| RESPONSIBLE CREDIT in Australia – Markets, Information and Unconscionability. |
Australian MP makes public the report of a consumer credit review ordered by the Government of Victoria (Melbourne). While identifying problems with overindebtedness, credit card credit, small amounts of credit with the very poor, the report shows that this Australian subnational basically follows the UK approach of self-regulation, alternative finance and market driven solutions.
In its report the commission refers to the “Victorian Government (who has) has identified the need to review credit laws to determine the best ways of facilitating the provision of affordable credit to low income households and preventing predatory finance practices that target disadvantaged households. Vulnerable and disadvantaged consumers looking for small amount short term credit are often confronted with very high credit costs.”
The report has identified four major problem areas where overindebtedness and exclusion are at stake:
• small amount loans
• alternative housing finance
• credit and store cards
• loans arranged by brokers.
• New credit products
But they follow the more neo-liberal approach of the UK government and DG Market of the European Commission which basically assume that efficient markets would cope with all these problems adequately while arguments that markets itself tend to discriminate and therefore need regulations and limits are labelled as outdated 19th century discourse. The report who sees high cost credit as a major problem for vulnerable consumers even favours the abolishment of still existing rate ceilings and its replacement by “other” means.
THE CREDO OF THE COMMISSION IS OUTLINED IN THE FOLLOWING TEXT:
“When markets work well, credit providers compete to offer appropriate credit products at the lowest possible price, and consumers are able to make informed choices about what they want to buy. Inefficient markets impose costs on individuals and the economy. Individuals may face financial hardship, the products available may not meet consumer needs, prices can be too high, and consumers and credit providers may lose confidence in credit markets.”
THE ROLE OF REGULATION IS IN SO FAR SECONDARY TO MARKETS:
“The Review has identified a need to balance a national regulatory focus with timely and effective protection for vulnerable and disadvantaged consumers in Victoria. It has treated each problem separately to determine whether solutions should be sought via a national agenda or Victorian changes, or a combination of both.”
SMALL AMOUNTS OF CREDIT TO VULNERABLE CONSUMERS:
No market remedies are in sight. The recommendations starts moral appeals, state financed alternative credit and asks for more information only at the end.
“Government should further investigate options for providing funding for No Interest Loan
Schemes (NILS) run by community agencies in Victoria. To address the cost of credit, all fees and charges should be reviewable on the ground of ‘unreasonableness’, which would include reference to the underlying costs of service provision as the principal criterion for assessment and a direction that in the case of default fees or charges, prima facie, unreasonableness occurs where they exceed cost recovery. Government Consumer Agencies should be able to bring proceedings to challenge unjust transactions, ‘unconscionable’ interest and unreasonable fees and charges. Prohibit credit providers from accepting household goods as security for consumer credit. Consumer credit resulting from the use of promissory notes (and other bill facilities) should be
regulated by the Consumer Credit Code. The conclusive presumption accorded to ‘business purpose declarations’ should no longer be available.
RESPONSIBLE LENDING AND ADVERTISING PRACTICES:
Regarding responsible lending it follows the approach of restricting credit extension and giving more information to consumers which contrasts with its market approach and the identification of lack of access to credit for the poor.
“Victoria should request the Ministerial Council on Consumer Affairs to develop as a priority an amendment to the Consumer Credit Code that would:
• place a positive obligation on credit providers to adequately assess consumers’ capacity to repay credit, and to assess the consumer’s capacity to pay any increase in the amount of credit or in the credit limit by the same method it uses for new applicants for credit (and for the avoidance of doubt, behavioural scoring alone would not be sufficient)
• provide explicitly for a remedy that the credit contract is unenforceable to the extent it imposes a liability on the consumer beyond that which is appropriate. In the event of undue delay, Victoria should proceed by amending the Fair Trading Act 1999 (Vic.). To better inform consumers about credit card limit increases, Victoria should request the Ministerial Council on Consumer Affairs to develop as a priority an amendment to the Consumer Credit Code that would require credit providers, in making provisional offers to increase credit limits on continuing credit contracts, to give customers details of:
• the minimum repayment on the current limit if it is fully drawn
• the minimum repayment if the limit is increased to the amount in the provisional offer
• the time it would take to repay the current limit if it is fully drawn
• the time it would take to repay the proposed limit if it is fully drawn, based on the amount in the provisional offer.
To better inform consumers about a new credit card, Victoria should request the Ministerial
Council on Consumer Affairs to add to its proposals on mandated pre-contractual disclosure on continuing credit contracts, details of the time it would take to repay the credit limit if it is fully drawn based on minimum repayments.
To improve meaningful ongoing disclosure, Victoria should request the Ministerial Council on
Consumer Affairs to amend the Consumer Credit Code to provide for credit card health warnings on all credit card account statements, including how long it will take to repay the current limit if it is fully drawn and only the minimum payments are made.
Further research into credit advertising practices and standards should be commissioned and the
Ministerial Council on Consumer Affairs should use this research to examine the effectiveness of the current Consumer Credit Code provisions regarding advertising.
ALTERNATIVE HOUSING FINANCE and its Inclusion into Consumer Credit Regulation
“Extend specific residential tenancies protections to consumers who enter into ‘rent-to-buy’ contracts.
At a minimum this should include a prohibition on negative equity and a requirement that consumers receive a comprehensive information statement covering distinctive features of reverse mortgages such as interest capitalisation. There should be nationally consistent regulation of finance and mortgage broking.
Brokers should be required to tell consumers what type of service they provide:
• transaction-only broking
• information about the credit products the broker deals in
• advice about competing credit products and credit providers.” |
| ID: |
36978 |
| Author(s): |
iff |
| Publication date: |
07/03/06 |
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Created: 09/03/06. Last changed: 17/04/06.
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