ASIC review of financial services EDR schemes
ASIC has released Consultation Paper 102: Dispute Resolution – update of RG 139 & RG 165 proposing improvements to the way financial services businesses resolve disputes with consumers, including harmonisation of the different schemes.

A key proposal of ASIC’s is to replace monetary limits with a cap on compensation that can be awarded by an external dispute resolution scheme approved by ASIC (EDR scheme) and to increase the compensation amount to $280,000.

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Responsible Lending Practices: Consumer Credit Cards
The Ministerial Council on Consumer Affairs has released a consultation Regulatory Impact Statement on Responsible Lending Practices in Relation to Consumer Credit Cards (pdf).
The Paper discusses options to assist consumer choice of card products and protect consumers from lending practices which provide continuing credit at levels which cannot be repaid without substantial hardship.

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AML and finance brokers
AUSTRAC has published an information sheet on its interpretation of the AML obligations of finance brokers.

Comments include:
Finance brokers who are holders of an Australian financial services (AFS) licence and only provide the designated service specified in item 54 of table 1 in section 6 of the AML/CTF Act, will have suspicious matter reporting (SMR) obligations from 12 December 2008.
Finance brokers who provide one or more other designated services and are not merely acting as agents of another reporting entity, will be obliged to report suspicious matters to AUSTRAC when the relevant provisions come into effect.

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First Home Saver Accounts: training requirements for financial product advisers
ASIC has released an update to RG 146 Licensing: Training of financial product advisers (pdf) to include new requirements for people who give advice about First Home Saver Accounts (FHSA's).

ASIC has applied the Tier 2 level to courses and individual assessments that cover First Home Saver Account (FHSA) deposit accounts, i.e. FHSAs that are an account issued by an authorised deposit-taking institution (ADI), such as a bank, building society or credit union.

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Privacy Law Reform
The Australian Law Reform Commission has released its Report "For Your Information: Australian Privacy Law and Practice".

The 3 volume report covers most areas of privacy law and makes 295 recommendations for reform, starting with the recommendation that the Privacy Act 1988 be redrafted and restructured to achieve significantly greater consistency, clarity and simplicity.

The ALRC’s national consultation exercise identified concern relating to the loss of privacy as one of the major factors considered by consumers in their dealings with businesses. People are concerned that personal information can be exchanged, bought or sold for secondary use without their knowledge or consent. They are concerned about identity fraud, use of personal information on the internet, businesses sending personal information overseas for processing and the use of personal information for marketing.

By sector, the finance sector continues to be the most frequently complained about industry.

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Queensland consumer credit interest cap commenced on 31 July
The Consumer Credit (Queensland) Special Provisions Regulation 2008 commenced on 31 July 2008.

Any Consumer Credit Code regulated loans made in Queensland (or made interstate to Queensland residents) after that date are subject to a maximum annual percentage rate of 48 per cent.

The cap also applies to existing contracts if they are changed after 31 July 2008.

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Transfer of consumer credit regulation to Commonwealth
On 3 July the Commonwealth Government reached agreement with the States and Territories at the Council of Australian Governments (COAG) meeting in Sydney, to assume responsibility for regulation of all consumer credit.

What is still unknown is whether the existing Consumer Credit Code will be adopted "as is" by the Commonwealth or whether new laws will be drafted.

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Mortgage duty reduction schedule update

Currently Victoria, Tasmania, ACT and NT have no mortgage duty.

• Queensland and Western Australia will abolish mortgage duty on 1 July 2008.

• In New South Wales, mortgage Duty in respect of investment housing will be abolished from 1 July 2008, followed by the complete abolition of mortgage duty from 1 July 2009 (brought forward from 1 January 2011). NSW Mortgage Duty for the purposes of owner occupied housing was previously abolished.
  

• South Australia will reduce the rate of mortgage duty from 1 July 2008 to 15 cents per $100 and will abolish the duty on 1 July 2009.
  

In states where mortgage duty is payable, concessions may apply. Talk to your local Network Law firm for an estimate of duty payable.

Currently each state has special provisions for calculating the duty payable on mortgages or mortgage packages that secure property in more than one jurisdiction. In each state, mortgage duty is only payable on a proportion of the secured advances.

Labels: mortgage duty Australia

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Green Paper on Financial Services and Credit Reform

Senator the Hon Nick Sherry, Minister for Superannuation and Corporate Law, has released a Green Paper on Financial Services and Credit Reform.

The Green Paper outlines options for the Commonwealth and states to transfer the remaining financial services regulation from the State level. Under the plan, financial services, including mortgages, mortgage brokers, margin lending, non-bank lending and trustee companies, will move to the Federal level. The Green Paper also seeks input on the regulation of other credit products, such as credit cards and personal loans, as well as debentures and property spruikers.

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Financial Claims Scheme to protect depositors

The Treasurer has announced the Government's intention to introduce legislation to establish a Financial Claims Scheme (FCS)to assist depositors and policyholders in the event that an authorised deposit‑taking institution (ADI) or general insurer fails. Wayne Swan's Ministerial Statement

In light of the potential for delays to cause real hardship, and to further assist the management of a failing institution, the FCS will allow customers to quickly recover money in deposit accounts. Customers will be able to recover monies up to a specified cap (up to a limit per person of $20,000), with the remainder likely to be recovered when the ADI is liquidated.

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Queensland mortgage duty abolished
Under the Queensland State Budget announced on 3 June 2008, full abolition of mortgage duty has been brought forward to 1 July 2008 (previously 1 January 2009).

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Instalment Contracts and the Uniform Consumer Credit Code

The Justice Legislation Amendment Bill 2008 (pdf) has been introduced into the Queensland Parliament to amend the Consumer Credit Code (the Code) to ensure particular contracts for the sale of land or goods by instalments (known as ‘terms sale of land contracts’, ‘conditional sale agreements’ and ‘tiny terms contracts’) are credit contracts under the Code.

A terms sale of land (a sale on ‘vendor’s terms’ or a ‘wrap loan’) is a sale of land under which the purchase price is payable by instalments. The vendor lets the purchaser into possession but retains title until conveyance following the final payment.

A conditional sale agreement (or ‘Romalpa agreement’) is a sale of goods under which the purchase price is payable by instalments. The seller delivers the goods to the buyer but retains title until the final payment.

Tiny terms contracts are contracts where the cost of credit is incorporated into the cash price and the transaction is represented as a sale of goods by instalment (without any credit charges).

Technical amendments have also been drafted to capture contracts containing instalment payments that exceed the cash price of the goods, which are related to the contract for the actual sale of the goods.

Once the amendments are passed by the Queensland Parliament, industry will be provided with at least 6 months before they are commenced.

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Consumer credit interest rate cap for Queensland

The Consumer Credit (Queensland) and Other Acts Amendment Bill 2008 (pdf) has been introduced into Queensland Parliament.

The Biil, if passed, will introduce the concept of a maximum annual percentage rate for consumer credit contracts. In calculating the rate, fees and charges will be taken into account.

The Regulations are expected to prescribe a 48 per cent per annum annual percentage rate cap on consumer loans. It is also expected that credit fees or charges arising from the establishment or maintenance of a temporary credit facility by an ADI will not be included in the calculation.

There are currently no caps on interest rates in Queensland and lenders can charge high interest rates, fees and charges on loans. Victoria, New South Wales and the Australian Capital Territory currently have interest rate caps to control the cost of consumer credit.

Credit providers who charge above the legislated maximum will be required to pay back any amount over the cap and will face civil penalties of up to $500,000 for breaching the Consumer Credit Code. They will also face criminal penalties of $10,000 for individuals and $50,000 for corporations.

The cap will apply to new loans made after the Act commences as well as to existing credit contracts which are extended or under which interest rates are increased or new fees or charges imposed after the Act commences.

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Daylight saving ends
Western Australia ends daylight saving on 30 March, 2008.

Australian Capital Territory, New South Wales, Victoria, Tasmania and South Australia end daylight saving on 6 April 2008.

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First Home Saver Accounts

The Government has confirmed its intention to establish First Home Saver Accounts from 1 July 2008 to assist Australians to save for their first home.

The account may be opened by individuals aged 18 and over who:

• has not previously purchased or built a first home in Australia to live in;
• does not have or has not previously had an account; and
• makes an initial contribution of at least $1,000.

Individual contributions of up to $10,000 (indexed) may be made into an account each year. These contributions may be made by the account holder or another party, such as an employer, on behalf of the account holder.

Contributions have to be made from after-tax income. Contributions will not be subject to tax when contributed to an account.

The Government will make an additional contribution which will be paid directly into the account. The contribution level (based on a maximum benefit of $5,000 of individual contributions) will be either 15 per cent, or the account holder's marginal income tax rate less 15 per cent, whichever is greater.

There will be conditions on withdrawals.

The Government is seeking comments and submissions by 7 March 2008 to assist in settling the final administrative and legislative features of First Home Saver Accounts.

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Government to facilitate bank account switching

Following a meeting with the Council of Financial Regulators on 8 February 2008, the Treasurer has announced a package of 4 measures to promote competition in the retail banking market by making it easier for customers to switch accounts between banks.

The measures are:

• A listing and switching service that requires banks to provide their customers with accurate information on all direct debits and credits to take to a new bank for easier transferral, if they switch. Banks will also be required to assist new customers to re-establish their direct debits and credits;
• One single consumer complaints hotline 1300 300 630 providing a first contact point for all consumer complaints about basic banking products – to be provided and maintained by the Australian Securities and Investments Commission (ASIC);
• Comprehensive consumer education resources , including a detailed and informative web site providing advice on how to switch, and the costs and benefits of doing so, through the www.understandingmoney.gov.au site; and
• An ASIC-led industry review of the fairness of entry, exit and early termination fees that apply to mortgage accounts and providing better information to consumers to inform their switching decisions.

The Government has expressed its desire that the ASIC review would be " shining a light on fees...(and) putting downward pressure on them".

Implementation will begin immediately, and all aspects of the switching package will be finalised by November 2008.

Initially the listing and switching service will be operational in an interim form that involves banks providing written advice and support until IT systems allow full implementation by November 2008.

The Reserve Bank of Australia (RBA) will oversee the Industry initiatives.

Separately the Australian Payments Clearing Association (APCA) has been reviewing ways to improve the switching of transaction accounts, particularly the movement of standing instructions (direct credits and debits) on accounts (see my November post here and APCA's January Press Release here (pdf)).

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