Earlier this year, the Australian Securities and Investments Commission (ASIC) opened consultation on the proposed use of its product intervention powers to ban continuing credit contracts under the “collateral services” model.
The Australian Financial Complaints Authority (AFCA) has published its submission as part of the consultation process, in which it has backed ASIC’s proposed ban.
AFCA stated that it “strongly agrees” with ASIC’s assessment of the potential harm caused by the continuing credit contracts under the collateral services model, adding that such facilities are “often used by vulnerable consumers in financial stress”.
The external dispute resolutions (EDR) body said that fee structures associated with the model can have “significant adverse effects on individuals, their families and communities” and the broader financial services sector.
“AFCA strongly welcomes and supports ASIC’s proposal to make a product intervention order by legislative instrument that would prohibit credit providers and their associates from issuing continuing credit contracts that are structured in this way,” AFCA chief ombudsman and CEO David Locke said.
“Without this measure, AFCA is concerned that these products are likely to exacerbate financial stress and financial hardship for low-income and vulnerable Australians.
“We strongly support ASIC taking the proposed action and believe that all financial firms who offer credit products to consumers that in substance fall within the consumer credit laws should be held to appropriate standards and be regulated by the credit regulations which seek to protect consumers.”
In its submission, AFCA also flagged that institutions offering continuing credit contracts under the model may not require an Australian Credit Licence, which may not require them to attain AFCA membership.
“This significantly limits a consumer’s ability to access cost-effective and independent dispute resolution when they have a complaint that can’t be resolved directly with the credit provider,” Mr Locke added.
Mr Locke warned that such offerings may become increasingly attractive as COVID-19 relief measures wear off.
“AFCA believes that it is essential to ensure that all consumers entering these types of facilities, especially during this unprecedented time, have access to the consumer protections afforded under the National Credit Code and free and independent EDR,” he concluded.
Charbel Kadib is the news editor on the mortgages titles at Momentum Media.
Before joining the team in 2017, Charbel completed internships with public relations agency Fifty Acres, and the Department of Communications and the Arts.