Second Reading SpeechMr FRYDENBERG (Kooyong-Treasurer)
That this bill be now read a second time.
The Financial Sector Reform (Hayne Royal Commission Response - Protecting Consumers (2019 Measures)) Bill 2019 continues to fulfil the government's commitment to implement the recommendations from the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.
The bill will implement the government's response to a further four recommendations of the royal commission: recommendation 4.7 to extend unfair contract terms to insurance contracts; recommendation 4.2 to ensure that consumer protection provisions apply to funeral expense policies; recommendation 1.2 to introduce a best interests duty requirement for mortgage brokers and recommendation 1.3 to reform mortgage broker remuneration.
Unfair contract terms in insurance contracts
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 have been exempt from regulation by these laws.
Schedule 1 will increase protection for consumers and small businesses purchasing general and life insurance products. It will give effect to the royal commission recommendation 4.7 and bring insurance's regulation into line with that for the rest of the financial services sector.
Ensuring consumers and small businesses can purchase or renew their insurance policies with confidence is important. Insurance cover for homes, motor vehicles, building contents and income protection helps limit loss and support households and, in turn, the broader economy.
Deterring insurers from drafting unfair terms in standard contracts and providing a remedy in cases where they are found will support fair treatment of consumers and small businesses.
Funeral expenses facilities
The financial services royal commission uncovered evidence of 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 Investment Commission (ASIC) will be removed. They will be subject to the Australian financial services licensing regime.
Schedule 2 of this bill will also ensure that the consumer protection provisions in the ASIC Act apply to funeral expenses policies, clarifying any ambiguity that may exist on this matter.
Schedule 3 of the bill introduces a best interests duty for mortgage brokers that will ensure that consumers' interests are prioritised when a mortgage broker provides credit assistance, as regulated by the National Consumer Credit Protection Act 2009. In practice this will mean that, in accordance with Commissioner Hayne's recommendations, a duty will apply in relation to the provision of consumer credit assistance and not business lending.
The government is also reforming mortgage broker remuneration, and the bill provides for a regulation making power to this end. The regulations will require the value of upfront commissions to be linked to the amount drawn down by borrowers instead of the loan amount; ban campaign and volume based commissions and payments; and cap soft dollar benefits.
Further, the period over which commissions can be clawed back from aggregators and mortgage brokers will be limited to two years, and passing on this cost to consumers will be prohibited.
After careful consideration, the government decided to delay consideration of aspects of Commissioner Hayne's recommendations for mortgage brokers - namely moving to a borrower-pays remuneration structure. We will be doing a review with the Council of Financial Regulators and the Australian Competition and Consumer Commission (ACCC). That will be carried out in three years time.
Implementation of these reforms, as recommended by the royal commission, is a critical component of restoring trust and confidence in Australia's financial system and is part of the Morrison government's plan for a stronger economy.
Full details of the measures are contained in the explanatory memorandum.