Reforms to Australian Consumer and Credit Law

The Australian consumer and credit law landscape is undergoing vast changes.

Australian consumer law is experiencing its most significant upheaval since the introduction of the Australian Trade Practices Act in 1974 (the TPA).The new changes, introduced through a series of legislative innovations, will have a very significant impact on many areas of consumer law, including, among others, unfair contract terms, product liability law, and credit law.

This article summarizes the two most significant developments:

1. The introduction of the Australian Consumer Law (ACL), a national, uniform state consumer law based on the provisions of the TPA, which will be applied as a law of the commonwealth, and of the Australian states and territories, and
2. The introduction of the National Consumer Credit Protection Package (NCCPP), in particular the National Consumer Credit Protection Act 2009 (Cth). The NCCPP introduces inter alia standard national regulation of consumer credit.

Both schemes are to be introduced in two phases. Legislation implementing the first phase of both schemes, has passed through the commonwealth Parliament. At the time of writing, the second phase of the ACL has been passed but Phase Two of the NCCPP is still in development.

The Current Australian Consumer Law Regime

Lawmaking Power--Constitutional Implications

To understand the scale of the reforms, it is helpful to know something about the current Australian consumer law regime, as well as the distribution of lawmaking power in Australia.

Australia is a federation comprised of a number of states and territories. The three levels of Australian government are similar though not identical to the levels of government of the United States. Under the Australian Commonwealth Constitution there are three levels of government; the federal or commonwealth government, the state and territory governments, and the local government. In relation to the formulation and enactment of Australian law, responsibility is shared between the commonwealth and the states and territories. The commonwealth Constitution states that certain powers can be exercised by the commonwealth and states/territories jointly or one or the other may have exclusive jurisdiction. Therefore, in many instances both the states and territories, and the commonwealth, can legislate in relation to a particular issue but, in the case of an inconsistency the commonwealth law will prevail. This apportionment of law-making power has been of particular significance for Australian consumer and credit law.

Constitutional Power and Australian Consumer Law

The principal consumer protection statute, the Trade Practices Act 1974 derives its constitutional validity from commonwealth constitutional power, in particular from the corporations power and the trade and commerce power. Crucially, there are constitutional limitations on the commonwealth government's power to legislate in relation to natural persons, as opposed to corporations and other business entities. As a result, the consumer protection provisions of the TPA are applicable primarily to corporations. Given this irony, states and territories introduced their own consumer laws, the various Fair Trading Acts (FTAs) based on, but not completely identical to, the TPA provisions. This has led to some confusion because there has been considerable divergence and variation in these state laws, with some jurisdictions not adopting amendments to the TPA, and others amending the provisions of the FTA's to reflect local issues or concerns.

Inconsistencies in Consumer Credit Law

The states' regulation of consumer credit has been more uniform, thanks to the introduction of the Uniform Consumer Credit Code (UCCC). The UCCC is template legislation that was first enacted in one state (Queensland) and later adopted elsewhere. Theoretically at least, there had to be consensus, so the UCCC was amended to ensure national consistency. Nevertheless, credit law in Australia has still been affected by numerous inconsistencies between commonwealth, state, and territory laws. These inconsistencies have led to confusion for consumers and business alike.

Development and Implementation

On February 17, 2009, the then minister for competition policy and consumer affairs released an information and consultation paper (the Consultation Paper) titled An Australian Consumer Law: Fair Markets--Confident Consumers. The Consultation Paper was written in response to the flurry of activity surrounding Australian consumer law in 2008, in particular, the Productivity Commission's report into Australia's consumer policy framework and the Council of Australian Governments (COAG) agreement to a new consumer policy framework.

A priority was to introduce a single, national and consistent consumer law for application throughout Australia. Due to the constitutional limitations discussed above, the legislation will be enacted at commonwealth level and adopted by the states and territories.

The new law has been introduced in phases. Phase One, the Trade Practices Amendment Act (Australian Consumer Law) Act No. 1, 2010, commenced on July 1, 2010. It includes a national, uniform consumer law based on the provisions of the TPA, including:

• A provision to regulate unfair contract terms,
• Enhanced enforcement powers for the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investment Commission (ASIC),
• Better redress mechanisms for consumers, and
• A new regime for regulating national product safety.

Although the establishment of a single, national consumer law is largely a positive development, it is unfortunate that the unfair contract terms provisions were considerably eroded. The commonwealth government decided not to extend unfair contract provisions to business to business transactions, nor make the legislation applicable to insurance contracts. Most crucially, the elements that must be proven to establish that a contract term is unfair now include a new third element, namely that a plaintiff must establish that the term of the consumer contract has caused detriment. A term in a consumer contract will be unfair in circumstances where:

1. The term would cause significant imbalance in the parties rights and obligations arising under the contract;
2. The term is not reasonably necessary in order to protect the legitimate interests of the party advantaged by the term; and (crucially in the writers' view)
3. The term would cause detriment to a party if it were to be applied or relied on. (emphasis added)
4. The need to establish that the term has actually caused detriment is a significant dilution of the original proposals and will make the task of establishing that a term in a consumer contract is unfair more onerous for consumers.

Some good news is that under the new regime, the relevant regulators, the ACCC, and the ASIC will have significant new enforcement powers.

Phase Two, the Trade Practices Amendment Act (Australian Consumer Law) Act No. 2, 2010 has recently passed through the commonwealth Parliament. In summary, Phase Two will:

• Change the name of the Trade Practices Act 1974 (Cth) to the Competition and Consumer Act 2010 (Cth);
• Implement new and incorporate and renumber existing general and specific consumer protections; and
• Introduce a new system of statutory consumer guarantees in relation to buying goods and services.

One particularly controversial provision has been the statutory consumer guarantees, or what would be referred to in the United States as the sale of goods warranties. The proposed provisions will replace the implied conditions and warranties presently in Part V, Division 2 and 2A of the TPAand relevant state and territory laws. The consumer guarantees will provide redress for consumers where goods are acquired from Australian suppliers, importers, or manufacturers and the goods are not, among other things, of acceptable quality or fit for their purpose. Moreover, suppliers, importers, and merchants will be unable to exclude these guarantees by contract.

Overview of the NCCPP

In 2008, the Council of Australian Governments (COAG) decided that the commonwealth government should take responsibility for the regulation of consumer credit. As a result, the NCCPP will see consumer credit products and services regulated by commonwealth legislation rather than the former state and territory based system pursuant to the UCCC. The legislation will be applicable to many different types of transactions, including home loans, personal loans, credit cards, overdrafts, and line of credit accounts, among other things. The Australian Securities and Investments Commission will administer the new legislation and become the national regulator for consumer credit and finance.

Again, these laws will also be implemented in two phases. Pursuant to Phase One, the commonwealth assumed responsibility for the UCCC, by enacting the National Credit Code (NCC) as commonwealth law. The National Consumer Credit Protection Act 2009 contains provisions that mandate responsible lending and require finance brokers and lenders to be licensed. All providers and brokers of financial services will be required to be members of an external dispute resolution scheme. Phase Two will address regulation of the provision of credit to small businesses, unsolicited credit card limit extension offers, interest rates, reverse mortgages, and Islamic finance, among other things. Some of these developments could be useful to the United States in its continuing efforts to legislate consumer protection.

Conclusion

Australian consumer law remains a moveable feast. Progress is steady but has, perhaps predictably, slowed since the announcement of the reforms and the proposals for their rapid introduction. Some of the gloss of the original proposals has been lost through the realities of ensuring that the legislation makes its way through both houses of the commonwealth Parliament. Nevertheless, by the end of 2010 the Australian consumer and credit law landscape will be vastly different from the past regime.