Productivity Commission's Review of Australia's Consumer Policy Framework

Yesterday, the Productivity Commission (commission) released its final report ‘Review of Australia's Consumer Policy Framework’ (report).

The report advocates a more nationally coherent policy framework in this area. It proposes that the Australian Government has greater responsibility for the administration of the laws. The report notes the difficulties due to inconsistent state, territory and Commonwealth regimes, and advocates the introduction of a ‘generic law’ for consumer policy, which would be implemented via review of the consumer protection provisions of the Trade Practices Act 1974 (Cth) (TPA). This generic law is to be jointly enforced by the Australian Government as well as states and territories—it is suggested that their powers may be referred to the Australian Government and the Australian Competition and Consumer Commission (ACCC) will enforce the law.

Headline issues include amendments to the introduction of legislation to address unfair contract terms, a general reform program for industry-specific consumer regulation (including a national regime for consumer credit), enhancing consumers’ access to remedies where there is a breach of consumer laws and changes to enforcement rules.

Set out below is an overview of the key issues in the report that we thought would be of interest to you (in no particular order).

Unfair contract terms

The commission found that although existing consumer laws deal adequately with most instances of unfair practices and conduct, there is a gap in provisions relating to unfair contract terms. It should be noted that Victoria has enacted provisions to address unfair contracts in its Fair Trading Act (FTA). Currently, the unconscionable conduct provisions in the Commonwealth regime (under the TPA) only prohibit unfairness that crosses a high threshold of severity, whilst provisions relating to unfair conduct only deal with specific instances of unfair practices, such as misleading or deceptive conduct. As such, there is no broad prohibition on unfair practices by corporations in Australia. Rather than enacting such a broad provision (akin to those currently in place in Europe and the United States), the commission recommended that a provision should be incorporated that addresses unfair contract terms. The slow, uncertain and costly nature of enforcing the unconscionable conduct provisions, in addition to the commission’s desire to reduce the risk that individual jurisdictions adopt their own (varying) provisions, further motivated the commission to reach this finding.

The commission’s preferred approach would have the following features:

• a term is established as ‘unfair’ when, contrary to the requirements of good faith, it causes a significant imbalance in the parties’ rights and obligations arising under the contract
• in applying the law, all of the circumstances of the contract need be considered. This would involve an implicit, rather than an explicit, consideration of the overall public benefit of the term to ensure that the benefits for the unfairly treated consumers are not offset by any incidental costs to consumers generally
• the provision would relate only to standard-form, non-negotiated contracts
• the provision would exclude assessment of the ‘fairness’ of the price of the good or service
• ensure the regulator provides guidance to consumers and business by providing an indicative list of terms that would usually fail a fairness test. The commission was not clear on the best method to achieve this, with submissions opposing the suggestion of using standard-form ‘safe-harbour’ arrangements, which would be approved by the regulator on an industry-wide basis
• transitional arrangements should be put in place after enactment, which would give businesses the time to modify their contracts
• allow for effective private or regulator-lead representative action, and
• be accompanied by inter-jurisdictional protocols to promote general consistency in enforcement and to prevent particular unfair contract issues being pursued by more than one regulator.

Moreover, the commission favoured an ex-post model approach, whereby regulators would only initiate action when a consumer had suffered a detriment from an unfair term. As such, the unfair contract term would only be voided for consumers subject to the detrimental use of that term by the business, and not for others who were party to the same contract.

We note that in response to the commission’s draft report, ANZ expressed concerns that such amendments would prevent banks from unilaterally varying interest rates. The commission commented that such an outcome would be unlikely.

Additionally, we note that this proposed legislation would differ from that currently in place in Victoria. Further details can be provided on request.

Access to remedies and enforcement

The report also advocates amendments to the remedies for and enforcement of consumer protection provisions.

Representative actions

Explicitly give regulators the power to bring representative actions on behalf of affected consumers, whether or not they are parties to the proceedings.

Enforcement

Amendments to give regulators the power to seek civil pecuniary penalties, ban individuals from engaging in specific activities and issue substantiation and infringement notices. The rationale for these amendments is that the remedies are already available in some state and territory FTAs.

A substantiation notice requires suppliers to substantiate claims and representations. An infringement notice would allow a regulator to fine suspected offenders (that is, prior to confirmation that a breach of the law had occurred). However, constitutional limitations may prevent this power being implemented (but note that ASIC currently exercises the power to issue infringement notices in relation to a number of areas). Treasury is considering this issue.

National regime for consumer credit

The report recommends the transfer of regulatory responsibility for finance brokers and consumer credit providers to the Australian Government, with enforcement by ASIC. At its March 2008 meeting, CoAG agreed in principle to the Australian Government assuming responsibility for regulating the following credit/financial services products and advisory services:

• mortgage credit and advice, including persons and corporations engaged in mortgage broking
• margin lending, and
• lending by non-deposit taking financial institutions.

CoAG’s Business Regulation and Competition Working Group, in consultation with the Ministerial Council on Consumer Affairs (MCCA) will be asked to develop detailed proposals by October 2008, drawing on the report.

If implemented, the national regime would address the following:

• cover all consumer credit products and all intermediaries providing advice on such products (including through electronic or other arms-length means); not just those advising on mortgage products
• retain the Uniform Consumer Credit Code (UCCC) as a self standing set of regulatory requirements within the broader financial services regulatory regime, incorporating changes to the code that have been agreed to by the MCCA, but not yet implemented
• incorporate generally agreed requirements in state and territory credit legislation outside of the UCCC, where these pass a benefit-cost test
  include a national licensing system for finance brokers, and a licensing or registration system for credit providers that would give consumers guaranteed access to an approved Alternative Dispute Resolution service, and
• allow, over time, for the streamlining of the current UCCC in the light of requirements within the broader financial services regime, where net benefits are likely.

For more information please contact

Name : Bob Baxt
Title : Partner
Office : Melbourne
Phone : +61 3 9288 1628
Fax : +61 3 9288 1567
Email : bob.baxt@freehills.com