I don't propose to speak for long today on this bill, the Financial Sector Reform (Hayne
Royal Commission Response—Protecting Consumers (2019 Measures)) Bill 2019.
Normally that gets me a round of applause, but apparently not today!
The member for Whitlam has spoken eloquently, eruditely and, of course, incorrectly on most
of what is in this bill, and we thank him for his contribution today.
We do share with him, however, his desire to see this legislation passed as quickly
as possible, and perhaps the Labor Party could assist the government by not moving amendments
that are both unnecessary and unlikely to assist in helping the consumers they so often
Unfair contract terms in insurance contracts is the subject of a recommendation of the
Hayne royal commission.
It is a recommendation that was proposed to that inquiry by ASIC.
Just briefly, because the member for Whitlam has already eruditely already summarised what
is proposed, the national unfair contract terms laws currently protect consumers and
small businesses who purchase financial products and services through standard form contracts.
Until now, insurance contracts, for very good reason, have been exempt from the regulation
by these laws.
The Insurance Contracts Act will be amended, however, to allow the ASIC Act's unfair-contracts
laws to apply to all insurance contracts.
This measure will offer protection to consumers who lack bargaining power and receive their
contracts on a take-it-or-leave-it basis.
These consumers are vulnerable to unfair terms, like exclusions or onerous conditions, which
can be hidden in the contract.
This will provide important protection in cases where an insurer has attempted to deny
a claim or restrict the payout available to a consumer or a small business on the basis
of an unfair term.
For insurance contracts, the regime will be tailored to increase clarity and certainty
for industry and consumers.
This includes defining the upfront price as premiums and excess or deductible payable
and defining the main subject matter of the contract as what is being insured.
This is in line with the royal commission's recommendation 4.7.
Consumers and ASIC will be able to apply to a court for a declaration that a term of an
insurance contract is unfair.
If they succeed, the term will be void and therefore not enforceable.
Schedule 2 specifically deals with funeral expenses facilities and funeral insurance
The financial services royal commission uncovered evidence of the significant harm caused to
vulnerable consumers by the poor sales practices adopted by funeral expenses policy providers.
The exemption in the Corporations Act that has allowed these providers to escape the
scrutiny of the Australian Securities and Investments Commission will be removed once
this bill is passed into law.
They will be subject to the Australian financial services licensing regime.
The bill will ensure that consumer protection provisions in the ASIC Act apply to funeral
expenses policies, clarifying any ambiguity that may exist on this matter.
The removal of this exemption will ensure consumers have appropriate protection when
taking out policies to help fund the costs associated with a funeral.
The provision of prepaid funerals will be unaffected by these reforms, on the ground
that it will be able to rely on the funeral benefit exemption in the Corporations Act.
The bill will come into effect after royal assent.
Providers of funeral expenses policies that do not already hold an Australian financial
services licence will be required to gain a licence by 1 April 2020.
Schedule 3 deals with mortgage brokers.
Prior to the election, I found the recommendations of the royal commission on mortgage brokers
to be somewhat contradictory.
Labor, of course, backed these recommendations, but I'm glad to hear the member for Whitlam
now saying that Labor agrees with our amended provisions here.
The Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures))
Bill 2019 fulfils the government's commitment to implement its response to two recommendations
of the Royal Commission into Misconduct in the Banking, Superannuation and Financial
The bill will introduce a best-interest duty for mortgage brokers and reform mortgage broker
The regulations set out the details of the reform to remuneration.
The best-interest duty will require mortgage brokers to act in the best interests of consumers
when providing credit assistance in relation to credit contracts.
The obligation will bring the law into line with what consumers currently expect of mortgage
The bill and regulations make changes to mortgage broker remuneration by requiring the value
of upfront commissions to be linked to the amount drawn down by borrowers instead of
the loan amount, banning campaign and volume based commission and payments, and capping
The new rules will also limit the period over which commissions can be clawed back from
aggregators and brokers to two years and prohibit the cost of clawbacks from being passed on
The royal commission identified evidence of mortgage brokers recommending loans based
on the commission they would receive.
Both the best-interest duty and the reforms to mortgage broker remuneration will mitigate
the incentive for mortgage brokers to suggest loans that are not in the best interests of
It would be remiss of me not to make some comments about this piece of legislation.
First, the evidence out of the royal commission, particularly in its interim report, is that
banks have been using behavioural science to create a blizzard of products in the market,
confusing consumers and giving the appearance of competition without there being actual
We're seeing this in the superannuation sector as well.
Increasingly, mortgage brokers and financial planners are becoming critical to Australians'
financial wellbeing, both now and into the future.
As we are creating a more complex financial system, of which we should be rightly proud—whether
it be in insurance, or superannuation and retirement incomes, or simply in mortgage
products to buy a house or build an investment policy—it is important that we avail all
Australians, regardless of their income, of the capacity to get the most and the best
form of advice that they can get, and not simply reserve that advice for high-net-worth
individuals and insiders who know where to go.
My problem with the royal commission is that we may have the unintended consequence of
creating yet more complexity while denying people the capacity and the ability to reach
out for that advice that they so sorely need at the time when they need it.
The Hayne royal commission also pointed out a lot of anecdotal evidence about a lot of
consumers being badly impacted by financial service companies and providers.
What it failed to understand was that this parliament has already passed laws which those
consumers and ASIC could have used both to shut down and to prosecute those providers
who had done wrong by the consumers.
It should have made the point and should have asked the question why those laws had not
been invoked, rather than insisting that this parliament create yet more complexity to confuse
yet more consumers and to deny yet more Australians capacity to understand and to seek the advice
that they so need.
We have now given ASIC enormous powers.
We have cloaked it in great and immense capacity to do great good and to do great harm.
We have provided it with more resources than it has ever had before, and yet it comes back
to this parliament and asks for more powers and more resources.
We understand why, on this side of the House, but we expect ASIC to finally put an end to
We expect fewer reports, less lobbying, less communication and less of ASIC trying to impact
this parliament and wanting more regulation.
We expect it to undertake its role in what it does in the manner and form which promotes
competition and empowers consumers, rather than reducing the choices that they have.
The member for Watson is often heard saying that this side of the House wishes to impose
on unions laws that company directors would never have.
However, when we have retorted that we are very happy to apply the Corporations Law to
unions and to union leaders, he often falls silent on the idea that unions should be subjected
to the Corporations Law.
The truth is that company directors in this country now are very much on the hook for
virtually anything that goes wrong and for any consumer that is harmed.
Litigation funders run rampant through our legal system with billions of dollars, driving
fear into the hearts of people who are simply trying to provide products and services to
consumers so that they can be better off.
These laws will ultimately protect consumers, but this parliament must be very careful that
we do not introduce so many laws that we reduce the choice and the capacity for consumers
to seek advice and to run their lives in a manner and form that they see fit, not in
the manner and form that members of this House believe that they should.