Wednesday, 29 April 2009

A national consumer credit scheme is a welcome move, but the devil may still be in the detail, a law academic from The University of Western Australia has warned.

UWA Law School Associate Professor Eileen Webb welcomed the release of the draft National Consumer Credit Protection Bill 2009 (Credit Bill) and the Federal Government announcement about assistance for mortgage holders experiencing hardship.

"This legislation represents a further step towards creating a single, standard and nationally consistent corporate and financial services regime for Australia," said Associate Professor Webb. "But the devil may be in the detail.

"For example, despite some guidelines, it is uncertain how terms such as 'responsible' in relation to lending and 'unsuitable' in respect to credit contracts will be interpreted. Much information regarding credit history can only be obtained from credit reporting services and not necessarily by the lenders' own inquiries."

"In the first phase, the Commonwealth will assume responsibility for the Uniform Consumer Credit Code, which is currently state-based.  The law would require lenders to lend responsibly, finance brokers and lenders to be licensed and all providers and brokers of financial services to be members of an external dispute resolution scheme."

"The second phase, expected to be in place by mid-2010, aims to reduce predatory or undesirable lending practices. It is also expected to deal with regulating credit to small business, unsolicited credit card limit extension offers, interest rate caps and reverse mortgages."

Associate Professor Webb said the Federal Government plan to increase from $312,000 to $500,000 the threshold for hardship, under which consumers can request a change to certain terms of their credit contract, would depend on the co-operation of banks.

"The obligations on the banks to cooperate in this process will be crucial but, as we have recently seen with the failure to pass on interest rate reductions in full, the government cannot dictate how the banks choose to exercise such discretion," she said.

"There is not an automatic right to this relief and banks will review the reason for the change in the borrowers financial circumstances, assess whether the problem is likely to be short or long term and whether the variation will assist the borrower's situation."

She said consumers refused hardship variation may be able to seek help from Financial Ombudsman Service.

Media references

Eileen Webb (UWA Law School)  (+61 8) 6488 2947
Aviva Freilich (UWA Law School)  (+61 8) 6488 2840
Janine MacDonald (UWA Public Affairs)  (+61 8) 6488 5563  /  (+61 4) 32 637 716

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