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Mutual banks want consumer credit law review

A banking industry body has urged for a probe into Australia’s consumer credit legislation and for regulators to help keep competition alive in the sector.

The Customer-Owned Banking Association (COBA) has launched its 2022 policy agenda, with calls for “proportionate regulation” for smaller banking players to bolster industry competition, a review of consumer credit laws and action for disaster resilience and cyber crime.

Among the policy recommendations is a call to “review and modernise Australia’s consumer credit regulatory regime”, with an aim to balance protections, reduce the burden on borrowers and provide timely and fair access to credit.

COBA’s policy statement has suggested that access to credit can be “onerous, time-consuming, inconvenient and at times intrusive”, while some products are not subject to the same level of consumer protection obligations as others.

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It has also pointed to the need for responding to new developments and technologies in the market.

“The credit regulatory regime has not been reviewed in its entirety since its inception. Given the slew of recently introduced regulatory regimes that impact credit products and the emergence of new credit-like products in the market, it is critical to examine the regime holistically to ensure it remains fit for purpose,” the policy statement said.

“The review should consider the level of consumer protection the credit regulatory regime provides, any areas of regulatory overlap and the need to balance regulatory requirements with the capacity to provide consumers with timely and fair access to credit.”

COBA has also urged policymakers, regulators and legislators to apply “proportionate regulation” to regulatory design, implementation and review, following on from its previous campaigning.

This would supposedly make regulation more efficient and targeted and lower costs for smaller or less complex banks.

COBA chief executive Michael Lawrence commented the mutual segment is “often caught up in regulatory intervention designed for the big four banks”.

“For the ongoing success of our sector and its ability to provide targeted, relevant services to local communities, it’s essential that government understands how regulatory change designed for the big banks impacts community-based banking,” Mr Lawrence said.

The body has laid out eight principles of proportionate regulation, which include avoiding a “one-size-fits-all” approach to policing the sector, considering a bank’s size, risk profile and complexity when designing new regulation and recognising that regulatory costs can erode competition.

COBA has warned that higher compliance costs are ultimately copped by customers.

“Keeping a tighter rein on regulatory costs will allow challenger banks, such as customer-owned banks, to grow more rapidly,” the policy statement said.

“An expanding customer-owned banking sector is good for consumers because of our unmatched consumer focus and prudent risk culture.

“Unnecessary regulatory costs hurt consumers because resources are diverted away from investment in product innovation, better service and better pricing.”

Another suggestion is to introduce an Australian Regulatory Initiatives Grid, a system that would coordinate and map out regulatory change, similar to the UK’s Regulatory Initiatives Grid.

Supposedly this would improve coordination between regulators, legislators and industry, when developing new policy and setting time frames for their implementation.

The UK’s Regulatory Initiatives Grid sets out a planned regulatory work plan over the next two years in one document, outlining milestones for financial services regulation, supervisory and data initiatives.

It has also classified regulatory changes by expected operational impact to companies and flagged any that might be of interest to consumers.

Meanwhile in Australia, COBA noted ASIC has commenced four key regulatory regimes within a one-week window in October 2021: the deferred sales model for add-on insurance, the design and distribution obligations (DDOs), expanded prohibitions for the hawking of financial products and strengthened breach reporting requirements.

“Key elements of the various regimes, including ASIC guidance and legislative instruments, were not finalised until as late as a week before the regime commenced,” COBA stated.

“Early engagement with the sector would have delivered a better approach to the management and implementation of the October 2021 reforms.”

The body’s other policy priorities include:

  • Introducing a diversity clause into APRA and ASIC’s mandates, ensuring that regulators explicitly consider the mutual structure when developing regulation, rather than only focusing on the investor-owned companies that dominate banking. Again, COBA has referred to the UK, where regulators are explicitly required to consider mutuals.
  • Increasing investment in pre-disaster funding by federal and state governments, to lessen the impact on customers and their banks
  • Creating a cross-sector taskforce with regulators, banking representatives, payment providers, law enforcement representatives, and others to combat cyber crimes and scams

[Related: MFAA calls for BNPL inclusion in open finance]

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