CREDIT LAW - WHAT WE WANT

1. National (or national uniform) consumer credit legislation that applies to all consumer credit

2. Licensing of all credit providers

3. Accessible industry External Dispute Resolution

4. Better regulation of practices by credit providers and other businesses (eg telecommunications) to reduce overcommitment.

 

BACKGROUND

1. National (or national uniform) consumer credit legislation that applies to all consumer credit.

The current uniform consumer credit legislation fails to adequately protect consumers because:

• some lenders avoid coverage using a range of "loopholes"; and

• the process of amending the legislation to close these "loopholes", or responding to other problems, can take many years.

Lenders who aim to avoid coverage (or avoid certain provision) are usually those lending to lower income or vulnerable consumers. The current situation therefore provides one level of protection [for consumers who can access mainstream lenders] but fails to protect the more vulnerable consumers.

If the current regime of uniform legislation in each state, cannot respond quickly to close loopholes, national legislation, regulated by one regulator, may be required.

2. Licensing of all credit providers.

Under Financial Services legislation, many financial service providers are required to hold a licence - including banks, credit unions, insurance companies and financial advisors. Licensing conditions include training requirements and membership of a industry alternative dispute resolution scheme. However, companies that provide credit are not required to hold a licence.

Consumer borrowers need the protection offered by a similar licensing regime, which would enable regulators to prevent unscrupulous lenders from operating.

3. Accessible industry Alternative Dispute Resolution for all consumer credit complaints.

Some consumers of credit products have access to effective industry alternative dispute resolution (Industry ADR), for example, customers of banks and credit unions. Due to industry ADR rules, these consumers also retain their right to access a Court or (in some states) a specific consumer credit tribunal if they are not satisfied with the outcome of the industry ADR.

In general, consumers find industry ADR to be a more accessible and effective option than Courts or Tribunals.

However, not all credit providers have industry ADR schemes. In particular, most finance companies and fringe lenders do not belong to an ADR scheme, leaving their borrowers with limited access to effective dispute resolution. And often it is lower income or vulnerable consumers who use finance companies and fringe lenders.

All users of consumer credit need access to an effective industry dispute resolution forum if they are to receive substantial benefit from consumer credit legislation.

4. Better regulation of practices by credit providers and other businesses (eg telecommunications) to reduce overcommitment.

 

Credit products are not the only products that can lead to financial overcommitment. For example, the range of high cost services available from a telephone (e.g. 1900 numbers) can lead to high, unexpected debt.

Principles of responsible credit granting (and relevant regulation) should therefore apply to these products as well as to consumer credit. Credit providers and other businesses should not encourage overcommitment through their marketing or other practices.