CREDIT (COMMONWEALTH POWERS) BILL

Second Reading

Adjourned debate on second reading.

(Continued from 11 May 2010.)

The Hon. G.E. GAGO (Minister for State/Local Government Relations, Minister for the Status of Women, Minister for Consumer Affairs, Minister for Government Enterprises, Minister for the City of Adelaide) (15:23): There being no further speakers, I will sum up. I believe that, when members spoke to the credit bill in their second reading speeches previously, they spoke to both the transitional arrangements bill and the commonwealth powers bill together.

Unfortunately, due to an oversight, the committee stage of this bill did not occur at the same time as the committee stage of the transitional arrangements bill, even though we all thought it had. I thank those who have contributed, and we look forward to the committee stage.

Bill read a second time.

Committee Stage

In committee.

Clause 1.

The Hon. G.E. GAGO: I am just a bit concerned that the Hon. Robert Brokenshire is not here. He indicated that he wanted to speak to clause 1.

The CHAIRMAN: I cannot help who is going to be here and who is not here. I think you should carry on.

The Hon. G.E. GAGO: A number of questions were put forward during second reading speeches that I agreed to address in the committee stage, and I thank honourable members for their cooperation in those matters. The Hon. Michelle Lensink raised some concerns around responsible lending and referred to an article in the Sunday Mail on 25 April 2010. In response to that article, ASIC has advised:

The responsible lending conduct obligations are designed to protect consumers by requiring: lenders to lend responsibly by ensuring that the credit they provide is not unsuitable to the consumer and the consumer has the capacity to repay; and brokers are to ensure that they do not suggest a credit contract that is unsuitable for the consumer. To ensure that a credit contract is suitable, lenders and brokers will have to make reasonable inquiries about the consumer's need, objectives and financial situation. Lenders and brokers may use these sources of information in making the assessment about the credit contract for the consumer. In complying with the responsible lending requirements, lenders and brokers would still be required to comply with privacy and antidiscrimination laws as they apply in each jurisdiction.

For example, the Equal Opportunity Commission of South Australia makes it clear that it is unlawful for providers of goods and services including banks and finance companies to offer their services in a discriminatory way. It is unlawful to treat people unfairly because of their age, caring responsibilities, chosen gender, disability, marital or domestic partnership status, pregnancy, race, sex, sexuality, spouse or partner's identity. Lenders and brokers who choose to treat their clients in an offensive or discriminatory manner would no doubt expose themselves to formal complaints and the loss of future business.

The Hon. Ms Bressington asked:

Could the commonwealth not have been involved, and agreements made between state regulators and the Australian Securities and Investment Commission, so that greater efficiency, consistency and expertise could result?

There is no doubt that harmonisation efforts would have continued to be pursued by the states in relation to the uniform consumer credit code had the proposal not been made to refer the regulation to consumer credit to the commonwealth. However, it is far more difficult to achieve consistency of approach to consumer credit when multiple agencies that operate across all jurisdictions are concerned. After all, most financial institutions not only operate nationally but in fact internationally, so this is a far more consistent approach. The question should be as follows:

Can greater efficiency of response, consistency of approach and improvements to expertise result if the regulation of consumer credit is vested in a single regulatory body that operates at a national level, particularly one that has a breadth and history of experience in financial industry regulation, as does ASIC?

The answer, I believe, is yes. These reforms are fundamentally about the most effective and responsive approach to consumer protection in the consumer credit environment, and also about regulating industry within a structure that does not impose unnecessary red tape burdens.

While there is always a risk associated with referring state legislative powers to the commonwealth government, the commonwealth powers bill has been ably constructed to minimise this risk to the extent possible. In the first place, the bill adopts the text of the commonwealth act and refers certain powers to make amendments to that act. I am advised that this is a more appropriate constitutional mechanism than referring the power to enable them to both make and amend the law. Secondly, the amendment power is limited by a number of specific carve outs from the referral of power. These carve outs ensure that the commonwealth cannot make laws in these areas that would have the effect of displacing state laws in relation to these matters.

The states fought very hard for those carve outs. The honourable member would not be surprised to know that the commonwealth was not particularly amenable to that proposal, but we fought hard and won those carve outs in the end. In fact, we won the original argument. The original referral powers were to be a subject-based referral power and not text, which meant that we would just agree to some general overarching credit concepts and then the commonwealth would fill in all the detail. We argued for a text-based referral so we can see the bill word for word in front of us, and that is what we are agreeing to or not. Again, that was a hard-fought effort by the states, and South Australia was right in there leading the charge at one stage to ensure we achieved a text-based referral and not a subject-based referral. All these serve to improve the protections the state has in ensuring ongoing protection for the states.

Thirdly, the commonwealth powers bill also ensures that the referral of power may be terminated by the Governor, if this is ever determined to be appropriate; and, fourth, the commonwealth act includes provisions that allow state laws to displace the operation of the commonwealth law where this is considered necessary. Finally, the national regime is backed up by an intergovernmental agreement that reiterates the carve outs to which I have referred and ensures that future amendments to the law are not made without the approval of state jurisdictions.

The Hon. J.M.A. LENSINK: I am grateful to the minister and her officers for providing me with a briefing on these bills. One of the questions I asked was in relation to payday lending, a topic that has come up over the years. I think that when the Hon. Jennifer Rankine was consumer affairs minister there were some proposals at that stage and various members have had private members' bills drafted to address this issue. I asked the officers what has happened to payday lending. Can the minister place on the record the situation and also advise on phase 2, which will include fringe lending?

The Hon. G.E. GAGO: The answer to the question about payday lenders is that they are generally included. The credit code was amended in 2001 to capture fringe lending. Whereas previously short-term loans for less than 62 days were exempt from the application of the code, loans of under 62 days are now caught by the code where the annual interest rate of the loan exceeds 24 per cent and the fees charged for the loan exceed 5 per cent of the loan amount. The minimum loan amount caught by the code was also decreased from $200 to $50.

As is currently the case under the Uniform Consumer Credit Code, the national code does not apply to the provisions of credit if, under the contract, these three things all apply: the provision of credit is limited to a total period that does not exceed 62 days; and the maximum amount of credit fees and charges that may be imposed or provided for does not exceed 5 per cent of the amount of the credit; and the maximum amount of interest charges that may be imposed or provided for does not exceed the amount calculated as if the code applied to the contract equal to the amount payable if the annual percentage rate was 24 per cent per annum.

It is also important to note that the commonwealth will, as part of phase 2 of the credit reforms, consider the need for further changes to the law to address fringe lending issues. It is expected that the commonwealth government will soon release a green paper on short-term small amount lending, and this will provide an opportunity for consultation and consideration of the need for amendments to short-term exemption provisions.

Payday lenders are generally captured by this, with all those technicalities. Basically, there are exemptions to some very short-term lenders. As to those that are currently exempt, those exemptions have been transposed, so there has been no change to those very short-term lenders.

The Hon. R.L. BROKENSHIRE: My question follows on from the Hon. Michelle Lensink's question. The minister will recall that my colleague the Hon. Dennis Hood introduced a bill relating to payday lending. The minister has highlighted the fact that payday lending that occurs for less than 62 days, with fees of less than 5 per cent of the principal and accruing no more than 24 per cent interest per annum, will be regulated under this bill. I think that is a good move, and I congratulate the minister.

As we see it, on a two-month loan of $1,000, the most you can charge the client and escape regulation is $90 for that two-month period. However, we note that there are some catches; I am alerting the minister to those, and I will raise two matters relevant to this issue. First, if the contract is breached, there is nothing stopping the contract being handed over or sold to debt collecting agencies, who can add their own fees, as well as court filing and service fees, to the debt. So, it remains conceivable that a payday loan that is outside regulation can still become a massive debt burden for that borrower.

Secondly, we hope that ASIC is sufficiently funded: can the minister confirm that ASIC will be sufficiently funded to investigate and clamp down on payday lenders who try to avoid these new laws? ASIC traditionally regulates large companies and, given that it will have this added responsibility, we hope not only that OCBA is replaced but that ASIC expands upon the service previously provided by the state Office of Consumer and Business Affairs to protect those categories of vulnerable borrowers I have just outlined to the committee.

The Hon. G.E. GAGO: There is some concern that the honourable member has misunderstood aspects around exemptions. So, just to clarify, the exemptions to certain short-term loans still apply as under the current code. The national code does not apply to the provision of credit if under contract all these three things apply: the provision of credit is limited to a total period not exceeding 62 days, maximum amount, and the 24 per cent. I have already read that into the record. However, the commonwealth has undertaken to consider as part of phase 2 further enhancements to address payday and other fringe lending.

In terms of debt collectors and charges, ASIC has issued guidelines on debt, and its view is that the debt collector stands in the shoes of the original credit provider, and ASIC would treat them in the same way as the original credit provider. So, if the code applied to the original credit provider, it then applies to the collecting agency. So, fees for services can be applied; however, if there are concerns about these fees, obviously they can be taken up with the commonwealth government during the discussion paper stage, and it can be pursued further there.

In relation to funding, the answer is, yes, ASIC has been adequately funded to investigate not just payday lending but all its responsibilities under the new provisions. It is funded to the tune of $66 million to implement these changes.

The Hon. R.L. BROKENSHIRE: Can the minister confirm that she is comfortable that ASIC will do at least as good a job as her department, the Office of Consumer and Business Affairs, which has traditionally had a role of protecting the most vulnerable borrowers, as I outlined in my question? How will ASIC actually run that in states like South Australia? Will people still go to the Office of Consumer and Business Affairs if they have a problem? How will they get assistance if ASIC is working from Canberra? I just need an explanation.

The Hon. G.E. GAGO: I can assure the member that I do believe ASIC is more than adequate and competent to do this job extremely well. It has a vast breadth and depth of experience that is really beyond this state's ability to provide. As I said, ASIC has an enormous breadth and depth of experience in financial regulation but also—let's be honest—it is financially loaded up pretty well. I believe $66 million is more than adequate funding to fulfil its responsibilities.

The Hon. R.L. BROKENSHIRE: I do not want to hold the committee too long, but it is a point because we are pretty concerned about these payday lenders, as in the past they have been ripping off the most vulnerable people. Will ASIC have an office here? How will people know, if they have a problem? At the moment they go to the Office of Consumer and Business Affairs and say, 'I am getting ripped off, can you investigate this?' If it is handballed over to ASIC, where will these people go? They cannot afford to fly to Canberra because they are struggling to be able to make ends meet every week.

The Hon. G.E. GAGO: ASIC does have an office here in Adelaide. It also has a hotline. It will have a website, and it has a range of really good quality guidelines and information which will continue to be developed to assist members of the general public.

The Hon. R.L. BROKENSHIRE: Can the minister assure the committee that there will be? Most of the time I am opposed to advertising campaigns and the like, but on this occasion I think there may actually need to be some fairly substantial promotion of these handover powers that relate to and affect people on a daily basis.

Has the minister in ministerial council meetings discussed or been advised of transitional arrangements, one-off funding that will be made available for that material put out in the media etc., so that people will know where they go. I have been in South Australia for 52 years, and I do not know where the ASIC office is.

The Hon. G.E. GAGO: I am not aware of any particular advertising campaign, but I can assure the honourable member that a great deal has already been done, and I think a roadshow has already circulated around the nation. They have already put a lot of effort and resources into informing and involving appropriate stakeholders. I have been most impressed with the work they have done so far, and no doubt they will continue with that information dissemination as we get closer to the time.

Clause passed.

Remaining clauses (2 to 10) and title passed.

Bill reported without amendment.

Third Reading

Bill read a third time and passed.