Submissions

Financial Rights has made a number of submissions on the new NSW Strata Schemes Management legislation and with this submission on the draft regulations we reiterate our concerns with respect to the new payment plans. While introducing payment plans is an important and positive step, they remain voluntary and heavily weighted towards the interests of owners corporations.

The Financial Rights Legal Centre continues to believe that that the simplest approach to dealing with the dangers of small amount credit contracts and consumers leases is to ensure that they are all subject to a 48 per cent Annualised Percentage Rate (APR) cap. However, Financial Rights welcomes this Final Report, supports most of its recommendation and seeks implementation of these recommendations as soon as possible to limit the ongoing damage to financially vulnerable consumers wrought by the pay day loan and consumer lease sector.

Councils are litigious – so much so they are in the top ten issuers of statements of claim in the NSW Local Court system. This not only clogs the system and increases costs to government but exacerbates problems for ratepayers who are already experiencing financial hardship. Financial Rights recommends that a detailed procedure is required before litigation can be commenced by a local council that is consistent with model litigation best practice and best practice hardship policies. Financial Rights also recommends legislating a right to apply for financial hardship in the Local Government Act 1993 among other recommendations to ensure those suffering from financial hardship do not experience a worsening of their situation through their interactions with local councils.

The Australian Energy Regulator sought additional input from stakeholders on the issue of publicly publishing a list of retailers who have signed up to the Framework and how retailers should begin conversations with those in financial hardship. Financial Rights strongly supports the publishing of retailer names who sign up the Framework and made a number of suggestions regarding questions to ask of consumers.

Our joint submission with CHOICE and the Consumer Action Law Centre addresses problems with the sale of life insurance, with the claims and investigations process and with the level of funding and powers the financial regulator needs to properly regulate the life insurance sector. Our organisations have raised concerns about life insurance for decades. There are ongoing issues with the industry that mean consumers are sold complex, expensive and, far too often, dud products. Consumers face delays and difficulties when claiming on policies and the regulator responsible for keeping the industry accountable, the Australian Securities and Investment Commission (ASIC), is underfunded and needs additional powers.

Our joint submission makes a series of recommendations to address these problems including, amongst others:

• the removal of all commissions in life insurance advice;
• applying unfair contract terms to life insurance products
• developing a fair standard definition for common terms for use in all life insurance policies; and
• establishing an effective and registered Life Insurance Code is established as soon as possible.

Financial Rights strongly supports the development of this draft Framework. It is important that retailers are guided to develop a practical model to analyse their customer’s capacity to pay. Financial Rights’ submission addresses some of the outstanding concerns with the drafting to ensure that the Framework that it applies to inactive account customers, is appropriately publicised and evaluated and that the Framework is effective in improving outcomes for consumers.

We put in a very short email submission to Fair Trading NSW supporting the Tenants’ Union of NSW and Tenancy Advice and Advocacy Services as the only place for tenants to get free and independent advice.  Those services should be well funded as they are a critical and irreplaceable part of early dispute resolution services for tenants in NSW.

Credit Repair Australia is developing its own Code of Conduct. We wrote a submission to O’Shea Lawyers who are developing the code with the following comments and recommendations:

• We strongly believe that debt management firms should instead belong to an industry-wide and enforceable Code of Practice. Individual Codes of Conduct like the one drafted by CRA will only create inconsistent consumer protections for customers and will not be universally enforceable.
• Codes of conduct in the financial services sector should be modelled on ASIC’s Regulatory Guide 183. Unfortunately in its currently drafted form the CRA Code of Conduct does not come close to addressing the criteria listed in RG183. We are particularly concerned about the Draft Code’s failure to  address consumer concerns; demonstrate enforceability; outline any remedies for breaches and commit to a 3-year independent review.
• We also made many specific recommendations regarding the provisions in the draft code.

The Financial Services Commission has written a Draft Code of Practice for the Life Insurance industry. Consumer advocates have written a joint submission in response which argues that the Life Insurance Code of Practice (LICOP) as currently drafted is not a best practice standard and has not fulfilled the expectations and obligations set by Government. The current draft does not require life insurers to meet any standard that is not already required of them by the law. It does not meet the minimum standards of enforceability set by ASIC. The draft Code includes a number of sections dictating how consumers should be behave rather than self-regulating the industry’s own conduct addressing consumer issues, concerns and problems with industry practice. The current draft also makes no attempt to address the problems with churn and poor sales practices, issues that initiated the process that ultimately led to the development of this draft LICOP. Unless substantial changes and additions are made, consumers will have minimal confidence in the Code and our organisations will not be able to support it. The final Code should also set enforceable, best practice standards for advisers and licensees.

We believe that life insurers should make the following specific commitments to improve consumer confidence in the industry (additional recommendations are in our submission):

1. Life insurers should address consumer concerns about someone selling or distributing life insurance products.
2. Life insurers should commit to provide to policyholders:
   • projections of likely costs of the premium
   • information and contact details of the subscriber’s internal dispute resolution and complaints process;
   • in the case of replacement policies, information on what a consumer may potentially be losing and specific information on pre-existing conditions
3. Contact via a letter, email or text message should be sent on the same day that a cancellation occurs. The Code should also require life insurers to offer financial hardship assistance if a customer misses a payment, and be prepared to offer reasonable assistance if it is requested.
4. The life insurance industry should:
   • commit to improving the prominence of warnings and the risks and consequences of replacing a policy
   • commit signatories to investigate reported or suspected mis-selling of replacement policies
   • report where they uncover wrongdoing; and
   • ensure any customers who have suffered a loss are compensated.
5. The Code should include directions to the IDR and Complaints process on making a decision. For those policyholders experiencing financial difficulty whilst an investigation is taking place life insurers should commit to paying a portion of the income protection payments.
6. Life insurers need to commit to training staff on how to engage appropriately with vulnerable consumers.
7. The Code needs to include a commitment to fully inform consumers of the tax and legal implications of a lump sum payment.
8. The Code should commit life insurers to using only licensed investigators and more specific standards be set for investigators to address our concerns with respect to investigations including poor communication practices, aggressive or unethical investigator behaviour and unreasonable requests for documentation.
9. The Code should commit insurers to addressing the high lapse rate of funeral insurance products; immediately stop sales of funeral cover for people under 18 years old; stop allowing CCI to be sold through the ‘add-on’ sales technique; and not allow products to be sold through pressure sales techniques.

We wrote a  submission responding to the interim observations and options put forward by the Small Amount Credit Contracts Review Panel (Payday Lending Laws Review). We supported almost all of the options put forward by the Interim Report as they all increase the effective regulation of payday loans and consumer leases.  Specifically we recommended:

• Additional responsible lending obligations be required in relation to SACCS. The presumptions have not succeeded in addressing the harm as intended and are poorly complied with. ASIC enforcement should be a priority.
• Consumer leases should be subject to the same level of protection as all other regulated products.
• A cap of 48% per annum on the maximum amount a lessor can charge should be introduced for all leases, consistent with other regulated loans.
• A 48% cap should apply to all types of consumer leases, not only low-value household and electronic goods.
• There should be a limit imposed on the maximum length of leases to balance the benefits of lower repayments against the additional cost of credit incurred by longer term contracts. This could be set by reference to a number of years, or by limiting the total amount payable to a multiple of the cash price.
• The cash price and accurate description of the goods must be disclosed on the consumer lease contract. A comparable interest rate should also be disclosed.
• Include the cost of add on features under the cap whether paid for by cash or financed under the lease. If delivery charges are not included under the cap, they should be separately disclosed and capped and should not be permitted to be financed (incur interest payments).
• There should be a 5% cap on the percentage of net income that can be committed to repayments, which includes the total amount of repayments made towards any SACC, Consumer lease or Centrelink advance.
• Termination fee should be the lesser of: 1) The lessor’s reasonable costs incurred by reason of the termination or 2) Two months rental under the contract.

Financial Rights put in a short submission to ASIC regarding a modification they are making to Clause 21 of the ePayments Code. This modification makes it easier for financial service providers to disclose information electronically as a default without consumer consent. Our submission warned that not all consumers have reliable access to email, and they should be given a genuine choice as to how they prefer to receive disclosure documents. We also specifically recommended that any electronic disclosure should be accessible on all types of devices, and if a consumer wants a paper copy of their disclosure documents these must be provided free of cost.

Financial Rights put in a submission and attended a stakeholder workshop regarding the Australian Energy Regulator’s (AER) new Sustainable Payment Plans Framework for energy retailers doing capacity to pay assessments with customers.  Our submission focused on ensuring that the framework applies to inactive accounts; retailers should not increase payments without a new assessment; and retailers should ask additional probing questions of customers to more accurately assess which payments are actually affordable.

As a specialist community legal centre the majority of calls we receive regarding elder abuse relate to financial exploitation or manipulation. In the 2014-2015 financial year Financial Rights gave legal advice or financial counselling to 3,383 callers who were over 50 years old. This makes up over 25% of the total advice calls we receive from consumers of financial services.

Financial Rights can provide advice in relation to elder abuse where there is a Financial Service Provider or product involved, such as a bank, bank account or credit card. Unfortunately there are a number of situations that would constitute elder abuse when we cannot give legal advice or financial counselling primarily because our funding is not sufficient. Our submission makes several recommendations regarding the lack of funded services for older Australians with questions about their finances, investments or super.

Our submission also draws attention to several financial products that we believe are inherently risky or even abusively unsuitable for older Australians including reverse mortgages, funeral insurance, payday loans and pawnbroking.  We also recommend that financial institutions should take on more responsibility to try to prevent elder financial abuse whenever possible.

Financial Rights Legal Centre submits that the SACC regime under the National Consumer Credit Protection Act 2009 (“The Credit Act”) has failed to protect consumers from the harm inherent in pay day lending and other high cost short term contracts. While there has been some containment of costs, it has been insufficient to stop extensive financial damage to vulnerable consumers. Worse, harmful repeat borrowing has increased significantly against the stated intention of the amendments which came into force in 2013. This form of financially detrimental lending is also spreading into wider demographics, effectively undermining extensive efforts at increasing financial literacy by normalising borrowing for consumption purposes. We recommend to the Review that strong action must be taken to address these issues.
Based on our extensive casework experience with the payday lending industry we believe these loans should be banned. The payday lending industry has repeated and systemically demonstrated that:

• it has a culture of avoidance of the law
• it relies on repeat borrowing
• there is systemic non-compliance with the responsible lending laws

We have no confidence that the industry will ever comply with the law in any meaningful way so consumers are adequately protected.
In these circumstances, the only effective way to protect consumers is to ban the industry through an interest rate cap (as has been enacted in a number of countries and states in the USA). This would be achieved by applying an all-inclusive cost cap of 48% or less and enacting adequate avoidance provisions.

Major Recommendations

• All credit facilities in Australia should be capped at an interest rate of 48% (or less) with no establishment fee allowed (and default fees limited to the reasonable cost of recovery). This would negate the need for the complicated SACC regime.
• ASIC must be provided with more adequate and more stable funding than it receives now.
• There should be an automatic remedy of a refund of all fees and charges for any substantive breach of the Act.

As an alternative to the first recommendation above:

• There should be a hard limit of only two permissible SACCs per 12 month period.
• The Henderson Poverty Index (HPI) plus a minimum margin should be required as the universal benchmark for all SACC providers.
• There should also be a ban on concurrent SACCs, refinancing a SACC, and increasing the limit on a SACC.
• The costs cap should be further reduced to 10% establishment fee and 2% monthly fee.
• The protection for consumers who receive 50 per cent or more of their income under the Social Security Act 1991 should be changed to a cap at 5% of a Centrelink recipient’s gross income.
• The Credit Act should include a broad anti-avoidance provision, including the ability to take preventative steps rather than only react after harm has occurred.
• SACCs providers must be required to disclose an APR comparison rate in advertising and contractual disclosure.
• That ASIC either ban the advertising of payday loans or, at the very least, introduce strict and specific regulations established for payday loan advertising on television, radio, social media and online.
• SACCs providers should be prohibited from directly marketing to their customer base because of the high risk of dependency on these types of loans.

In relation to consumer leases:

• All consumer leases the meet the definition of ‘finance lease’ should be considered comparable with credit contracts and there should be greater consistency in the regulatory requirements. All finance leases and be subject to a 48% interest cap. Otherwise, as a second best option, a specific SACC regime for comparable leases should be enacted with effectively similar protections, with the 48% cap applying to all other contracts, similar to the credit regime.
• There should be additional disclosure requirements for all consumer leases including the purchase price of the leased good, the amount the consumer will pay in excess of the purchase price, the APR, and the cost of other services financed through the rental payments.

There are other recommendations contained throughout the submission.

The Australian Government established the northern Australia Insurance Premiums Taskforce following concerns over rising insurance premiums in parts of northern Australia due to tropical cyclones. The Taskforce is charged with examining the feasibility of options to reduce home, contents and strata insurance premiums. These options include the creation of a mutual insurer that offers consumers insurance to cover losses caused by cyclones and a reinsurance pool that would offer reinsurance to all insurers covering their losses caused by cyclones. Financial Rights has made a submission to the Taskforce arguing that whichever model is recommended by the Taskforce, mitigation strategies, greater transparency and increased contestability of pricing must be at its heart and centre of any plan in order to ensure long term positive outcomes for homeowners and communities, value for money for Australian taxpayers and a healthier insurance market.

This was a joint submission with Consumer Action Law Centre and Financial Counselling Australia.

There have been a number of positive amendments to the Guideline, particularly in relation to
third parties. However, we have suggested a number of amendments to further strengthen the
Guideline below, including recommendations to:

• ensure the proposed amendments are expressed in plain English;
• provide further guidance on what specifically amounts to an ‘unsuitable debtor’;
• provide additional practical examples;
• clarify that telephone conversations are a form of ‘advertising and marketing’;
• specify that the term ‘alternative to bankruptcy’ is likely to be misleading;
• address the appropriateness of targeting consumers who have recently have default
  judgments entered against them.

The Consumer Action Law Centre (Consumer Action) and the Financial Rights Legal Centre (Financial Rights) welcome the opportunity to provide a submission to the inquiry into credit card interest rates.

Overall, we are concerned by the increasing levels of credit card debt in Australia, and the impact this indebtedness is having on consumers. Briefly, our submission address the following:

• levels of credit card debt;
• the impact of credit card indebtedness;
• the impact of previous credit card reform;
• barriers to switching credit cards;
• credit card marketing;
• credit card disclosure;
• responsible lending;
• minimum monthly repayments;
• value of loyalty programs; and
• credit card transaction costs.

The NSW Government is introducing a bill to reform NSW strata laws – first major reform since 1973. Financial Rights has long argued the need for amendments to the strata laws to ensure that those owners who find themselves in financial hardship and are overdue in their strata contributions have access to a payment plan process and an internal dispute resolution mechanism. The current draft of the Bill takes some steps towards this goal but in Financial Rights’ view does not go far enough. The Bill provides owners corporations with the choice to voluntarily enter into payment plans but does not make this a right for struggling owners. Similarly, owners corporations are given the choice to voluntarily establish an internal dispute resolution mechanism. Financial Rights believes that both the option for a payment plan and internal dispute resolution process should be made mandatory. Financial Rights also argues that the power for a court to order an owner to pay the expenses of the owners corporation incurred in recovering any contributions not paid should be limited to those expenses that are reasonable in the circumstances.

Financial Rights’ is disappointed with the NSW Government’s proposed draft Pawnbroking Regulation as it is a missed opportunity to adequately protect consumers. The primary objectives of the proposed regulation relate to preventing the sale of stolen goods. While  this is important there is almost no attention given to preventing other unscrupulous business practices towards consumers that have pawned, and hope to reclaim their own goods.

Only two consumer protection issues that would relate to our consumer clientele were raised and neither one has been accompanied by adequate changes to the Regulation.The most significant element missing from the current regulations is access to an external dispute resolution (EDR) mechanism. Pawnbrokers’ customers are most often the most vulnerable consumers, without resources, capacity or will to commence action in a court or tribunal. Without access to an EDR scheme, low income and/or disadvantaged consumers are for all practical purposes deprived of the opportunity to pursue a valid complaint. The lack of compulsory membership of an EDR scheme is a significant omission in the pawnbroking licensing requirements and should be rectified as a matter of urgency.

Further Financial Rights is concerned that consumers do not understand the true cost of the credit they are obtaining. Pawn agreements brought to Financial Rights by clients most often do not clearly explain the fees and charges payable. Most contain brief, fine print, poorly set out, jumbled together and difficult to understand. There is no clear tabular form to explain the true cost of the credit. Adding some disclosures in tabular form within each actual pawn agreement and extending agreement would make things a whole lot clearer for consumers.

Financial Rights made a submission to the Office of the Australian Information Commissioner on Consultation draft: Chapter 2 — Privacy complaint handling process.  The OAIC was seeking public comment on its draft Guide to privacy regulatory action (Guide).

This was a joint submission with the Consumer Action Law Centre and it addressed three overarching issues raised by the exposure draft:

• Complaints handling and enforcement are related but separate regulatory activities and should have separate regulatory actions.
• The Guide should have more explicit procedural timeframes.
• Issues of confidentiality of complaints in practice do not match the relevant statements in the Guide.

 We used our experience making a representative complaint under the Privacy Act to inform our comments.