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CREDIT REGULATION – The Australian Government is consulting stakeholders with its suggested credit reform programme. This Green Paper tries to adapt certain laws which since 1993, date at which the states and territories have regulated consumer credit through uniform credit law, have remained in their view too lightly regulated. See paper and two news articles on the subject. Deadline for contribution of comments July 1.
Treasury website:

Date: Tuesday, 3 June 2008

ABSTRACT: Green Paper on Financial Services and Credit Reform – Improving, Simplifying and Standardising Financial Services and Credit Regulation

The purpose of this Green Paper is to consult stakeholders about the following range of financial services and credit reform initiatives:
- the development of a comprehensive approach to the regulation of mortgages and mortgage broking advice;
- the regulation of margin lending;
- the creation of a national market for trustee corporations through the implementation of Commonwealth legislation;
- reforms to improve the existing regulation of debentures;
- the investigation of issues relating to property investment advice, including property spruikers; and
- the consideration of the most appropriate regulation of a range of remaining credit products, such as credit cards, personal loans and micro-lending.

The Green Paper sets out key issues for consideration and in some cases high level alternatives are put forward as options for addressing the issues. These issues form key initiatives included on the Council of Australian Governments’ (COAG) reform agenda. Comments received in response to this paper will assist in informing COAG and its decision making about the regulation of these key financial services. Stakeholders are invited to submit comments on the options presented, or submit their own proposals.
Submission closing date: 1 July 2008

Please provide submissions to either:


Financial Services and Credit Reform Green Paper
Corporations and Financial Services Division
Langton Crescent

Phone: 02 6263 3971
Fax: 02 6263 2770

See Acrobat (PDF) file attached below


Business Spectator - Melbourne,Victoria,Australia, 4 Jun 2008

Lenders and brokers yesterday expressed strong opposition to a proposal by Australia’s government that consumer lending be jointly regulated by federal and state and territory bodies.
Treasury issued a Green Paper on reform of credit regulation, Financial Services and Credit Reform, in which it outlined a range of possible changes to the regulation of mortgages and other credit products, mortgage broking, non-deposit taking institutions, trustee corporations, margin lending and debentures.
The most controversial of the proposals is that a national body regulate mortgages, including reverse mortgages, and license credit providers and brokers, while states and territories continue to play a role in the regulation of other forms of consumer credit.
Industry leaders said such a scheme would result in the industry answering to nine regulators instead of the current eight. They argued that it would do nothing to overcome the biggest problem with the current uniform state-based system, which was the level of inertia that made legislative change near impossible.
In March, a meeting of the Council of Australian Governments agreed to the Commonwealth assuming responsibility for regulating mortgage credit and advice. Since 1993 the states and territories have regulated consumer credit through uniform credit law, the Consumer Credit Code.
The most common criticism of the current system is that it is hard to change the law because of the need to build a consensus among the states and territories. As the industry has developed, gaps have emerged in regulatory coverage.
Mortgage broking has been largely unregulated or self-regulated.
The Green Paper puts forward three options for regulatory reform. Option one proposes that the states and territories would continue to regulate under the UCCC and would also adopt the National Finance Broking Bill.
The paper says this approach would result in delays, inconsistencies and continuing gaps in coverage.
Option two is for national regulatory coverage of mortgages and other forms of consumer credit such as credit cards and personal loans.
The paper says this would have the advantage of having all regulation at one level of government but would involve high transitional costs and would exclude the states and territories from the regulation of consumer credit.
The paper says: “Certain key financial services are organised to operate in increasingly national or even international markets. However, this does not mean that all products within the financial services sector have these characteristics.
“The existence of large national providers of financial products and services alone may not be sufficient as evidence of the need for a nationally uniform market.
“In such circumstances whilst Commonwealth regulation may be efficient for the service providers it may not adequately serve the needs of consumers. It is not self-evident that smaller loans such as personal loans are best regulated through a single national regime.”
Option three is for a national body to regulate mortgages, including reverse mortgages, and license credit providers and brokers. States and territories would continue to play a role in the regulation of other forms of consumer credit “where a local network and on-the-ground contacts are important considerations.”
A spokesperson for the Minister for Superannuation and Corporate Law, Nick Sherry, said yesterday that all options were up for debate and the Government did not yet have a firm view. However, it had a preference for option three.
Australian Bankers Association chief executive David Bell said his members would not support regulation being divided between the Commonwealth and the states and territories.
Bell said: “We are strongly in favour of the Commonwealth doing the lot. The customer has a home loan, a credit card and a personal loan. It would be inefficient to split the regulation of those products.
“The paper talks about regional nuances but does not explain what they are.”
The chief executive of the Mortgage and Finance Association of Australia, Phil Naylor, said: “Our preference is for one regulatory body and different rules to cover different products.
“Having the states involved is messy now, with a variety of licensing rules. It would only get messier if the Commonwealth and the states were involved.”
An executive at an organisation that offers loans and broking services said: “It is absurd. Our compliance, risk management and support services are all centrally managed. Reporting to different authorities would only add cost without doing anything for the consumer.”
Treasury has set a deadline of July 1 for comment on the paper.

The Age - Melbourne,Victoria,Australia, Nassim Khadem and Vanessa Burrow, June 4, 2008

PREDATORY non-bank lenders and mortgage brokers could face hefty fines, and even jail, under a move towards a national system of regulation proposed by the Federal Government.

The Government has released a green paper outlining areas where the states will transfer powers to the Commonwealth, to ensure better protection for "mum and dad" investors and mortgage holders, and prevent the kind of irresponsible lending that caused the recent US meltdown.

The proposal follows a parliamentary inquiry into home-loan lending practices that found state regulation of non-bank lenders and mortgage brokers was insufficient and recommended that the Commonwealth take over regulation.

Corporate Law Minister Nick Sherry said current regulation "is patchy, it's confusing, it's very difficult practically to change and in many areas it's non-existent".

Consumers received poor or inadequate advice, while opportunistic product promoters used gaps in existing regulation to take advantage of vulnerable investors, he said.

The Financial Services and Credit Reform green paper calls for federal regulation of mortgages, mortgage brokers, margin lending, non-bank lending and trustee companies. It also suggests options on regulation of other products, including credit cards and personal loans, as well as debentures and property spruikers.

Options outlined in the paper will be considered through 30 days of consultation and then go to the July meeting of the Council of Australian Governments. A final regulatory framework is expected to be agreed with the states and territories in October, with powers transferred by the end of next year.

Businesses owe more than $700 billion, taking total credit on issue to more than $1.8 trillion as of March.

Reflecting the size and importance of the financial services industry, the states have already offered in-principle support to a nationally regulated mortgage industry, including the regulation of mortgage brokers.

Financial institutions yesterday gave cautious approval to the green paper's recommendations, and many are considering offering submissions.

A Commonwealth Bank spokesman said the bank was yet to fully review the document. "However, in regard to licensing of credit providers, the bank supports such a move as it brings all credit providers under a national legislation banner and therefore provides a consistency of regulation that is not currently available under different state legislation," he said.
A spokeswoman for AMP said the wealth management company "encouraged any initiative that brings (Australia) in line with world's best practice and is also of benefit to consumers".

Australian Bankers Association chief executive David Bell spoke of the suggested changes in glowing terms. "It is vital we have national consistency of financial services and business regulation to remove overlapping and inconsistent regulations," he said.

The green paper sets out three options for reform, including retaining the status quo, regulating all credit, and regulating mortgages and the mortgage broking industry. But it dismisses the first two options, proposing the Government accept responsibility for mortgages and associated advisers only.

"It is not self-evident that smaller loans such as personal loans are best regulated through a single national regime," the paper states. "The use of credit facilities, such as credit cards or pay-day loans, may be affected by regional differences which may need to be accounted for in the regulatory regime."

But Mr Bell said the Government should oversee the entire consumer credit picture.

"It would make no sense to leave responsibility for part of the consumer credit market behind with the states and for the Commonwealth to assume responsibility just for consumer mortgage finance," he said.

Mr Bell said "a narrow focus on the dollar value held in consumer mortgages does not take account of the fact … that there are three times as many credit cards on issue in Australia as compared to home loans in the marketplace".

The Mortgage and Finance Association's chief executive, Phil Naylor, welcomed the green paper. "Since 2002, (we) have been pressing for regulation to weed out any mortgage and finance brokers who do the wrong thing," he said.

The Consumer Action Law Centre's policy director, Gerard Brody, said a national regulator would be able to make much speedier responses to problems in the credit area.

He said it was pleasing that regulation of property spruikers — notorious for holding investment and wealth building seminars that entice vulnerable people into giving up money — was part of a federal takeover.

Finance Sector Union policy director Rod Masson said the union supported a national system, but there was a need to look across the whole credit sector, including the major banks.

ID: 41349
Author(s): SCR
Publication date: 04/06/08

Link to Treasury website containing Green Paper on Financial Services and Credit Reform


Link to Business Spectator article: Half way there on consumer finance

Created: 04/06/08. Last changed: 04/06/08.
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