Credit and financial services targeting those at risk of financial hardship

The Senate Standing Committees on Economics has recommended that the Financial Services Royal Commission be given an extension of time and extended terms of reference: see its report of 15 November 2018 – Consumer protection in the banking, insurance and financial sector.

It has also noted that certain matters, including those concerning insolvency practitioners and receivers, be the subject of continued inquiry by another current Senate committee, looking at credit and financial services targeting those at risk of financial hardship.

Receivers etc

In relation to insolvency practitioners, and in particular receivers, it has asked the government to respond, belatedly, to the Report of the Parliamentary Joint Committee on Corporations and Financial Services in its report on the impairment of customer loans, tabled in May 2016, which dedicated a chapter to issues raised about receivers and investigative accountants.

“These issues included allegations that receivers sold properties and assets under value, information provided to borrowers by receivers, and there was a lack of effective dispute resolution services”.

That 2016 report recommended that

“receivers be ‘required to take every reasonable step’ to ensure that ‘assets are sold at or as close to listed market value as possible’ in accordance with Prudential Standard APS 220. The committee also recommended that ASIC administer a strong penalty regime for breaches of section 420A of the Corporations Act, which requires assets be sold for fair market value”. 

As the Senate Committee Report says, despite submissions identifying concerns with the conduct of this sector, the Financial Services Royal Commission considered that these matters were outside its terms of reference. However, its interim report did consider evidence that related to the conduct of financial institutions that appoint receivers.

The Senate Committee does acknowledge that a number of issues remain outside of the Royal Commission’s terms of reference and subsequently have not received necessary scrutiny.

“These matters include consumer leases and payday loans, debt management firms, and administrators, receivers and liquidators.

For this reason, the Senate has referred an inquiry to the committee into credit and financial services targeted at Australians at risk of financial hardship, which will provide further scrutiny of matters such as consumer leases, payday loans and debt management firms”.

Given the ongoing work of the Royal Commission, the November 2018 Committee determined that it would refrain from making specific policy recommendations; however, it says it will closely monitor the work of the Financial Services Royal Commission and its forthcoming recommendations, particularly as these relate to the issues specified in this November 2018 Senate report.

Credit and financial services targeted at Australians at risk of financial hardship

The Senate Standing Committee on Economics’ reference – Credit and financial services targeted at Australians at risk of financial hardship – has received over 40 submissions in relation to what is said to be an unregulated area of conduct, that of advising a debtor on their financial difficulties. 

Submissions give a focus to the need for support of the financial counselling profession (AFSA and many others), more regulatory tools and coverage, as in the UK (ASIC), with the liquidators and bankruptcy trustees body – ARITA – seeking to confine legitimate advisers to registered insolvency practitioners, thereby excluding financial counsellors, and lawyers and accountants.   

The National Retail Association sees buy now pay later (BNPL) platforms such as Afterpay, OpenPay, and Zip Pay as offering “greater consumer freedom and disposable income, reducing the chance of consumers falling into a ‘revolving door’ of debt and freeing up income which would otherwise be apportioned to service debts to traditional interest-bearing credit facilities”. Afterpay and Money Box Loans have also made submissions.

There is an impressive body of independent research on personal debt from Melbourne University which is explained in its submission, with support being expressed for financial counsellors.

That Senate Committee is due to report by 22 February 2019.

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