Submissions

The Consumer Action Law Centre, Financial Rights Legal Centre, Choice and Maurice Blackburn Lawyers jointly commented on the Interim report from the Life Insurance Advice Working Group about adviser remuneration and quality of advice.  The LIAWG Interim Report responds to a report by ASIC released in late 2014 which blames upfront commissions for the poor quality of advice that ASIC found when reviewing the industry.

Summary of our remarks:

• We welcome the interim report’s recommendation to remove full upfront commissions and comments that the life insurance industry takes the problems with commission-based selling seriously.
• However, we do not think the report has taken the problem of commission sales seriously enough, and we are disappointed that all remuneration options considered are commission based.
• We do not agree that commissions are necessarily required to sell life insurance advice. The challenge of moving away from commissions is a problem with the culture of advisers, not necessarily a problem with consumers.
• We recommend that the final report consider non-commission based remuneration options in more detail.
• We strongly support the development of an industry code of practice that is approved by either ASIC or the ACCC.
• A well designed ‘standard cover’ regime will offer part of a solution to the concerns about quality of advice raised in ASIC Report 413.
• We are concerned that Approved Product Lists will tend to limit effective competition and mislead consumers.
• We support the adoption of ASIC’s Life Insurance and Advice Checklist by the life insurance advice industry.

Financial Rights responded to ASIC’s Consultation Paper regarding electronic disclosures by overall supporting the its proposals. Our submission outlined several specific concerns and made one over-arching proviso: that the overall result of any changes is to improve consumer understanding of the benefits and limitations of the financial products and services they are in investing in.

Recent ASIC research has shown that a majority of consumers of insurance do not read their product disclosure statements, or if they do, they do not understand all important information being disclosed.  Our submission to ASIC emphasised that if ASIC is going to allow financial services providers to use a greater range of electronic methods to deliver disclosure information, those method needs to be tested to ensure that they are enhancing consumer understanding, not making it worse.

The proposals within this Discussion Paper have the potential to save industry significant sums in printing and postage of disclosure documents. We submit that some of the resources freed up in this way must be redirected to improving consumer understanding of the products they are purchasing. Financial Service Providers must take some responsibility for testing whether their customers receive and comprehend vital disclosure information.

Specific Concerns:

• We opposed changing the default setting to electronic disclosure. Consumers should be given a choice about their preferred method of communication.
  • Consumers should not be sent all important notices and disclosures electronically simply because they gave the FSP their email at some point, they should be asked to give specific consent to receive notices electronically.
  • There are privacy and reliability problems with email disclosure. o Too many disadvantaged groups still don’t have reliable access to email.
• Consumers should not be charged for opting to receive paper copies of legally mandated disclosure.
• Critical notices like direct debit failures or insurance renewals should require a response if sent electronically, and if no response is received, alternate methods of communication should be attempted (postal notice, phone call, SMS)
• We are strongly opposed to any marketing material being included with or linked to mandated disclosure material.

Consumer Action, Financial Rights Legal Centre, Choice and Maurice Blackburn Lawyers have provided comment on the Interim report on Retail Life Insurance Advice. In brief, the submission argues:

Remuneration:

• We welcome the interim report’s recommendation to remove full upfront commissions and comments that the life insurance industry takes the problems with commission-based selling seriously.
• However, we do not think the report has taken the problem of commission sales seriously enough, and we are disappointed that all remuneration options considered are commission based.
• We do not agree that commissions are necessarily required to sell life insurance advice. The challenge of moving away from commissions is a problem with the culture of advisers, not necessarily a problem with consumers.
• We acknowledge that the remuneration options must be considered in the context of improving the underinsurance problem in Australia.
• We recommend that the final report consider non-commission based remuneration options in more detail.

Code of practice

• We strongly support the development of an industry code of practice that is approved by either ASIC or the ACCC.
• A code should be developed in compliance with the guidance in ASIC Regulatory Guide 183, and through an open, consultative process.
• A code should set standards for the entire industry (including insurers, licensees and advisers, with additional tailored standards for licensees and advisers).

Quality of Advice: We are concerned that Approved Product Lists will tend to limit effective competition and mislead consumers. We are especially concerned about the continuing practice of vertically integrated advice whereby advisers recommend investment products of entities to which they are associated to the exclusion of better performing non-affiliated products.

Disclosure: The over-elaboration of compliance requirements has resulted in economic risk shifting from the providers of financial products to consumers. There has been no consumer testing of whether current Statements of Advice (SOA) are effective, and significant risks are not adequately explained to consumers.

As a community legal service providing both legal advice and financial counselling to the public, we receive many calls about personal bankruptcy and other insolvency options under the Bankruptcy Act.  We generally support any provisions which will make Trustees more accountable. However, we note that the commentary in the Explanatory Memorandum is almost exclusively about the rights of creditors, and accountability to creditors. In our Submission we note that debtors and bankrupts are fundamentally affected by insolvency laws, and their perspective should be balanced with the needs of creditors.

We support the creation of a Register of Trustees as described in the Explanatory Memorandum. We also support the more prescriptive requirements of Trustees seeking registration or renewal and the changes to the disciplinary powers of the Inspector General.

The main points in this submission were:

1. To make observations about the difficulties encountered by debtors in challenging Trustee’s remuneration and other expenses and make recommendations for improvement.
2. To outline some deficiencies in the obligations placed on trustees in relation to Part X Agreements.

Financial Rights Legal Centre submitted a response to the Productivity Commission’s Draft Report on Natural Disaster Funding Arrangements.  The submission focused on encouraging better transparency of insurance premiums and creating a mechanism of review for consumer’s in relation to insurance premium pricing. Insurers should not be able to hide behind vague reasons and unsubstantiated assertions about how premiums are priced. They should have to substantiate premium pricing across all forms of insurance.  In the home and contents space it is essential.

In our view, the failure of industry to have any mechanism of review of the accuracy of premium calculations is of significant detriment to consumers. This failure also provides no guarantee that any household mitigation strategies or idiosyncratic household conditions are taken into account when determining premiums. Consequently, premium prices cannot be said to be “accurate” signaling of risk as there is no contestability or transparency in their calculation.

Financial Rights Legal Centre submitted a response to the Financial System Inquiry’s Interim Report with over 40 Recommendations for improving financial services in Australia.  The submission focused on consumer outcomes in the insurance sector, particularly improving disclosure regimes, increasing transparency in premium pricing, implementing the recommendations in the CHOICE and Trowbridge reports and creating suitability requirements for insurance products.

The submission also comments on competition in the payments and banking sectors, payday lending, industry self-regulation, consumer compensation schemes, increased powers for ASIC and Financial Difficulty Predator Businesses.

Financial Rights and Consumer Action wrote a joint submission to the Financial Ombudsman Service commenting on the proposed changes to its Terms of Reference.

The submission supports the proposed new one-step lodgment process; new discretionary powers to kick out paid consumer agents; a new fast track ‘Adjudicator’ process for low value disputes; shorter objection time-frames for Outside Jurisdiction cases; increased limit for uninsured 3rd party accidents ($5000); and discretion to allow sale of asset. The submission rejects FOS’s proposal to limit its own jurisdiction for rating factors on premium/excess decisions.

The Financial Rights Legal Centre has provided a submission to the Productivity Commission on its Issues Paper, Natural Disaster Funding Arrangements.

The key points and recommendations made in this submission are:

• Financial Rights submits that our Insurance Law Service is well-placed to act as a national insurance advice hotline and referral service in times of natural disaster.
• Consumers must be able to assess and understand their insurance coverage. The disclosure process needs to be markedly improved with research and testing to ensure consumers understand their cover and exclusions
• Independent and government funded comparison websites that compare both price and coverage are essential
• Publicly available and extensive independent information on risk (through a website) is necessary
• The NDIR review recommendations should be adopted in full, including the compulsory cover for all disaster events, premium discounting to avoid cross-subsidisation and government top ups in the event the reinsurance pool is insufficient.
• Data needs to be obtained from the insurance industry on the extent of non -insurance with the data analysed and compared to risk of natural disaster
• Consumers need disclosure about changes in pricing including compulsory disclosure of any reasons that would be relevant to a request pursuant to s. 75(1)(d) of the Insurance Contracts Act.

Some of the key points and recommendations made in this submission are:

• Each State and Territory should fund a national referral service with a widely recognised single entry point for legal referral. However, the aim should be to evolve this national number into a multi-disciplinary team.
• We support findings by the Commission that industry ombudsmen meet legal need in a way that is fast, effective and free of charge for consumers.
• We broadly support the PC that the profile of ombudsman services should be raised, but targeting information so that it reaches people at the point they need it the most will be more effective than blanket exercises to raise awareness.
• We support the proposal to consolidate industry ombudsman schemes in appropriate cases, as long as doing so does not leave consumers without another accessible option, or reduce the level of expertise in dispute resolution.
• The PC should acknowledge that there are a broader range of scenarios in which legal representation will improve efficiency and access to justice in tribunals.
• Costs awards in lower courts should have a standard basis that is clear to parties and their advisers at the outset of litigation.
• Parties represented pro bono should be entitled to seek an award for costs. For the avoidance of any doubt it should be clarified at law that Community Legal Centres and their clients are similarly entitled to recover costs.
• We believe the lawyer acting should be the beneficiary of any cost award.
• Courts should grant protective costs orders in appropriate public interest cases, and that courts should formally outline the criteria for granting these orders. Protective costs orders should not just be available against government entities, but against private parties too.
• While there may be opportunity in alternative not-for-profit legal assistance models, we caution against any argument that self-funded services are the solution to ‘the missing middle’, or that they can replace the need for government funded services.
• We support the use of legal health checks as part of a multifaceted approach
• We suggest co-location of services and systems (like Consumer Action and CCLC’s legal and financial counselling services, together with worker advice lines) are more effective than referrals between organisations
• Emphasis in the Draft Report on the consistent application of eligibility criteria to ensure limited legal assistance funding is well targeted. However, eligibility criteria is only one part of effectively targeting services;
• Better service delivery must be informed by needs analysis. However, we submit that this analysis is best done collaboratively with services and done in a way that ensure continuous ongoing reflection on what works well for a service and why and what needs to be improved;
• We emphasise the value of strategic advocacy and law reform activities by CLCs and LACs. CLCs play a key role in identifying and acting on systemic issues and these activities are an efficient use of limited resources.

Consumer Credit Legal Centre has made many prior submissions to the NSW Attorney General department regarding debt collection.  We are disappointed that despite apparent support for many of our proposals, none of our recommendations were ultimately implemented.  NSW currently has the lowest protections for debtors, well below the equivalent statutory protections in other jurisdictions. Summary of Recommendations in this submission:

1. Debtors should be provided with notice when a court judgment is entered, and prior to enforcement action taking effect
2. The protected amount debtors can retain for essential living expenses should be increased from the current level of $458.40 per week
3. Courts should exercise discretion in determining the appropriate proportion of wages to be garnisheed, taking into account an individual’s particular circumstances (such as number of dependents, living expenses and other financial commitments)
4. The length of time a garnishee can operate should be limited to 6 months
5. There should be legislative protection against a debtor losing their job as a result of a garnishee being issued
6. There should be a minimum protected amount reserved for a debtor’s essential expenses that creditors cannot access, set in line with the minimum protected amount for wage garnishees
7. Courts should be given discretion as to the appropriate amount to be garnisheed, considering the debtor’s whole circumstances
8. There should be greater court oversight over the use of debt garnishees in an oppressive manner, or as a fishing expedition
9. The categories of personal items not available for forced seizure and sale by the sheriff, should be aligned protections provided under the federal Bankruptcy Act 1966
10. Sheriffs should have discretion to seize and sell property to balance the need to avoid delay and expense with minimising hardship to the debtor or other persons.

The financial system has the potential to create significant benefits for (or cause significant harm to) the community as a whole, or particular groups within it. As a service advising and assisting thousands of consumers every year, the CCLC is well placed to comment on both aspects of the system – where it is working well and where it is failing end users. Our submission strongly endorses the comments submitted by the Consumer Action Law Centre on 31 March 2014. Main recommendations in submission:

• The availability of free, independent, ASIC approved EDR should remain a key component of the financial services landscape. Any issues with the process should be addressed through the regular independent reviews required to retain such approval.
• The NCCP (Act) 2009 architecture should remain largely unchanged.
• Unfair contract terms legislation should be extended to cover insurance.
• Life insurance and TPD cover should be included as the default position in superannuation accounts (with greater regulation of life insurance).
• Better tools for consumers to compare policies
• Improved regulatory tools for preventing the systemic sale of poor value insurance products to vulnerable consumers
• The pay day lending provisions should be retained unless they are replaced with even more stringent requirements aimed at reducing repeat borrowing.
• There should be greater availability of safer, affordable small loan products.
• ASIC’s role in identifying and making recommendations to government in relation to gaps in the law should be explicitly recognised and retained. Responsibility for the enforcement of credit reporting regulation should be transferred to ASIC.
• All commercial entities involved in regulated credit advice, negotiations, credit reporting and personal budgeting/repayment services should be subject to licensing, EDR and specific tailored provisions to improve outcomes for consumers (and prevent the identified harm).

We strongly oppose the introduction of Debtor’s Petition fee.  This new $120 fee will have very serious consequences for our clients, their creditors, and the wellbeing of their families and the health of the communities they live in. The majority of clients that we advise about filing for bankruptcy are on very low incomes, and by the time they are contemplating bankruptcy they are in severe financial hardship. Key points made in our submission:

• A scan of our casework records (including both our legal advice and financial counselling services) reveals that we have on record at least 1600 calls from low income and vulnerable clients relating to bankruptcy per year. Of those callers 62% report they are living on an income of less than $26,000 per annum (with some reporting no income at all).
• For this group of debtors a $120 fee to file for bankruptcy will be a significant financial burden.
• One of the inevitable consequences of the new fee for lodging a Debtors Petition is that fewer debtors will file for bankruptcy.  This will be a terrible result for everyone from creditors, to the debtor’s family to the community at large.
• Another consequence of introducing a fee for lodging a Debtor’s Petition is that debtors will be forced to incur more debt in order to come up with the $120 fee.
• Charitable organisations will likely carry the burden
• If a fee is introduced for lodging a Debtor’s Petition, there should be a waiver for low income debtors
• The bankruptcy regime already imposes an income contribution requirement that is tied to income and number of dependents, and is recovered from post bankruptcy income rather than set up as a barrier to entering bankruptcy in the first place.
• The Realisation Charge is a more appropriate way for AFSA to recover its personal insolvency costs

Since the submission of these comments to AFSA the proposed new fee has been disallowed in the senate and removed from the Debtor’s Petition Application.

Key points made in our submission:

• Overall, complaints to the ILS about quality of car repairs is an ongoing issue. The process for getting poor repairs fixed is difficult and may involve the cost to the consumer of getting independent assessors. Consumers often indicate they have little trust or confidence in the repair industry.
• In our experience, the two biggest problems for consumers in this area are increased cost and hardship while awaiting repairs, and limited right of appeal of an assessor’s decision to write off or not write off a vehicle.
• Where a third party is claiming against an insurer for damages it needs to be clearly disclosed to the consumer that the insurer can list the car as a total loss (write off) on the register
• Consumers have little knowledge or awareness of their rights in relation to dealing with insurers and consequently their rights in relation to repairs carried out under a contract of insurance.
• Issues commonly arise in relation to timeliness of repair, quality of repair and the transparency of the decisions in relation to the assessment of the claim. Insurance contracts will often limit an insurers liability in circumstances of delay.
• Regulation and transparency of assessment in our view is key to ensure fair outcomes for consumers, whether products are vertically integrated or not.

The Consumer Credit Legal Centre (CCLC) supports the regular revision and updating of the Debt Collection Guideline. It is important that the Guideline is updated on a regular basis to account for changes to the law, recent decisions and ongoing improvement in practices and industry standards. The revised draft Guideline is a significant improvement on the existing version, especially the recognition of the need for additional protections for low-income debtors.

CCLC notes that the Guideline is not law, and only represents guidance. In our view, consideration should be given to the Guideline being made into law. The debt collection industry is very large and pervasive, and unfortunately not all debtors subject to debt collection activity have access to EDR. CCLC has ongoing problems with a number of smaller debt collectors who continually breach the Guideline with no consequences. Some of the breaches are very serious, including threatening the consumer that s/he will be reported to the Police. We contend that legislation is required to ensure that all consumers have adequate consumer protection when dealing with debt collectors.

The Consumer Credit Legal Centre has provided a submission to the Productivity Commission on its Issues Paper, Access to Justice Arrangements.

 The key points and recommendations made in this submission are:

• The service delivery model used by CCLC is a very effective and efficient method of addressing legal and related need and enhancing access to justice in relation to credit, debt and other financial services issues.
• There is still considerable unmet need in relation to credit, debt and insurance law in Australia.
• Credit legal services should be integrated with telephone financial counselling and referrals across Australia.
• Community Legal Centres can use their resources to best effect when they use the intelligence gained from casework and service provision to advocate for systemic solutions. This should be explicitly recognised and incorporated into funding models, including reporting and evaluation.
• Access to external dispute resolutions services like the Financial Ombudsman Service and Credit Ombudsman Service are vital to access to justice – and are arguably the greatest addition to consumer protection in Australia in many decades. Current problems with delays in such schemes are not insurmountable and in the process of being addressed.
• The Insurance Law Service operated by CCLC is ideally placed to perform a central role in responding to national disasters but is underfunded to do so. A greater (but still modest) contribution from the Commonwealth and a per capita contribution from each State and territory could increase funding to necessary levels.
• Filing fees and court procedures (or proposed changes to procedures) are creating barriers to pursuing public interest litigation in some cases.

Consumer Credit Legal Centre commented on the Draft Terms of Reference for the Financial System Inquiry. The Terms of Reference give broad scope to address a wide range of issues of concern to our organisation. (See Press Release from Treasury)

Our comments have been made in the interests of ensuring the inquiry, which is no doubt likely to be dominated by the concerns of financial service industry participants, keeps a firm eye on the end-users of the financial system. The financial system has the potential to create significant benefits for (or cause significant harm to) the community as a whole, or particular groups within it.

Summary of CCLC’s Recommendations

1. The TOR should specifically mention access to the financial system or financial inclusion.
2. TOR 2.1 should be amended to recognise that competition, efficiency and innovation are not objectives in themselves, but are only beneficial to the extent that they contribute to achieving optimal end-user outcomes.
3. TOR 2.3 needs to include the benefits of regulation (to consumers, the market as a whole and the public interest) in addition to its costs and impositions; whether the objectives of the regulation are being met, and whether there are alternatives (including alternative regulation) that would meet the objectives more effectively.
4. There should be a panel representative with experience and expertise in consumer policy and financial inclusion.

Consumer Credit Legal Centre has contributed to the Post Implementation Review of the ban on mortgage exit fees. We continue to support the ban on exit fees as introduced through the National Consumer Credit Protection Amendment Regulations 2011 (No 2). The fees that these regulations prohibit are anti-competitive. Key points in our submission:

• CCLC is of the view that termination fees, whether they be fees for early termination or deferred establishment has the effect of: Misleading consumers as to the cost of a loan; and Trapping borrowers in unsuitable loan products.
• Consumers often reported being trapped in high interest loans, because they could not borrow enough to cover the exit fee upon refinancing. This left some borrowers in the position where they had to sell their homes even though they could have afforded a more competitive loan with lower repayments.
• We contend that the bill has not had the anti-competitive effect that was forecasted by lenders.  The bill has been effective in enabling competition in the mortgage market whilst in turn enabling open, fair and transparent terms and conditions for borrowers in making choices and comparing products in the market place.  In our view, the ban has effectively removed one route for a lender to gouge a borrower without substantially affecting competition to the detriment of consumers. Rather, competition has become more transparent as consumers are able to more easily compare products and their associated costs. We also observe that a number of lenders advertise that there is a ban on mortgage exit fees to encourage shopping around for a better deal.

Consumer Credit Legal Centre (NSW) and the Consumer Action Law Centre (Victoria) have coordinated and written a joint-consumer submission to the independent review of the Financial Ombudsman Service. The submission contains contributions from twelve other organisations, and received funding from the Financial Ombudsman Service.

Contributors broadly believe that, while there is room for improvement, the Financial Ombudsman Service is providing an essential service of a high standard and should be congratulated. This view was echoed in responses to the online survey of financial counsellors.

Case delays were by far the biggest concern for organisations who contributed to the submission and, while we acknowledge that Financial Ombudsman Service is making genuine efforts to reduce delay, we have provided a number of recommendations on this topic.

The Consumer Credit Legal Centre (NSW) has made a submission to the Senate Economics References Committee inquiry into the performance of the Australian Securities and Investments Commission (ASIC).

Summary of Submissions

• ASIC has been a very effective regulator in the consumer credit space. It has been very active in the first few years of taking over this role from the State governments in 2010 and has taken some well target activities to address areas of likely consumer detriment.

• ASIC could do more to keep the market aware of its focus and compliance activities. Industry players need to be reassured that wayward competitors are under scrutiny where appropriate so that competitive pressures do not place downward pressure on compliance standards.

• ASIC needs to respond to consumer complaints in a timely fashion and, where timeliness is not practical, keep consumers (and their advocates) informed in some appropriate way.

• ASIC needs some better regulatory tools so that it can react in a timely and effective manner to prevent consumer detriment.

• We encourage ASIC to continue to conduct and foster research, gather evidence from complaints and surveillance activity, and work with consumer advocates and industry to develop creative solutions to problems and inform government about regulatory gaps or weaknesses in their enforcement capacity.

The Insurance Law Service has commented on a recent paper on Insurance Access released by Good Shepherd Microfinance.  ILS agrees with Good Shepherd that limited availability, access to, and understanding of, insurance are significant contributing factors in financial exclusion for many Australians. It is generally understood that insurance is vital for protecting assets and securing a resilient future. Without insurance, it is not possible to accumulate assets safely and confidently or use everyday essentials such as a motor vehicle. Non-insurance also places huge burdens on society.  Good Shepherd is working on a project to insure sustainably a large number of Australians who are currently excluded from insurance or are unsure why or how the product could be of benefit to them.

In our comments to Good Shepherd we pointed out a number of insurance products that we believe are high-risk to low income Australians:

a.         Funeral Insurance

b.         Consumer Credit Insurance

c.         Gap insurance

d.         Insurance Products with Rising Premiums

We also pointed out that there are other types of insurance that disadvantage low income Australians because of their rising premiums. When someone is on a fixed low income it gets more and more difficult to afford to make rising premium payments. ILS submits that in many cases had low-income consumers known that the premiums were going to become unaffordable they would not have signed-up for the insurance policies in the first place.

ILS believes that a key issue for low income Australians and insurance is determining whether the premiums will be affordable for the required term of the insurance product. Consumers currently are not given this vital information.