Australia's Flourishing Financial Consumer Protection

> Posted by Ros Grady, International Consultant, Financial Inclusion – Regulatory Design

Editor’s Note: This post appears as a response to Sergio Guzmán‘s July 27 piece, “Consumer Protection: Finally Putting Down Roots in the US?”
Australia is another country that is doing a lot on the consumer credit protection front. The biggest changes have been the introduction of a national licensing scheme and new laws on responsible lending. These obligations sit alongside the significant disclosure and other conduct obligations already in Australia’s National Credit Code.
The new requirement to hold an Australian credit license applies broadly to all credit providers, of whatever type, as well as advisors and  intermediaries. These rules also apply to suggestions and assistance about applications to increase credit limits. There are various exemptions, but there is no doubt that the requirements to hold a licence are very broad indeed.
All licensees must comply with the general and specific conditions that apply to their license. These obligations are principle based, and that means they can be flexibly applied. It all depends on the nature, scale, and complexity of the licensee’s business.
Licensees must ensure that credit activities are engaged in “efficiently, honestly and fairly”, such that clients are not disadvantaged by conflicts of interest. They must take reasonable steps to ensure that representatives are trained and competent, have an internal dispute resolution scheme that meets the standards of the Australian Securities and Investment Commission, and join an approved external dispute resolution scheme.
Australia has also had new responsible lending laws since January 1, 2011 which apply to both credit providers (such as banks, credit unions, and finance companies) and credit assistance providers (such as mortgage and finance brokers).
Under this law, responsible lending involves three essential steps: 1. Make reasonable enquiries about a consumer’s requirements, objectives, financial situation. 2. Take reasonable steps to verify the consumer’s financial situation. 3. Make a preliminary assessment (for credit assistance) or final assessment (for credit providers) about whether the credit contract is “not unsuitable” for the consumer (based on the inquiries and information obtained in the first two steps). A contract will be considered unsuitable if the consumer will be unable to comply with their financial obligations, or if compliance will bring substantial hardship, or if the product does not meet the consumer’s requirements or objectives. For more detail, see ASIC’s publications “Credit licensing: General conduct obligations”  and “Credit licensing: Responsible lending conduct” .
And there is more to come.  Australia is developing new rules on transparency. From January 1, 2012 credit providers will be required to make available (on line and on request) a Key Facts statements for standard home loans and credit cards. The prescribed content of these statements are expected to include simplified information about interest rates, repayments, and key product features.
Finally, from July 1, 2012 there will be new rules on the ability of credit providers to unilaterally allow over limits (automatic overdrafts) on credit cards and to charge fees for those over limits. There are similarities here with the US reforms made through the CARD Act.
All of which suggests that there is much to be learnt from how developed countries approach financial consumer protection in considering related policy issues for developing countries. The specific context is, of course, always critical. But let us not assume that the only lessons to be learnt are from other developing countries.
Image credit: CIA World Factbook
Have you read?
Empowering Clients to Implement Client Protection
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The Center’s Best-Kept Secret: The Country-by-Country Client Protection Library