The views expressed are the authors’ views and are not to be understood as expressing the views of the Commission.

i

1Introduction 1

1.1 Credit in history and literature 1

1.2 Credit in law 1

1.3The scope of this paper 3

1.4Structure 3

2Understanding the objectives of consumer protection and consumer credit law 4

2.1Why do we have consumer protection law? 4

2.1.1Objectives 4

2.1.2Market Failure and Social Norms of Fairness 5

2.1.3 The role for and the limits of information in consumer protection policy 5

2.1.4Regulating substantive conduct 7

2.2Consumer credit regulation 7

2.2.1General trends 7

2.2.2Why is credit regulated under a separate statutory regime? 8

3Overview of the law applying to consumer credit 9

3.1General law and consumer credit 11

3.2Legislation 12

3.2.1Industry specific consumer protection legislation - credit 12

3.2.2General consumer protection legislation - credit 13

3.2.3Consumer protection – other financial products and

services (non-credit) 13

3.2.4Consumer protection legislation – goods and services (other than financial products and services) 14

3.3‘Soft law’ 14

3.3.1Industry codes 14

3.3.2 ASIC Guidelines 16

3.4External dispute resolution schemes 16

3.4.1Dispute resolution at FOS 17

3.4.2 Process of dispute resolution 17

4The parties involved in a credit transaction 19

4.1Contractual relationships 19

4. 2Categories of obligation under the NCCP 20

4.2.1Key categories of credit activity 20

4.2.2Exempt persons and credit activities. 22

4.3Specific transactions 25

4.3.1Home loans 25

4.3.2Credit cards 27

4.3.3Car loans 28

4.4Disclosure by credit licensees 29

ii

The National Consumer Credit Protection Act (NCCP Act), incorporating the National Credit Code (NCC)

5The National Consumer Credit Protection Act (NCCP Act),incorporating the National Credit Code (NCC)31

6.4.2Credit cards567The National Credit Code (NCC)57

iii

EVERYDAY CONSUMER CREDIT

AN OVERVIEW OF THE AUSTRALIAN LAW REGULATING CONSUMER HOME LOANS, CREDIT CARDS AND CAR LOANS

1 See A Duggan & E Lanyon Consumer Credit Law (1999).

2 M Atwood Payback: Debt and the Shadow Side of Wealth (2008).

4 Competition and Consumer Act 2010 (Cth) s 131A.

5 Corporations Act s 765(1)(h)(i) and Corporations Regulations 2001 reg 7.1.06. There is an exception for margin lending which is regulated under the Corporations Act (see s 764A(1)(l)) not the NCCP Act (see NCC s 6(12)).

Historically credit has been viewed with both aspiration and distrust. Credit has considerable enabling force. It allows business to grow and individuals to realise ambitions. Mishandled, credit can be a source of considerable hardship and despair. Credit has a long history of legal, and also religious, bans and restrictions.1 In the 2008 Canadian Massey Lectures, novelist Margaret Atwood noted that credit and debt have provided the dramatic basis for much great literature through the decades, including in William Shakespeare’s The Merchant of Venice, Charles Dickens Little Dorrit, Gustave Flaubert’s Madame Bovary, George Eliot’s The Mill on the Floss, and Arthur Miller’s Death of a Salesman.2 Unsurprisingly, the provision of credit to individuals is subject to a considerable body of law.

Bank and non-bank lending to consumers, sometimes referred to as consumer credit, is subject to a number of different, commonly overlapping, legal regimes These regimes include general or ‘judge made’ law in the areas of contract, tort, property, equity and fiduciary duties that apply to the relationships between consumers and the entities involved in providing credit, including brokers and other intermediaries, and between these entities themselves. Consumer credit is also subject to considerable regulation by statute.3 The primary, credit specific legislation is the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act), incorporating the National Credit Code (NCC) and the National Consumer Credit Protection Regulations 2009 (Cth) (NCR). Consumer credit is also subject to general consumer protection provisions applying to financial products and services under the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act). Together these bodies of law constitute the consumer protection regime for consumer credit. The consumer credit protection regime sits alongside the Australian Consumer Law (ACL) in sch 2 of the Competition and Consumer Act 2010 (Cth), which applies to the supply of goods and services to consumers but not to credit,4 and the Corporations Act 2009 (Cth), which applies to financial products other than credit.5

There is relatively little litigation on consumer credit. Disputes between consumers and credit providers (lenders) or credit assistance providers (brokers) are commonly resolved (if at all) internally6 or through EDR.7 Litigation is often prohibitively expensive for participants, particularly given the amounts of money that are likely to be in dispute may be relatively low compared to legal costs of such action. A low cost, small claims procedure has been established in the Federal Circuit Court for some matters under the NCCP Act,8 however, it is not clear how often this procedure is used. 9 There is increasing interest in Australia in consumer class actions, and these may involve litigation in relation to credit products and services.10 As yet these are few in number. ASIC runs test cases and enforcement actions in court.11 However these cases necessarily focus on issues of identified

9 The Annual Report of the Federal Circuit Court does not provide any reference to the number of matters heard under the small claims procedure, however, in 2015-16, there were only 77 matters in total filed under the FCCA’s Consumer jurisdiction (which includes claims under the Australian Consumer Law, as well as the NCCP Act): Federal Circuit Court of Australia Annual Report 2015-16, 59. Further, the discussion in the Annual Report on the small claims list refers only to the small claims jurisdiction under the Fair Work Act (at 77).

10 See for example, class actions against Cash Converters in Queensland: Maurice Blackburn Lawyers Cash Converters Class Action in Queensland (2018)

<https://www.mauriceblackburn.com.au/current-class-actions/cash-converters-class-action-in-queensland/>.

11 For example, at 1 July 2017, ASIC had 1 criminal matter, 3 civil and 7 administrative matters involving credit before the courts: ASIC enforcement outcomes: January to June 2017 (Report no 536), 10.

regulatory priority.^{12The overalleffect, as we discuss in this paper,is little authoritativeinterpretation and guidanceon many aspects ofthelegal and regulatory regimeforconsumer credit protection.}

ocredit providers (which may includebanks,non-bank lenders,credit unions,finance companies),

ocredit service providers (suchas credit or mortgage brokers andadvisers);

oparties acting as intermediaries (without actually beingcredit service providers and which may, depending on their businessmodel,includeaggregatorsor mortgage managers);and

orepresentatives (parties acting on behalf of a credit licensee, including employees, some linked or point of sale retailers and authorised creditrepresentatives, such asfranchisees).

•TheCorporations Actcontains a licensingand conductregime for financial serviceproviders that is similar to the regimefor credit providers in the NCCP.Where relevant,wedraw on comparable provisions in theCorporationsActtounderstandbetterthe rules in the NCCP.

Consumer protection law regulates the conduct of providers of goods and services (including credit, financial and investment services) in their dealings with consumers, and in some cases, small business. Consumer law, unlike the private law of contract, is explicitly instrumental. Its purpose is to achieve specific outcomes in order better to protect consumers. These objectives of consumer law are, in general terms, to promote efficient and fair markets. In Australia, and in many other jurisdictions, competition and consumer law are closely linked (e.g. the Competition and Consumer Act 2010).13 Competition widens choice for consumers and promotes a responsive market attuned to consumer needs. Competition law does not, however, remove the need for consumer protection law. Consumer law may promote competition and therefore market efficiency. Consumer law also advances other social goals, such as the fair and equitable treatment of all consumers in the marketplace.

13 See also the Productivity Commission Draft Report Competition in the Australian Financial System Overview & Draft Recommendations (Jan 2018).

14 Productivity Commission, Review of Australia’s Consumer Policy Framework, Inquiry Report No 45 (2008) vol 1, 63, Recommendation 3.1.

The Productivity Commission’s Review of Australia’s Consumer Policy Framework (the catalyst for the new legislative regime of consumer law in Australia now found in the ACL and the ASIC Act) recommended that Australian Governments should adopt a common overarching consumer policy objective as:

‘to improve consumer wellbeing by fostering effective competition and enabling the confident participation of consumers in markets in which both consumers and suppliers trade fairly and in good faith’.14

• meet the needs of those who, as consumers, are most vulnerable, or at greatest disadvantage;

• promote proportionate, risk-based enforcement.’15

15 Productivity Commission, Review of Australia’s Consumer Policy Framework, Inquiry Report No 45 (2008) vol 1, 63, Recommendation 3.1.

16 Council of Australian Governments Intergovernmental Agreement for the Australian Consumer Law (2 July 2009), recitals C and D.

17 Productivity Commission, Review of Australia’s Consumer Policy Framework, Inquiry Report No 45 (2008) vol 1, 63.

These objectives were agreed to by the Council of Australian Governments in 2009.16

In thinking about the scope of consumer protection law there are valid competing considerations. On the one hand, we value autonomy and freedom as good in themselves, not merely as means to an end. Thus, not every adverse outcome for consumers warrants a regulatory response. Consumers can and should take responsibility for their own decisions and learn from their mistakes. On the other hand, it is generally agreed that a fair and just society should provide protection for those less able to protect their own interests and should take steps to discourage manipulative and exploitative conduct by businesses in their dealings with consumers. Good regulatory policy will often involve balancing the severity of the harm to consumers, the likelihood of market mechanisms addressing the risk of that harm occurring and the cost of intervention.17

obtain.18Sometimes information can be provided in a form that makes it difficult tocompare offeringsfrom different suppliers.19These information asymmetrieswill not necessarily be solved by competition. Traders mayhave little incentive to provide reliableinformation about their goods or services because of the likelihood of that information beingappropriated for the benefit of their competitors.

Regulatory reliance onmandatory disclosure hasincreasingly been challenged.20For onething,therequiredinformationisoftenprovided too lateinthecontracting processto beinfluential. For example, the pre-contractual disclosure information required by the NCCmust be provided to the debtor before the contractis entered into or before the debtormakesan offer to enter into the contract.21Providing the information immediately before thecontract is entered intowill be sufficient to satisfy the disclosure obligation. There is nolegislatedminimum time between providing the information and entering into the contract.Therefore,it may be that consumers are given little real opportunity to reflect on theinformation before they are committed.

Moreover, the information provided undermandatory disclosure rules is commonly toocomplex actually to influence the decision-making of consumers.22Much of the disquietwith disclosure asa policy strategystemsfrom theinsights from behavioural economics,which identify the limits on the capacity of consumers to act rationally, evenwhen providedwith sufficient information. Problems of information overloading, limits on educational outcome and financial competence, alongwith the pressures of time,limit the use that most

18See further Peter Cartwright,ConsumerProtection and the Criminal Law(2001, Cambridge

University Press) Ch1.19For example, it may be difficult to compare the price of credit if the interest, costs and charges areexpressed in differentways by different creditors.

20Geraint Howells, ‘The Potentialand Limits of ConsumerEmpowerment by Information’ (2005)32 Journal of Law and Society349.

21NCC s16(2).

22See alsoProductivity Commission Draft Report Competitioninthe Australian Financial SystemOverview& Draft Recommendations(Jan 2018) pp 28-29.

consumers can make of information in choosing between differentcreditproducts orservices.23

As regulators have become less confident in the use of informationmeasures to protectconsumers, Australia’s consumer protection regime, like that in other jurisdictionssuch asEngland and the EU,hasmoved to includelaws thatdo not merelyregulate the processthroughwhichcontractsare madethrough,forexample,prohibitionsonmisleadingconduct25and mandatory disclosure.26Increasingly,consumer protection law has beenextended to addressmatters ofwhat are sometimes termed‘substantive fairness’. This typeof regulation focuses on the substance of consumer transactions by,for example,imposingmandatory, non-excludable, standards of quality on the supply ofgoods and services27andprohibitions on unfaircontract terms.28In some cases, substantive regulation extends to price,29although generally regulatorsandlegislatorshaveconsidered that price shouldbe left to market mechanisms.30

2.2 Consumer credit regulation

The trajectory of consumer credit regulation inAustralia has followed a similar pattern tothat forgeneralgoods and services.31Regulation of the supply of credit to consumershashistorically involved specificpre-contractual disclosure, or ‘truth in lending’ requirements,now contained in the NCC32and general protections directedprimarily at protectingconsumer choice and the decision-making process, such asprohibitions of misleading and unconscionable conduct, nowcontained in theASICAct.33

23See eg Russell Korobkin, ‘Bounded Rationality, Standard Form Contracts, and Unconscionability’(2003) 70 University of Chicago LawReview1203; Australian Securities and InvestmentsCommission,Report230: Financial literacy and behavioural change(2011).

24The Cth TreasuryFinancial SystemInquiry(Final Report) (2014)p 193.

25See further below [6].

30Trade Practices Amendment (Australian Consumer Law) Bill (no 2) 2010: ExplanatoryMemorandum[5.64] The upfront price is a matter about which the person has a choice and, in manycases,may negotiate.

31I Ramsay ‘From truth in lending to responsible lending’ in G Howells,A Janssen and R Schulze(eds) Information Rightsand Obligations(2005) pp47-65. Also Ronald J Mann, "ContractingforCredit’ (2006) 104Michigan Law Review900.

32See below Part 7.

More recently, as doubt has been caston the efficacy of truth in lending as a comprehensiveconsumer protection strategy,34this regime has been expanded to include more significantregulation,focused on substantive conduct requirements,includingthrough responsiblelending obligations in the NCCP Act.35

In addition, modern financial regulation in Australia gives a central role to licensing.Licensing gives regulators a gatekeeping function overwho can engage in credit activitiesanda quality assurance role inmonitoring the conduct of those licensees.36

One of the unique features of consumer credit law is that it has long included a regulatoryregime specific to credit. InAustralia, consumer creditwasoriginally regulated by the Statesand Territories, as the Commonwealthgovernment didnot have a head of power thatallowed it directly to make laws on credit (in contrast to its constitutional powers onbanking and insurance).37In1996 theStates and Territoriesadopteda largelyuniformapproachthroughtheUniformConsumerCreditCode.Theprospectoftransferring regulation from the States andTerritories to the Commonwealth Government was floated inthe 1997 Financial System Inquiry, however, the Inquiry took the view that, at that time,theUniformConsumer CreditCode had not been in operationfor enough time to establish whether the criticisms of the Code and its processes for amendmentwere justified.38

The issue of the appropriate regulatory framework for consumer credit was considered againin the Productivity Commission’s 2008 Review ofAustralia’s Consumer Policy Framework,and the Commission considered that ‘The case for a national regime [for consumer credit] iscompelling."39However, the Commission argued that credit should continue to be regulatedseparatelyfromotherfinancialservicesas‘creditproductsare differentin characterfromother financial services, as are the nature and level of the associated risks’.40

In 2009, following a referral of powersfrom theState and Territory Governments, theNational Consumer Credit Protection Act 2009(NCCPAct)was introduced asCommonwealth legislation.The NCCP Act isnow the central consumer protectionlegislation applying to credit,and it includes the National Credit Code (NCC) in schedule 1to the NCCPAct. The NCCP Act applies to persons and entitieswho engage in credit

34See Commonwealth TreasuryFinancial SystemInquiry:Final Report(2014),p 193. Also PaulO’Shea and Dr Carmel Finn, ‘Consumer Credit Code Disclosure:Does it Work?’ (2005) 16Journal ofBanking and Finance Law and Practice5.

35See further belowParts 5 and 6.

38Commonwealth of AustraliaFinancial SystemInquiry,Final Report(1997), p257.

39Productivity Commission,ReviewofAustralia’sConsumerPolicyFramework,Inquiry Report No45 (2008) vol IIp 101.40Productivity Commission,ReviewofAustralia’sConsumerPolicyFramework,Inquiry Report No

activities.Industry-specific consumerprotectionsforotherfinancialproductsandservices(including deposit-taking, insurance and investment) are imposed through theCorporationsAct.41

Before 1998, general consumer protection for consumer of credit (as opposed to the creditspecific regulation discussed above)was provided through the economy-wide consumerprotection law in theTrade Practices Act 1974 (Cth). However, in 1998, a separate regime for financial products and services (ofwhich credit isa subset)was introduced. Thisapproachimplemented a recommendation of the 1997 Financial System Inquiry. Theinquiry took the view that theuniquecharacteristics of the financial systemjustifiedspecialist regulatoryarrangementsforconsumerprotection. Itexpressedconcernsthatthecoexistence of theconsumerprotection rolesinthe ACCC(generalconsumerprotection)and the proposed new financial services consumer protectionregulator created the potentialfor regulatory duplication. It also argued that if the ACCC continued its role asgeneric consumer protection regulator for financial services, thiswould detract from theresponsibilities of the newfinancial services regulator.42

This special treatment offinancial products and serviceswas retainedwhen the ACL came into effect,replacing the consumer protection provisionsin the Trade Practices Act. TheACL does not apply to financial products and services.43However, equivalent provisions,applicable to financial products and services, are implemented through the ASIC Act.44

41The exception is that margin lending is subject to regulation under the Corporations Act and not theNCCP Act, despite being a form of credit.See NCC s 6(12)–theCodedoes not apply to the provisionof credit byway of amargin loan;andCorporations Acts 764A–a margin lending facility is a financial product).

42Commonwealth of AustraliaFinancial System Inquiry,Final Report(1997) p 247.

43CCA s 131A. Note that the state and territory legislation implementing the ACL as a law of thosejurisdictionsdoesnot typically contain this limitation.44The definition of ‘financial service’ in ASIC Act s12BAB(1) includesproviding financial product

advice and dealing in a financial product, and a ‘financial product’ is defined to include a ‘credit facility’ (see s12BAA(7)(k)). Note that the definition of ‘financial product’in theCorporations Act(see ss 763A–765A) differsfrom the definition of financial product in the ASIC Act (see s 12BAA).

Disputes between consumers and credit providers (eg banks, non-bank lenders, credit unions, finance companies), credit service providers (eg brokers, advisers) and their representatives are commonly resolved by reference to statute law. Statute is also the basis for oversight and enforcement by the regulator. Nonetheless, the role of the general law should not be ignored. General law plays a significant role in in the relationship between consumers and credit licensees in filling the gaps in the scope of the regulatory regime.45 The statutory and general law regimes are further complemented by various forms of soft law options that may provide a resolution to the dispute without having the formal force of law. These soft law options include, codes of conduct, ASIC guidelines and external or alternative dispute resolution opportunities, such as through ombudsman services.

45 Unlike the Corporations Act s 960B, the NCCP Act does not expressly confirm the continued relevance of the general law.

There are a number of general law doctrines and principles that may apply to govern the relationship between consumers and the entities involved in a credit transaction and also between those entities themselves.46

46 Note however that, unlike the Corporations Act s 960B, the NCCP Act does not expressly confirm the continued relevance of the general law.

48 Eg Commercial Bank of Australia v Amadio (1983) 151 CLR 447.

49 Eg ABN AMRO Bank v Bathurst Regional Council [2014] FCAC 65; 224 FCR 1.

50 Eg Hurstanger Ltd v Wilson [2007] 1 WLR 2351; McWilliam v Norton Finance (UK) Ltd (in liquidation) [2015] EWCA Civ 186; [2015] 1 All ER (Comm) 1026. See further below 5.4.3.

• The relationship between consumers and credit providers (eg banks, credit unions, finance companies) and credit assistance providers (eg brokers) will usually be based on a contract and therefore subject to the law of contract. Equally there will usually be contractual relationships between the different business entities involved in credit transactions, including between credit providers, credit assistance providers, intermediaries, and credit representatives. These relationships may sometimes be difficult to characterise because the business entities involved in a credit transaction may deal in their own right or as an agent or representative of another party.47 o Equitable doctrines operate to supplement the law of contract. In particular, they may provide relief against conduct that has impaired the consent of a consumer or amounts to an abuse of power by a credit provider or credit assistance provider.48

o Tort duties may apply to require credit licensees to perform their services with reasonable care and imposing liability for negligent or fraudulent conduct.49

o Fiduciary duties may apply to credit assistance providers (brokers and advisers), and even credit providers (if they provide advice or assistance) in their dealings with consumers to prohibit the party who is a fiduciary from making an unauthorised profit or acting with a conflict of interests or duties.50

3.2 Legislation51

55 NCCP Act, ch 3.

As indicated above, the primary consumer protection legislation for credit is the NCCP Act, which incorporates (in Schedule 1) the NCC. The obligations in the main part of the NCCP Act apply to credit licensees, including both credit providers (eg banks and non-bank lenders) and credit assistance providers (eg brokers and advisers).52

• licensing (NCCP Act);53

• mandatory disclosure (NCCP Act and NCC);54

• responsible lending (NCCP Act);55

• hardship variations (NCC);56

66 Corporations Act s 765(1)(h)(i) and Corporations Regulations 2001 reg 7.1.06 (for the purposes of the Act financial product does not include credit). The exception is that margin lending is subject to regulation under the Corporations Act and not the NCCP Act, despite being a form of credit. See NCC s 6(12) – the Code does not apply to the provision of credit by way of a margin loan; and s Corporations Act s 764A(1)(l) – a margin lending facility is a financial product.

• unjust transactions and unconscionable fees and charges (NCC);57

• unfair or dishonest conduct (NCCP Act);58 and

• price regulation (NCC).59

The NCCP Act and NCC apply only to ‘consumer’ credit – they do not have application to business (including small business)60 credit or investment credit (other than credit for residential property investment).61

The ASIC Act applies to suppliers of credit products and services, including suppliers of business credit and investment credit,62 and it imposes (in Part 2, Division 2) largely equivalent provisions to those found in the ACL. These include prohibitions against misleading or deceptive conduct, unconscionable conduct, and unfair contract terms.63

The Competition and Consumer Act 2010 provides that, with the exception of Pt 5.5 of the ACL (linked credit providers), the ACL enacted as schedule 2 of that Act, does not apply ‘to the supply, or possible supply, of services that are financial services, or of financial products’.64 The definition of ‘financial service’ and ‘financial product’ in the Competition and Consumer Act 2010 adopt the definitions used in the ASIC Act, so that there are no gaps in the application of these general consumer protection provisions.65 In other words, if a product falls within the ASIC Act definition of financial product it will be subject to the general consumer protection provisions in the ASIC Act. If it does not, it will be subject to the general consumer protections in the ACL.

In the case of financial products and services other than credit66 (for example, banking, insurance and investment), a detailed, specific consumer protection regime is found in Chapter 7 of the Corporations Act. The consumer protections in the ASIC Act also apply to

other financial products and services, including banking, superannuation, insurance and investment.67

In the case ofgoods and servicesother thanfinancial products andservices,the generalconsumer protections in the ACLwill apply. Industry specific consumer legislation or otherregulationmay also applyfor some products and services.68

3.3 ‘Soft law’

The COBPis published by the Australian Bankers’Associationand the most recent version(2013)has been adopted bymost banks offering retail products inAustralia,69althoughthere isno industry or legislative requirement that they doso.70For subscribing banks, theprovisions of the Code apply to their ‘banking services’, defined as ‘any financial service provided inAustralia’ to thebank’s individual and small business customers.71The COBPalso applies to products or services provided by asubscribing bank throughan intermediary.72The COBPwill therefore apply to subscribing bankswhen they providehome loans, car loans and credit cards, aswell as other credit products.

Some of the obligations in the COBP overlap the policy ground covered by the NCCP Actand NCC.73The COBP applies to both individual and small business customers, in contrast to the NCCP Act and NCC,which apply only tonatural personsand strata corporations.74

67See the definitions of ‘financial product’ and ‘financial service’ inASIC Actss 12BAA and 12BAB.Note that the definitionof ‘financial product’ in theCorporations Act(see ss 763A–765A) differsfrom the definition of financialproduct in the ASIC Act (see s 12BAA). Mostrelevantly, a ‘creditfacility’ is specifically excluded from the definition of ‘financial product’in the Corporations Act, sees765(1)(h).

68See egTelecommunicationsAct 1997(Cth),part6 (Industry Codes and Industry Standards).69In information provided to themost recent review of the Code of Banking Practice, the Australian Bankers’ Association advised that over 95% of banking services in Australia are provided by banks

that subscribe to the Code of Banking Practice:Phil KhouryIndependent Review of theCode ofBanking Practice(2017), p 10.70This contrasts with the legislative obligation imposed on credit businesses to belong to an external

dispute resolution scheme: NCCP Act s 47.71COBP cl 42 (definitionsof ‘banking service’, ‘you’ and ‘smallbusiness’).

The COBP applies as a matter of contract between a subscribing bank and its individual and small business customers.75 If a subscribing bank does not comply with the COBP, an affected customer could institute legal proceedings for breach of contract.76

76 See, for example, National Australia Bank Ltd v Rose [2016] VSCA 169.

78 See Code Compliance Monitoring Committee Our investigations (2018) <http://www.ccmc.org.au/about-us/what-we-do-2/our-investigations/>.

Non-compliance with the COBP can also be investigated by the independent Code Compliance Monitoring Committee,77 however, Committee has no powers to award compensation.78

The most likely avenue for redress for a subscribing bank’s failure to comply with a provision of the COBP is through the Financial Ombudsman Service (‘FOS’ - the relevant External Dispute Resolution (EDR) Scheme for most banks).79 In deciding how a dispute against a subscribing bank should be resolved, FOS can take the provisions of the COBP into account.80.

The COBP can also be relevant for disputes against institutions that do not subscribe to the COBP, as FOS also take into account the COBP in determining a dispute against a non-subscriber, if it takes the view that provisions in the COPB represent ‘good industry practice’.81 For example, in the context of responsible lending, FOS notes:

‘… we consider that industry codes reflect good industry practice, so we expect all FSPs – even if they have not subscribed to the codes – to make sure their lending guidelines are in line with the codes’ required standards.’82

FOS has also confirmed its view that, where a bank or other financial services provider has subscribed to an industry code, non-compliance with that code is a breach of the contract with the customer, and the customer may be entitled to compensation for any loss suffered.83

ASIC does not have any powers to take enforcement action in relation to conduct that breaches the COBP or another industry code, unless that conduct also breaches a provision of the legislation that ASIC administers. However, reference to the requirements of an industry code is one of the factors that a court may have regard to in assessing whether there is unconscionable conduct under the ASIC Act.84

In some contexts, ASIC has sought to fill this interpretative gap by providing guidance on its view of the law. For example, ASIC has produced extensive guidance on the responsible lending85 and the conduct86 obligations of credit licensees. These guidelines might be described as ‘soft law’.87 They do not have formal legal status but nonetheless influence the conduct of those regulated by the relevant law. In addition, the Administrative Appeals Tribunal has given some weight to ASIC Regulatory Guides in reviewing ASIC decisions.88

85 ASIC Regulatory Guide 209 Credit licensing: Responsible lending conduct (2014).

86 ASIC Regulatory Guide 205 Credit licensing: General conduct obligations (2010).

87 See E Bant and J Paterson, ‘Statutory interpretation and the critical role of soft law guidelines in developing a coherent law of remedies in Australia’ in R Levy et al (eds), New Directions for Law in Australia: Essays in Contemporary Law Reform (ANU E Press 2017).

88 See eg Vissenjoux v ASIC [2015] AATA 98 [13]‐[14]; Coshett v ASIC [2014] AATA 677 [16].

89 See generally the discussion of dispute resolution and the different schemes in the financial services sector in Cth Treasury Review of the financial system external dispute resolution and complaints framework (Final Report) (2017).

As already noted, most disputes between consumers and credit providers/credit assistance providers are not heard in court. Another option for consumers is alternative dispute resolution, such as offered by the Financial Ombudsman Service (FOS) and the Credit and Investments Ombudsman (CIO).89 (Remembering that a condition of an Australian Credit Licence is that the licensee be a member of an external dispute resolution service.90)

In 2018, FOS and CIOwill have their functions taken over bythenewAustralian FinancialComplaintsAuthority, designed to be a one-stop shop for financial services disputes.91

FOS canaccept disputes about credit services up to an amount of $500,000.The monetary limit on awards is $323,500formost disputes.92EDRschemesreceive large numbers ofdisputes eachyear from consumer customers. For example, in 2016-17, FOS (the largerscheme93) acceptedalmost10,000disputesaboutconsumercredit.94Thiscontrastswith atotal of 119 consumermatters filed in the Federal Circuit Court of Australia in2016-17,many ofwhich may have involved goods or services other than consumer credit.95In practice, the EDR schemes are the first port of call (external to the credit provider) for mostconsumerswanting to pursuea dispute about a consumer credit product or service.

EDR schemesaim to resolve disputes informally and efficiently,with a focuson negotiation. For example, FOS explains that it aimsto resolve disputes in a timelymannerwith‘minimum formality and technicality’ and‘as transparently as possible, taking intoaccount our obligationsfor confidentiality and privacy.96

DisputesintheEDRschemesareusuallyresolvedthroughnegotiationandconciliation,97and in these cases, there is nowritten assessment by theEDR scheme of the merits of the dispute, and/or the extent to which common law,statutory, and/or industry code obligationsare applicable and/or have been compliedwith by the financial services provider.

If a dispute isunable to be resolved through negotiation or conciliation, awritten decisionmay be provided by the relevantscheme. The decision-making criteria includes legalprinciples, but other criteria are also relevant, includingwhat is fair in all the circumstances,applicable industry codes, good industry practice, and previous relevant decision of FOS (ora predecessor scheme).98The fact that the legal principles are not the sole decision-making criteria means that a dispute can be resolved in a manner that is different to how it would beresolved if thematterwas litigated. FOS explains that it:

91See Treasury Laws Amendment (Putting Consumers First–Establishment of the AustralianFinancial ComplaintsAuthority) Act2018. The new organisation will alsoencompass the functionscurrently being carried out by the Superannuation Complaints Tribunal.

92Financial Ombudsman Service What we do (2018) <https://www.fos.org.au/about-us/what-we-do/>.93In 2015-16, FOS received almost 88% of the disputes lodged at the two ASIC-approved EDRschemes:Cth TreasuryReviewof the financial system external dispute resolution and complaintsframework(Final Report) (2017), p 48.

94FOS Annual Review2016-17(2017) p 69.

95Federal Circuit Court of AustraliaAnnual Report 2016-17(2017) p 56. Consumermatters includesmatters underthe ACL andPartXIof the Competition and Consumer Act as well as claims under theNCCP Act (p26).

96Financial Ombudsman Service Whatwe do(2018) <https://www.fos.org.au/about-us/what-we-do/>.97Eg,in 2016-17, of the 39,481 disputes received by FOS, 60% were resolved by agreement betweentheparties; 25% were discontinued oroutside the terms of reference; and 15% were resolved by FOSdecisionor assessment: FinancialOmbudsman Service Annual Review 2016-17(2017) p 65.

98FOS Terms of Reference (amended 1 January 2015), cl 8.2

Written decisionsfrom FOS take theform of Recommendations (which are only binding ifaccepted by both parties) and Determinations. If the consumer accepts a Determination, itwill be binding onthe financial service provider. If the consumer does not accept thedecision, the decision does not bind either party, and theconsumer isfree to pursue otheravenues for resolving the dispute.100CIO has a similar process.101There is generally noappeal tothe courts onthe meritsofa decisionofFOSor CIO;102noris judicial reviewgenerally available.103

The decisions of the EDR schemes are not binding on courts andhave no status as precedentin thejudicial system. The schemes both publish theirwritten decisions (in an anonymisedform), aswell as detailed statistics,guidelines and case studieswhich illustrate theschemes’approaches to particular typesof disputes.104

99FOS Operational Guidelines to the Terms ofReference(1 January 2018), 76-77.

100Financial Ombudsman Service Dispute resolution process in detail(2018)

<https://www.fos.org.au/resolving-disputes/dispute-resolution-process-in-detail/>.101See Credit and Investments Ombudsman Complaint handling process (2017)<https://www.cio.org.au/complaint-resolution/complaint-process.html>.

102As the schemes are contractually based, a member could institute proceedings against a scheme thatbreached the contract with themember, for example, by not acting consistently with the scheme’sTerms of Reference.This might involve an appeal of a determination, but to date, no courthasoverturned a FOS decision: see Cth TreasuryReview of the financial system external disputeresolution and complaints framework(Final Report) (2017), p 54.

103See, for example, Mickovskiv FOS andMetlife[2011] VSC257; [2012] VSCA185 and othercases summarised by FOS athttp://fos.org.au/resolving-disputes/legal-cases/#id=undefined.

104See for example, FOSAnnual Review 2016-17(2017)

Carla decides to take out a loan. She approaches a credit broker with a prominent brand name for advice. The credit broker states that it operates as credit assistance provider to find the best loan for Carla’s circumstances, negotiate the interest rate and fees and manage the paperwork associated with the loan. The loan is provided by a bank as credit provider, for whom the brokering firm is a credit representative.

The legal rights and obligations of consumers in dealing with the various entities involved in a credit transaction will depend on the contractual and statutory status of those entities not on the terminology they use to describe themselves. This means that the legal status of the entities may not be entirely clear at the outset to consumers, although as we shall see disclosure obligations go some (although not all) the way to clarifying these issues.105

• special purpose funding entities and the licensee that performs the obligations of a credit provider under a service agreement.106

The licensing regime in the NCCP Act was introduced at least partly in response to concerns that credit regulation in Australia had not kept pace with the proliferation of credit products and services.107 The Productivity Commission recommended a national licensing scheme for both credit providers and ‘finance brokers’.108 However, as noted in the Explanatory Memorandum to the NCCP Act, the increasing complexity of the credit market means that the distinctions between credit providers and other parties who provide credit services are not straightforward.109

107 This is noted by the Productivity Commission, Review of Australia’s Consumer Policy Framework, Inquiry Report No 45 (2008) vol II p 448 and the National Consumer Credit Protection Bill: Explanatory Memorandum 2009 [2.6].

108 Productivity Commission, Review of Australia’s Consumer Policy Framework, Inquiry Report No 45 (2008) vol II pp 451-4.

109 National Consumer Credit Protection Bill: Explanatory Memorandum 2009 [2.12]

110 It is important to remember that whether a person engages in a relevant ‘credit activity’ for licensing purposes is also dependent on the definition of ‘credit’ under the NCC.110 Thus, for example, a person will not engage in a ‘credit activity’ for the purposes of the NCCP Act where they engage in credit activities with respect to business purposes, because credit for business is not covered by the NCC. This example is provided by the National Consumer Credit Protection Bill: Explanatory Memorandum 2009 [1.14].

113 NCCP Act s 7. A party may act as both a credit intermediary and a credit assistance provider: ASIC Regulatory Guide 203 Do I Need a Credit Licence? (October 2017) [57].

Under the NCCP whether an entity with some involvement in a credit transaction has to be licensed and the nature of the obligations attached to that licence are determined by the credit activities that the entity is engaged in and their relationship with other credit licensees. These defining activities and relationships are discussed below.110

The NCCP identifies four key categories of credit activity that will bring a person within the scope of the licensing requirements under the NCCP, and through this the disclosure, conduct and responsible lending obligations.111

A ‘credit provider’ for the purposes of the NCCP Act is an entity that provides credit.112 Credit providers may be banks, non-bank lenders or finance companies.

• act as an intermediary.113

• Suggest that the consumer: o Apply for a provision of credit (in respect of either a particular credit contract with a particular credit provider or a particular lease with a particular lessor);

o Apply for an increase to the credit limit of a particular credit contract with a particular credit provider; or

• Assist the consumer to o Apply for a provision of credit (in respect of either a particular credit contract with a particular credit provider or a particular lease with a particular lessor); or

o Apply for an increase to the credit limit of a particular credit contract.114

114 NCCP Act s 8, summarized by the National Consumer Credit Protection Bill: Explanatory Memorandum 2009 [1.23]. Similar definitions apply to assistance in relation to a credit lease.

115 ASIC Regulatory Guide 203, Do I Need a Credit Licence? (2017) [75].

117 Revised Explanatory Memorandum National Consumer Credit Protection Bill 2009 (Cth) [1.28].

119 ‘[W]here they act as a conduit between a broker and a credit provider in arranging the credit’: ASIC Regulatory Guide 203, Do I Need a Credit Licence? (2017) [75]; Revised Explanatory Memorandum National Consumer Credit Protection Bill 2009 (Cth) [1.31].

120 ‘[If] they are involved in arranging the credit’: ASIC Regulatory Guide 203, Do I Need a Credit Licence? (2017) [75]. See definition in NCR reg 26; Revised Explanatory Memorandum National Consumer Credit Protection Bill 2009 (Cth) [1.31].

121 ‘[If] they are involved in arranging the credit’: ASIC Regulatory Guide 203, Do I Need a Credit Licence? (2017) [75]. See definition in NCR reg 26.

Common examples of credit assistance providers are credit or mortgage brokers and credit or mortgage advisers.115

act as an intermediary (whether directly or indirectly) between a credit provider and a consumer wholly or partly for the purposes of securing a provision of credit for the consumer under a credit contract for the consumer with the credit provider.116

The category of intermediary appears to be a catch all category,117 covering those entities involved in a credit transaction as a conduit between consumer and credit provider but without actually advising, suggesting or assisting consumers in the provision of credit so as to be credit assistance providers.

Some of the parties who might otherwise be in this category are subject to exemptions, such as clerks and cashiers.118 ASIC suggest that, depending on their business model, the category might include mortgage aggregators (not defined in the NCCP/NCP),119 ‘mortgage managers’120 and ‘product designers’.121

Some persons engaging in what would otherwise be relevant credit activities are exempt from the licensing requirements under the NCCP Act.122 Relevantly these include:

124 ASIC Regulatory Guide 203, Do I Need a Credit Licence? (2017) [77].

127 See NCR regs 25(2), 25(2A), 25(5). See also Explanatory Statement Select Legislative Instrument 2010 p 21.

128 ASIC Regulatory Guide 203, Do I Need a Credit Licence? (2017) [77]. See also exemptions for referrals in the NCR regs 25(2), 25(2A) and 25(5).

A person who merely passes on information to consumers that has been provided by or is about a credit licensee, accompanied by advice about the licensee, will not be engaging in a credit activity that requires a credit licence under the NCCP Act.123

An example of this category will be (some) comparison websites.124

• a person who refers consumers to a credit licensee; and125

• a person who, with the permission of a consumer passes the consumer’s contact details and information about the consumer’s requirements onto a credit licensee so that the licensee may contact them. 126

There are several conditions that attach to these categories of licensing exemptions. Importantly, the referrer must disclose to consumers any commission or benefits it receives for the referral.127

An example of this activity will be conduct by a retailer or real estate agent in directing a consumer to a potential credit provider or credit assistance provider.128

Suppliers of goods or services may want to arrange credit for their customers at their own premises in order to assist those customers in buying the suppliers’ products. The NCR provide an exemption from the requirement to hold a credit license for suppliers in this situation allowing them to provide application forms and process applications for credit in store for an external credit provider. Suppliers will be exempt from the credit licensing requirements in the NCCP Act where they act on behalf of a ‘linked credit provider’129 in assisting consumer to obtain credit and the credit initially provided is to be used ‘predominantly’ to pay for goods or services provided by the supplier.130

131 See eg ASIC Regulatory Guide 203 Do I Need a Credit Licence? (October 2017) p 50; Cth Treasury The exemption of retailers from the National Consumer Credit Protection Act 2009: Discussion Paper (2013).

135 Treasury has estimated that point of sale activities are carried out by around 12,000 retailers and 630 car dealerships: Cth Treasury The exemption of retailers from the National Consumer Credit Protection Act 2009: Discussion Paper (2013) [12].

136 See Cth Treasury The exemption of retailers from the National Consumer Credit Protection Act 2009: Discussion Paper (2013).

This arrangement is sometimes referred to as the ‘point of sale’ exemption, because the supplier operating at the point of sale is exempted from being licensed.131

There are strict conditions that must be satisfied for the exemption to apply set out in the NCR.132

Suppliers of goods and services and their linked credit providers share liability (subject to certain defences) for misrepresentation, breaches of contract and contraventions of the ACL under the NCCP133 and the ACL.134

The point of sale exemption is commonly used in stores selling white goods and electrical items to allow an application for credit for the purchase of those goods to be processed ‘in-store’. The point of sale exemption is similarly used in car finance. 135

Credit cards are sometimes co-branded with the names of a credit provider and a supplier of goods or services, such as a department, electrical or white goods store. A supplier of goods or services will be exempt from the credit licensing requirements in the NCCP Act where the supplier is performing credit activities on behalf of a linked credit provider137 in respect of a credit card that is branded or co-branded in the name of the supplier or a related body corporate.138 This arrangement is also part of what is sometimes referred to as the ‘point of sale’ exemption.139

139 Explanatory Statement Select Legislative Instrument 2010 no 105.

141 ASIC Regulatory Guide 203 Do I Need a Credit Licence? (October 2017) p 43.

‘Credit representatives’ are persons authorised by a credit licensee to engage in specified credit activities on behalf of the licensee.140 For this reason credit representatives are sometimes referred to as ‘authorised’ representatives. A credit representative may provide a credit service without holding their own licence in relation to those services. Instead they act on the authority of the credit licensee.

Examples of credit representatives include brokers operating as the franchisees of a credit franchisor141 and brokers acting as the credit representatives of a mortgage aggregator or manager.

• any other person acting on behalf of the licensee142 (which will often include suppliers with whom the licensee is a linked credit provider or co-brands a credit card as discussed above).

Representatives are not subject to the obligations applying to a licence holder under the NCCP Act. They must be supervised by the licence holder.143 A credit license carries general conduct obligations to:

143 See NCCP Act pt 2-3. See also ASIC Regulatory Guide 205 Credit licensing: General conduct obligations (June 2010): In respect of those providing third party home loan credit assistance, ASIC considers that representatives need to have at least a Cert IV in Finance and Mortgage Broking.

145 ASIC Credit (Concept Validation Licensing Exemption) Instrument 2016.

147 See also Productivity Commission Draft Report Competition in the Australian Financial System Overview & Draft Recommendations (2018) p 30.

148 Productivity Commission Draft Report Competition in the Australian Financial System Overview & Draft Recommendations (2018) p 7.

149 ASIC Report 516: Review of mortgage broker remuneration (2017).

• ‘take reasonable steps to ensure that its representatives comply with the credit legislation; and …

• ensure that its representatives are adequately trained, and are competent, to engage in the credit activities authorised by the licence’.144

ASIC has established a licensing exemption for people to test new businesses in the consumer credit market.145 The exemption is limited and subject to strict disclosure requirements.146