This legal insight summarises many key points made at the 24th Annual Credit Law Conference (Conference) held on 1-3 October 2014 and attended by over 200 delegates from the financial services industry.
The Conference analysed key changes impacting the financial services industry in Australia and gave clarity around expected regulatory enforcement activities.
The following is also an overview of key commentary from the Australian Securities and Investments Commission (ASIC), the Office of Australian Information Commissioner (OAIC) and the Department of the Treasury (Treasury).
Andrea Beatty, partner in our Consumer Financial Services team, and author of the recently published Annotated National Credit Code (5th Edition) presented her annual opening regulatory update session at the Conference. The focus of her global regulatory paper this year was the increased visibility of regulators in enforcement activities. The presentation was accompanied by a written paper summarising the changes in the past year. The paper also included a table of ASIC enforcement between July 2014 and September 2014.
On 26 November 2014, K&L Gates will be hosting a Financial Services Masterclass to assist responsible managers, lawyers and compliance officers to keep up to date with developments in financial services law.
If you would like a copy of the Conference paper, or more details about the Financial Services Masterclass, please contact Andrea Beatty.
At the Conference, ASIC expressly stated that it no longer has a facilitative approach towards enforcement action under the credit laws. In the past year, ASIC has issued five infringement notices, six banning orders, cancelled seven Australian credit licences (ACL) and had two fraud findings.
In addition, ASIC reported on its major wins at the Federal Court of Australia (Federal Court) level. ASIC expects to bring more civil penalties cases taking the lead of the financial regulators in the United Kingdom and United States.
ASIC's major wins in the Federal Court are set out below.
- The Federal Court ordered a credit card provider to pay a penalty of AUD1.5 million and an additional AUD50,000 for costs for making false or misleading representations. The credit card provider told its customers that in order to activate their credit card, or to apply for an increased credit limit, they also had to consent to receiving invitations to apply for credit limit increases. ASIC commented that the case is illustrative of the fact that the role of compliance and legal functions are to challenge internal business propositions to ensure that the short term profits are not put ahead of regulatory requirements. ASIC will continue to pay close attention to the role of compliance and inhouse legal which must have a strong voice in business.
- The Federal Court found a small amount credit contract provider to have breached the responsible lending provisions and engaged in unconscionable conduct in relation to the sale of consumer credit insurance. ASIC considers this case to be essential reading for all ACL holders. Focusing on the responsible lending obligations, ASIC commented that the purpose of a loan needs to be very specific, ie descriptions such as 'personal' or 'living expenses' may not be sufficient. ACL holders must ensure that verification of expenses such as rent, mortgage payments and living expenses are carried out as part of responsible lending obligations. The case is scheduled for a penalties hearing on 15 December 2014.
ASIC advised that it will continue to focus on:
- responsible lending obligations – ASIC does not consider the compliance tips noted in Report 410: Review of 'low doc' home lending following introduction of responsible lending obligations (September 2014) as 'nice to haves'
- add-on insurance products if consumers receive limited benefit but high commissions are payable
- misselling of credit and other financial products especially when sold to vulnerable consumers.
The OAIC commented that it will be releasing further guidance on the following:
- Australian Privacy Principle (APP) 7 – direct marketing. The guidance will focus on the interaction of APP 7 with the Spam Act 2003 (Cth) and the Do Not Call Register Act 2006 (Cth).
- Australian Privacy Principle 8 – cross border disclosure of personal information. The guidance will address cross-border disclosures, cloud storage, and when there is an 'Australian link' for the purposes of the Privacy Act 1988 (Cth).
- Privacy Regulatory Action Policy. Earlier this year, the OAIC released its Privacy Regulatory Action Policy for public exposure. The Policy is now in the process of being finalised. It will be supported by a guide that will consist a series of chapters each addressing different privacy regulatory powers and an explanation as to how the OAIC will exercise each power. For example, there will be a chapter on the OAIC's use of enforceable undertakings and civil penalties.
Complaints and Compliance Assessments
The OAIC is receiving more privacy complaints, mostly relating to:
- the failure of organisations to prevent internal unauthorised access to personal information
- the quality of personal information (ie whether it is accurate, up-to-date and complete).
The OAIC is currently assessing whether organisations have taken 'reasonable steps to comply' with the APPs and the new Part IIIA provisions. 'Reasonable steps to comply' means establishing a privacy compliance trail and keeping a record of steps taken to clearly demonstrate that personal information is managed in an open and transparent way and correctly reflects the information flows in your organisation.
Due to the government moratorium on legislation awaiting the findings of the Financial System Inquiry, Treasury is not currently pursuing Phase 2 of the credit reforms concerning small business and investment lending. Furthermore, Treasury does not have immediate plans to review the Point of Sale exemption as it considers that a change to that exemption will impose a large regulatory burden on the industry.
Treasury is continuing its work in the unregulated consumer leases space and will release a consultation paper shortly. In its review, Treasury is focused on ensuring that exemptions such as indefinite leases or short term leases are not being used to bypass the intended consumer protections of the National Credit Code.
Treasury also commented that it considers the National Consumer Credit Protection regime to be successful in curbing practices such as 'churning' and loan documents being amended by brokers and lenders.
1 FCA 701
2 FCA 926
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.