Bill to extend BID delayed again

The delay comes despite the final report of the Senate economics legislation committee inquiry recommending that the bill progress (albeit with dissenting reports from Labor and Green members), and the bill passing the House of Representatives on Monday (15 March).

However, after being introduced into Senate on Tuesday of this week (16 March), the Senate adjourned the debate for the second reading until the first day in the next period of sittings. This is set for 11 May 2021, according to the Senate Journals.

Given this, even if the bill receives Royal Assent in May, the extension of the best interests duty to all brokers writing consumer finance would not apply until November 2021.

This is due to the fact that the amendments related to the best interests obligations are scheduled to commence six months after receiving Royal Assent.

What’s delaying the bill?

The continuing delays to the bill come primarily as a result of Labor and consumer group concerns relating to the repeal of responsible lending obligations (rather than the BID extension) as well as the fact that Senate debates around the Fair Work Amendment (Supporting Australia’s Jobs and Economic Recovery) Bill 2021 have been the centre of focus at the moment.

While opponents are concerned around what consumer protections would look like without RLOs, the government has repeatedly emphasised that existing protections will remain in place. As a result of the schism in opinion, the bill was referred to the Senate economics legislation committee for review in December – which delayed the original implementation date.

In its final report, released last week, the Senate inquiry noted the key concerns with the proposed reforms raised but found that these regulatory changes “will not undermine consumer protections” as the principle of “responsible lending” is “deeply embedded in Australia’s broader regulatory framework, which credit providers and credit assistance providers must still operate within and comply with”.

Indeed, Zed Seselja, senator for the ACT and Minister for International Development and the Pacific, said in his second reading speech on Tuesday (16 March): “This bill amends the National Consumer Credit Protection Act 2009 (the Credit Act) to support the timely flow of credit to the Australian economy and introduce additional protections for consumers accessing high-cost credit.

“The importance of credit to households and businesses makes timely access to credit vital to Australia's economic success, particularly as the economy recovers from the COVID-19 crisis.

“To improve the flow of credit to the economy, the bill amends the Credit Act so the existing responsible lending obligations apply only to small amount credit contracts (SACCs) and consumer leases.”

He continued: “This bill will replace the prescriptive one-size-fits-all approach that has evolved in relation to the interpretation of responsible lending and provide flexibility for lenders to assess each applicant for credit on a case-by-case basis. However, this flexibility will not diminish the consumer protections in place and for some products, enhances these protections.

“The new framework will allow all lenders to streamline and improve their credit assessment processes and rely on information provided by consumers unless there are reasonable grounds to believe the information is unreliable.

“These changes maintain strong consumer protections. Lenders that fail to comply with the credit assessment processes they have put in place will breach their standards, giving borrowers access to AFCA for free dispute resolution and restitution.”

Referencing the proposed extension of BID, Senator Seselja added that consumer protections are therefore “being increased on services offered by credit assistance providers, with the bill expanding the best interests obligations – already scheduled to be applied to mortgage brokers from 1 January 2021 – to other credit assistance providers”.

“This will ensure credit assistance providers act in consumers’ best interests and place consumers’ interests before their own,” he said.

What the broker associations think about BID extension

The broker associations have largely been supportive of the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020, suggesting it would reduce any “grey area” when it comes to commercial lending and the Mortgage & Finance Association of Australia (MFAA) stating that it would reduce “customer confusion” when dealing with brokers.

For example, the MFAA said in its submission to the Senate inquiry that broadening the BID to all brokers would help in “ensuring that consumers can expect all brokers and not just mortgage brokers) to act in their best interests”.

While the Finance Brokers Association of Australia (FBAA) has been broadly welcoming of the RLO repeal, it has voiced some hesitation at the BID extension.

In its Senate inquiry submission, the FBAA said that “no proper case has been put forward to justify the extension of the best interests duty to all credit assistance providers”.

The association suggested that such an expansion would necessitate “significant systems reform, changes to documented processes and procedures considering strategic alignment with partners such as aggregators, potentially large impacts on revenue and, for some, an assessment as to the viability of remaining in the industry”.

Speaking to The Adviser earlier this week, FBAA managing director Peter White added that he had some concerns relating to how an expanded BID would be regulated.

“We’ve always supported the principle of the movements for RLOs and the BID extension, but have strong reservations as to how ASIC will regulate this as they have shown progressively over the years that they are overreaching where the law lands,” he said.

Mr White said two “classic examples” of this were: “where credit cards landed with BID (i.e. they should never have been captured and was agreed by government and Treasury to be the case)” and consumer asset loans (e.g. car loans).

“Just before Christmas, ASIC basically said mortgage brokers are to write such applications with no income [fully apply ‘dial down’ to commissions], and this is now a significant risk of collapsing the ‘finance’ broker marketplace in this area,” he said.

“There are huge industry risks if Treasury or the Treasurer doesn’t ensure this ASIC habit doesn’t stop,” he said.

[Related: Senate inquiry backs BID extension]