Newly enacted laws about the fairness of financial products and services can work to prevent harm in banking and finance if the Australian Securities and Investments Commission (ASIC) takes immediate action to use the powers, says Consumer Action Law Centre (Consumer Action).
Consumer Action CEO, Gerard Brody says the Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act, passed by Federal Parliament last night, includes significant reforms to financial services and will allow ASIC to proactively protect Australians from harmful financial products.
He stresses how common-sense reforms to the financial services sector are essential in the wake of the Banking Royal Commission.
“Consumers need to know the financial service providers they rely on are designing products such as short-term loans and insurance in their best interests. They also need to know that problems will be effectively dealt with when things go wrong without any nasty surprises.
“Legislation in this area is now flexible, future-proof and responsive to new products that pose risks to consumers.”
The legislation introduces new design and distribution obligations (DADOs) that requires financial service providers to create and provide products that meet customer needs rather than focussing on securing the sale.
ASIC is also being given product intervention powers (PIPs), providing it power to ban or amend harmful financial products where there is risk of significant consumer detriment.
Brody said that late amendments to the legislation mean that these new rules and powers will apply broadly across all financial products.
“The initial drafting for the legislation had gaps, but the Royal Commission’s Final Report said that the new rules and powers should apply to all financial products. The late changes are a significant win.”
Time’s up for Cigno and providers of junk warranties, funeral products and buy now pay later
Consumer Action urges ASIC to promptly use these new powers to take action against businesses who actively exploit loopholes in existing laws for their own gain.
Cigno, a facilitator of short-term high-cost loans, is one provider that has structured its operations to avoid responsible lending obligations under the National Credit Act. Consumer Action has received dozens of enquiries from clients and their financial counsellors saying that they have been signed up to unaffordable and exploitative loans by Cigno.
These new powers will give ASIC the tools to intervene and stop the sale of products that cause significant detriment to consumers.
Junk ‘dealer-issued’ extended car warranties, funeral products that mislead consumers, debt vultures, and ‘buy now, pay later’ providers that avoid Australian credit laws should also be prioritised and addressed by ASIC pursuant to the new powers.
“The harrowing cases we heard during the Banking Royal Commission demonstrated the need to improve product design and distribution, and to enhance the enforcement powers of regulators,” says Brody.
“Now is the time to act on the lessons we learned from the Royal Commission. It is critical that ASIC uses these new powers as swiftly as possible to protect Australian families from future harm.”
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