation to those consumers who have had a determination through AFCA that remains unpaid as a result of maybe the organisation that had to pay the compensation going broke or into administration and not having the funds available to make the payment. The scheme will limit the compensation to $150,000 per case, and this is broadly equivalent to the 85,000 pound limit of compensation available under the UK financial services compensation scheme.

I do note that, whilst the government was in opposition, they did raised the possibility of including MISs in this. I can see the minister in the chamber and thank him for the discussion that we had today, and I'm pleased to see that the government has sought not to include MISs in this legislation. Otherwise I think the cost to this would be unmanageable and unbearable. As I said, we're holding our superannuation funds and our are banks and our insurance companies to account through this legislation. I would put them on notice that I'm firmly of the view that MISs managers and promoters equally have a judiciary responsibility to their investors, and this is certainly not in any way a carte blanche for them to do some of the reprehensible things we've seen done in that space over the years.

All of these measures are designed to ensure that when consumers get the advice or the services that they are seeking it is in accordance with what the requirements are that they're seeking the assistance for and that, if it is not, they get appropriately compensated. I'm proud that that we have a body like AFCA to make those determinations and that, when we were in government, we established AFCA through the merging of a number of other complaint resolution processes into a one-stop shop for all financial services queries, complaints and concerns. I think AFCA by and large do an extraordinary job in that case.

The Financial Sector Reform Bill also implements some of the recommendations from the small-amount credit review, and those have been around for some time now—since 2016, I think. I agree with much of what the member for Canberra had to say in her contribution on the small-amount credit contracts. I would, however, want to ensure that people, in some instances where they do require credit, still have access to credit where it's needed. But I certainly concur with the position that they shouldn't be paying well over the odds for the white goods, the computers or other things they require in that process.

I'm pleased to see the measures in this bill and I hope that, through this continuous process of improving the regulation in the financial services sector, we see a sector that is better run and more focused on the needs of consumers in our society and in our community. We know, ultimately, that it is our financial services sector that provides the finance, the payment systems and the capacity for our economy to operate. It is critically important that the Australian people have confidence that our financial services sector is delivering the services and the products in a way that benefits them, that they can trust and that ensures that the services that they are paying for or seeking are properly delivered. If, through complaints mechanisms like AFCA, they're found not to be appropriately delivered for their benefit, and compensation is due as a result, they should be duly compensated.

I support the bills.

5:08 pm

Photo of James StevensJames Stevens (Sturt, Liberal Party) Share this | | Hansard source

I rise to speak in support of the Financial Accountability Regime Bill 2022 and the other two bills that we're debating concurrently here before the House. We continue to work through the recommendations of the Hayne royal commission, and I'm not certain whether there are many final recommendations from that, after these bills are progressed, that need to be brought before us to complete that process, but I'm very pleased to be speaking on the progression of these bills.

I think that all the outcomes of these bills will be a good thing for ensuring that we've got a robust, transparent, well-run financial system that is doing what it needs to do for our economy, is being kept properly regulated and also has an appropriate amount of oversight in place so that we are protecting the people of Australia and we don't have a financial system that can in any way, to be blunt, unfairly exploit vulnerable people or any people.

The first element is the Financial Accountability Regime, which is about expanding the current BEAR, the Banking Executive Accountability Regime, to include other financial institutions. I think the BEAR is a sensible and very necessary piece of legislation that absolutely is ensuring that the highest standards are in place for people who hold significant positions in banking institutions, on boards and in senior executive roles. We had, unfortunately, seen far too many examples of poor, if not bad, conduct in those institutions and an inability to properly hold particular individuals to account for their role in leadership positions in these institutions and therefore perhaps not having as much pressure on them as there should have been to ensure that their conduct was at the highest of standards. Extending that to insurance companies and other institutions in superannuation et cetera in the financial sector seems completely obvious.

I know this part of the bill, in some way, shape or form, was meant to come before us in the previous term. So I commend the government on bringing this forward for us now. I think the evolution of the BEAR into the FAR is very sensible. Hopefully, that is as comprehensive as we need to be. But no doubt when it comes to the regulation and oversight of the financial sector, which is a very robust, complicated and fast-moving sector, at some point we'll look at it again. But I do believe on the face of it that that does pick up the necessary elements for the financial sector to have the same sort of oversight that deposit-taking institutions have. So we welcome the outcome of the BEAR becoming the FAR.

Next is the compensation scheme of last resort. We've seen examples of people who have received determinations through AFCA, the Australian Financial Complaints Authority. To quickly digress a bit, as members of parliament I'm sure most of us at some point have had cause to refer constituents to AFCA with matters. They are a very important institution. They do a lot of work for people in an extremely frightening circumstance. I've certainly dealt with constituents who have had large amounts of money disappear from bank accounts and things like that and experienced other scams et cetera. So it's good to have a robust organisation like AFCA to work with when people are in a desperate situation, having experienced things like that.

This compensation scheme of last resort creates a fund from this one-off levy for when people get a determination of financial misconduct and that's not very helpful if the entity has perhaps become insolvent or gone bankrupt in the meantime and there's no money for that guilty party to meet the determination against them. We have these schemes of last resort in other parts of our society for different reasons. We are talking about people who have been taken advantage of, who have probably lost something close to, if not the entirety of, their life savings. These are large amounts of money for the people involved.

It's capped at $150,000. I think that's important. That $150,000 for vulnerable people getting these determinations would be an extremely significant amount of money. If they had a determination towards or over that amount, they clearly lost a very significant amount of money. Where there's been a determination to say that there's been financial misconduct and they should be compensated by an amount of money up to, or maybe exceeding, $150,000, they can get up to $150,000 under the scheme. I'm sure for a lot of people this will be a life-changing outcome after an awful situation that they will have been through. If they've gotten to the point of having that determination from AFCA, this compensation to them of up to $150,000 will hopefully mean in most cases that they've had a very just outcome and they'll get the money back that they deserve to get back. I think that's a good outcome that I'm pleased to support progressing through the House.

I know small credit loans have been an area of a little bit of friction in the past—not that I recall in the last parliament but in the parliament before. There have certainly been times when small-amount credit—effectively, payday loans—has been discussed and debated in this chamber. To be fair, this is an area where there's no absolute black and white, right or wrong answer, because there is a risk that, if we are too prescriptive with regulation in this area, the criminal world steps in and does something that the legally oversighted sector should absolutely do. We don't want anyone in a situation where they're engaging with organised criminals and dark actors out there that prey on vulnerable people in a variety of ways. We all know that, within organised crime, one of the many elements to their business model is lending money, and we clearly don't want to get the regulation in this area wrong or so tight that people are forced into the criminal world out of absolute desperation to get access to short-term loans because we've closed off legal avenues for them in a desperate situation.

I absolutely concede that there are many problems on the other side of having too lax a regime in place and that vulnerable people can be tricked and preyed upon by legitimate operators in the lending marketplace if we don't properly oversee them and their conduct of operations. Unfortunately, we are talking about extremely vulnerable people who have to access this kind of finance. It's almost always in circumstances of significant desperation, and that means that they are very easily preyed upon. So getting that balance right is not just a current challenge; it will be an ongoing challenge.

The other thing that we clearly will have to be wary of in this small-amount credit contract space, as it's formally known, is technological developments for other people to operate in this marketplace. This is a broad challenge in the financial sector, of course. Again, the online world and other technological development may lead to avenues being created, particularly in this space, to prey upon people and exploit them. We are going to have to be vigilant. I think there will be ongoing reform, including at a legislative level, that we will need to consider in this space into the future, but I do commend this set of measures to the chamber. The royal commission has given us a lot of valuable recommendations to pursue. They have been worked through over a number of years now.

This is really a part of that process to put in place recommendations where there's legislation required. Without completely recapping the remarks I've already given, I think that in each of the cases that are addressed we are going to see a good outcome for the people of this country and the protection of them from exploitation. We will also have a robustness around our financial sector because it is absolutely the engine room of our economy. The financial sector really is the life blood, the artery of the economy. We're seeing and understanding now. People for the first time in their lives are starting to see changes in the financial sector that they didn't fully understand. There are things like interest rates moving up rapidly et cetera. People are better understanding just how significant the financial sector is and how aware they need to be of these sorts of things, and also how important the sector is to our economy and how important it is for us, as a government, to undertake the appropriate amount of oversight and regulation without getting in the way of the system doing all it can to contribute to the growth of our economy and the betterment of our country. With those comments, I commend the bill to the House.

5:20 pm

Photo of Kate ChaneyKate Chaney (Curtin, Independent) Share this | | Hansard source

I welcome the introduction of the Financial Sector Reform Bill 2022 as the response to the royal commission that made recommendations in 2019. Efficient financial services regulations are essential to ensure accountability within the sector and to ensure that our financial institutions are acting with honesty, skill and diligence.

Financial regulations are particularly important when they affect people who are already vulnerable. We owe a duty of care to the most vulnerable to ensure that the financial sector is transparent, coherent and truthful. This is why I'm pleased to see more stringent regulations applied under schedule 4 of the bill to small amount credit contracts, which most of us know as buy-now pay-later services. The catchphrase for buy-now pay-later is that it's easy and accessible. Buy-now pay-later is not marketed as credit, and, with no affordability assessment, it can easily get you into debt.

The final review of the small amount credit contract laws review, which was established to consider and report on the effectiveness of these laws, was published in March 2016, so 5½ years ago. Some of the recommendations included enhancing consumer protections for the buy-now pay-later schemes, putting a cap on the cost of consumer leases and making a more robust anti-avoidance provision so that all buy-now pay-later schemes are regulated equally. Each of these recommendations is essential to protect our kids, our elderly and our low-income earners in the community. I'm not convinced by the member for Sturt's argument that the only alternative to buy-now pay-later is loans from criminals. We need to accept the challenge to ensure that we have a safety net that produces other alternatives other than exorbitant interest or loans from organised crime.

I want to tell the parliament about the impact of buy-now pay-later on people in Perth who have sought support from financial counsellors. Earlier this year, Alex and Ash, aged 19 and 20, presented for financial counselling accompanied by their parents. At the initial appointment, a total of 12 buy-now pay-later accounts and four loans were disclosed, amounting to more than $20,000 between them. All these loans were obtained online, with no financial assessment or proof of income required. The credit was accrued largely for retail items like clothing and shoes. These young people were employed, earning under $20,000 per year each, supplemented by Centrelink allowances. As their parents considered them financial dependents, they had paid to clear previous debts, but as it was a recurring issue, they sought help through financial counselling for education.

All buy-now pay-later providers insisted on repayment arrangements, with some matters having to be escalated to internal dispute resolution. The financial counsellor revisited the budget based on the agreed repayments. With the repayments, their expenses exceeded their fortnightly income. These young people were fortunate to be supported by their parents, who would cover the cost of food and housing. While this was a learning experience for these young people, it's an example of the consequences of easily accessible credit online. This is just one of many stories. Data from the Financial Counselling Network in Perth showed that 62 per cent of buy-now pay-later users were on government benefits, 37 per cent were not in the labour force, and many of these clients presented for financial counselling as they were struggling to manage on low or restricted income and many were impacted by mental health.

Financial counsellors and financial coaches told me some of their concerns with buy-now pay-later. Buy-now pay-later services are used to supplement insufficient income. Many clients are reporting purchasing gift cards from buy-now pay-later providers to purchase essentials, including food and petrol. For low-income users, a significant percentage of their income goes towards meeting buy-now pay-later repayment obligations, impacting other financial obligations and leading to higher reliance on emergency relief, as well as contributing to growing utility debt and rent arrears. It's too simple to access buy now pay later, with no safeguards such as income, serviceability or credit checks by various providers. Financial coaches have observed the behavioural change in mindset as buy-now pay-later services become popular. It has prompted a potential decline of long-term saving habits, as buy now pay later enables impulsive spending and overcommitment.

There's heavy advertising of buy now pay later in stores and online, and many counselling clients report having multiple accounts and don't view buy now pay later as credit. Clients were hesitant to seek hardship assistance for buy-now pay-later debts and generally preferred to prioritise these instalments and seek hardship for utilities and essentials. Often, and shrewdly, buy-now pay-later services are marketed as a budgeting tool, and clients view buy-now pay-later as a contingency plan and don't want to risk losing access.

The tightening of the regulations around accessing buy now pay later is overdue, and this bill is a welcome step in the right direction. Promoting fair and transparent marketing of buy-now pay-later services would be a good further step to ensure that people understand they're effectively credit and treat them with appropriate caution.

5:26 pm

Photo of Stephen JonesStephen Jones (Whitlam, Australian Labor Party, Assistant Treasurer) Share this | | Hansard source

Firstly, I thank all the members who have contributed to this debate. I'll refer to some of them in my summing-up comments. It's been a useful and enlightening discussion in the House. Together, the Financial Accountability Regime Bill 2022, the Financial Sector Reform Bill 2022, the Financial Services Compensation Scheme of Last Resort Levy Bill 2022 and the Financial Services Compensation Scheme of Last Resort Levy (Collection) Bill 2022 implement the Financial Accountability Regime, the compensation scheme of last resort, and small-amount credit contracts and consumer lease reform. Through these bills, the government is finalising the necessary action to ensure that financial institutions are meeting the community's expectations and shifting their focus from profit at all costs to outcomes for all Australians.

The Financial Accountability Regime delivers on the government's commitment to finalise the implementation of five recommendations from the banking royal commission. The FAR will increase the accountability of financial institutions in the banking, insurance and superannuation industries and of their most senior executives and directors, restoring trust and confidence in a sector that plays an integral role in the wellbeing of Australians and our economy as a whole.

The FAR imposes four core sets of obligations on accountable entities and accountable persons. First, accountable entities and accountable persons must conduct their business in a proper manner, which includes acting with honesty and integrity and with due skill and diligence; dealing with the Australian Prudential Regulation Authority, hereafter APRA, and the Australian Securities and Investments Commission, hereafter ASIC, in an open, constructive and cooperative way; preventing adverse impacts on the accountable entities' prudential standing; and, finally, preventing breaches of certain specified financial services laws by the accountable entity. An important point to make is that through this regime not only will the entity be responsible but certain named individuals within that entity will also have responsibilities.

Further, accountable entities must ensure clear identification of accountabilities for accountable persons in the organisation across key areas of operations and must defer at least 40 per cent of the variable remuneration of accountable persons for a minimum period of four years. Variable remuneration will be reduced where accountability obligations are breached. That is the sting in the tail.

The FAR will be supported by the imposition of notification obligations, which require accountable entities to provide APRA and ASIC with information on the responsibilities of their accountable persons and, secondly and importantly, information on breaches of those obligations. APRA and ASIC will jointly administer the FAR. They will have the power to disqualify accountable persons, to investigate suspected breaches of the FAR and direct entities to take remedial action, and to apply to the Federal Court to impose a civil penalty on accountable entities. There's been quite some discussion about the Compensation Scheme of Last Resort, and I'd like to reiterate and clarify a few matters that have come up in the course of the debate. The government continues to build trust in Australia's financial system's external dispute resolution framework and remains committed to improving consumer outcomes. Establishing, for first time, the Compensation Scheme of Last Resort, or the CSLR, implements recommendation 7.1 of the banking royal commission. In doing so, it delivers on one of the key outstanding recommendations of the banking royal commission but also, as the member for Curtin alluded to in her address, the earlier Ramsay review under the former government.

The Compensation Scheme of Last Resort will provide compensation of up to $150,000 to consumers. Importantly, those consumers must have received a favourable Australian Financial Complaints Authority determination that remains unpaid. Obviously, it remains unpaid because, in the overwhelming number of circumstances, the entity has gone into administration or is in liquidation, or the funds just aren't there. The scheme will apply to personal advice on relevant financial products to retail clients, credit intermediation, securities dealings for a retail client and credit provisions, and it will be paid for by industry, reflecting their obligations to their rights and wrongs. The scheme will be operated by a subsidiary of the Australian Financial Complaints Authority. The Compensation Scheme of Last Resort will ensure that eligible consumers can have their case heard and be confident that, where they are owed compensation, it will be paid.

In putting together the CSLR, particularly in relation to the compensation caps, we think we've got the balance right. I know that not everybody agrees with this, but we think we have got the balance right. There has been some discussion, including in the contribution from the member for Forde, about the scope of the CSLR. I know there are many who have been pushing the government—and people can look at my speeches on this in previous parliaments and elsewhere—to look at the inclusion of managed investment schemes into the CSLR from the beginning of the operation of this scheme. I've considered their submissions, the government has considered their submissions, and Treasury has provided advice. On the overwhelming balance of all of that advice and all of those submissions, we have decided, at this stage, to exclude managed investment schemes from the scope of the CSLR.

That is not to suggest that there is not a job of work that needs to be done within the managed investment scheme sector, in particular looking at the risks and regulations within that sector—there is. There are questions to be asked about regulation within that sector, and this is something that the government is actively considering. But it would not be appropriate to move MISs into the scope of the CSLR until that job of work has been done. It would be unfair to the existing participants, and particularly those on whom a levy will be imposed, to include the much riskier MIS sector into the scope of the scheme at this stage.

Can I say something about small-amount credit contracts. The SACCs and consumer leases reform deliver on the government's commitment to ensure safe and well-regulated consumer markets for credit products such as small-amount credit contracts, also known as payday loans, and consumer leases. Safe and well-regulated markets for consumer credit products are necessary to protect vulnerable consumers from predatory lending. Credit markets safety is essential for credit market efficiency, which also benefits lenders, merchants and the broader economy.

The reforms will strengthen the consumer protection framework for consumers of small-amount credit contracts and consumer leases through the introduction of new obligations for these providers. The measures include enhanced and extended caps on the amount of net income a consumer can spend on a SACC or consumer lease. This will be known as the protected earnings amount. There will be a cap on the total amount of payments that can be made under a consumer lease. SACCs will be required to have equal repayments and equal repayment intervals over the life of the loan. The new law will prohibit licensees from charging monthly fees in respect of the residual term of a loan where a consumer fully repays the loan early. It will prevent certain undesirable, unsolicited marketing practices for payday loans and consumer leases. It will improve the information that must be taken into account in according a lender's assessment of affordability of payday loans and consumer leases. It will improve disclosures to consumers and recordkeeping, and it will enhance penalties and sanctions for breaches of credit laws. There will be broad anti-avoidance measures to ensure that payday lenders and consumer lease providers cannot circumvent the law, and providers of consumer leases with indefinite terms will be regulated.

I'll say something, finally, about buy now pay later, as the member for Curtin raised that in her contribution. I thank her for bringing to the attention of the House the examples of her constituents who have been affected by the behaviour of certain BNPL providers. There is a separate job of work going on inside government and there are actually deep consultations going on inside the sector about the appropriate regulation within the credit laws of the buy-now pay-later sector. So I say to all members of the House, and I invite the member for Curtin to feed this back to her constituents, that the government is onto this. The government believes that BNPL should be treated as credit products. We aren't interested in having an argument about whether cleverly drafted contracts fall inside or outside the credit laws; we want to have a conversation with the industry about the appropriate type of regulation so that this product can be offered safely to consumers and that there is a level playing field in the operation of the credit market.

The government is committed to ensuring providers do not take advantage of financially vulnerable consumers. Once again, I thank all members for their contribution to this debate and I commend the bills to the House.

Question agreed to.

Bill read a second time.