2008 presents a number of challenges for the mortgage industry. Besides the credit and liquidity problems and some falling property values, there is a significant legislative agenda.
This article attempts to bring together in one place the key current legislative proposals. In most cases, times for commencement are not available, and not all of the proposals may proceed.
- National uniform regulation of finance brokers. Submissions have been lodged and there will most likely be another round of consultation. No start date is envisaged before 2009. See the Finance Broking Bill 2007, which is a discussion draft only.
- Bill facilities and promissory note lending are no longer exempt from the UCCC, except when they are provided by an authorised deposit taking institution. Previously, financial accommodation provided by a promissory note or bill of exchange was not regulated by the UCCC. Some high interest rate lenders used promissory notes to avoid maximum interest rates which applied to loans. This change was made by a new regulation effective 30 November 2007 (slightly later in WA and Tasmania). See the Consumer Credit (Bill Facilities) Amendment Regulation 2007.
- The Productivity Commission has released a draft report into Australia's Consumer Policy Framework. This Commission will provide a report to the Commonwealth Government that could trigger further legislative change. Although the report is only in draft form, the report has recommended that 'responsibility for regulating finance brokers and credit providers should be transferred to the Australian Government, with the regulatory requirements encompassed within the regime for financial services administered by ASIC'. See Review of Australia's Consumer Policy Framework – Productivity Commission Draft Report.
- There is greater involvement by ASIC in the credit market. ASIC has already pursued some brokers for unconscionable or misleading conduct. ASIC is also currently conducting an enquiry into exit fees.
Public consultation ended on 21 September 2007 in relation
to national proposals to amend the UCCC to:
- remove the conclusive presumption provided by a business purpose declaration;
- require all 'charges in the nature of interest' to be shown as an annual percentage rate;
- strengthen the ability to review fees, charges, and interest rates, including changing the test from 'unconscionable' to 'unreasonable';
- allow government agencies to take action on behalf of borrowers;
- require fees paid to associates of the lender to be included as a charge by the lender in determining whether interest rate caps are exceeded;
- prohibit mortgages over essential household property; and
- require further information about direct debits.
Very extensive submissions were received on these proposals. The submissions are currently being considered, and it is expected a further draft for further public consultation will be released. See the Consumer Credit Code Amendment Bill 2007, discussion draft only.
- (Victorian UCCC lending only) From 18 March 2008, the Director of Consumer Affairs Victoria can take action on behalf of a consumer, or take class actions on behalf of a group of borrowers in relation to UCCC matters. It is yet to be seen how this power will be used. Hopefully, the power will be used to pursue fringe practices and will not impact on mainstream lenders. See the Consumer Credit (Victoria) and Other Acts Amendment Bill 2007.
- (Victorian UCCC lending only) From a date yet to be specified, lenders who provide UCCC credit to Victorian residents will need to be members of an ASIC approved dispute resolution scheme. There will also be minor changes to the procedure to obtain a credit providers licence in Victoria. See the Consumer Credit (Victoria) and Other Acts Amendment Bill 2007.
- (Victorian UCCC lending only) Victoria issued a consultation paper regarding a proposal to extend unfair contract legislation to credit contracts. This will make unfair contract terms illegal and automatically void. Under the current system, unfair terms are valid unless and until a court finds sets them aside as unconscionable. This will only apply to UCCC lending to Victorian residents. Submissions closed on 2 July 2007. The target commencement date is 1 January 2009. See Application of unfair contract terms legislation to consumer credit contracts.
- Privacy reform which may introduce positive credit reporting. A key issue is who will have access to that information, and how the availability of that information will impact on lo doc and no doc loans. Will the use of a positive credit report be considered a reasonable due diligence? Hopefully any reform will clarify and simplify the law as it relates to disclosure of personal and credit information in the finance industry. Submissions closed on 7 December 2007 and are now being reviewed. See Review of Australian Privacy Laws.
- Personal property security reform. If adopted, these proposals will establish a single way to take security over any kind of asset other than real estate. This will result in an easier and more certain way to take security over non-real estate assets, and should encourage lending on the security of those assets. See Review of the law on Personal Property Securities.
- ASIC is reviewing the Electronic Funds Transfer Code of Conduct. The importance of this Code is sometimes under estimated. The Code applies to all card and electronic transactions and as the number and size of both forms of transactions are growing, the rules governing those transactions will become increasingly important. Submissions closed on 30 April 2007. There will be a further public consultation on a revised draft code once the working group has completed its initial redrafting of the Code. See Review of the Electronic Funds Transfer Code of Conduct (2007).
- Full implementation of customer identification and AML/CTF Programs commenced for lenders commenced on 12 December 2007. AUSTRAC is reported to have already commenced audits. Lenders need to file their first report by end March 2008.
- The trial of e-conveyancing is continuing in Victoria. Most lenders are keen to see a nationally uniform scheme, and this is being championed by National Electronic Conveyancing Office through the National Electronic Conveyancing System (NECS). Gadens is representing the non-bank lenders on the National Project Team, and also representing a number of banks through other committees. Electronic conveyancing is an important step to enable straight through processing (STP).
(Queensland UCCC lending only) Queensland sought industry
and community comment on a proposal to impose a maximum of
48% per annum for interest and charges similar to the
existing legislation in NSW and ACT. Submissions closed on
15 February 2008, and the submissions are being reviewed.
See Consumer Credit (Queensland) Amendment Bill
2008, discussion draft only.
A significant challenge for the mortgage and credit industry is keeping track of and complying with these initiatives.
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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.