The Consumer Action Law Centre, Financial Rights Legal Centre and Financial Counselling Australia provided a submission to the Attorney-General’s Department on its Legislative Instruments Consultation Guide for the Bankruptcy Amendment (Debt Agreement Reform) Act 2018 (Cth) (Act).
We support the majority of the recent reforms to the debt agreements under Part IX of the Bankruptcy Act (Part IXs) in the Act, particularly the focus on fair treatment of debtors, affordable Part IXs, and restoring the lost trust in the debt agreement administration industry. Whether these reforms achieve this intention will depend on the policy settings in the legislative instruments.
We strongly support the three proposed industry-wide conditions in proposed draft Legislative Instrument 1, particularly compulsory membership of the Australian Financial Complaints Authority (AFCA) for all registered debt agreement administrators (Administrators). This submission recommends:
- additional conditions that would help to build trust in the Part IX regime;
- a shift to outcomes-based disclosure requirements, by placing the onus on Administrators to ensure their clients understand the risks, consequences and cost of a Part IX, rather than ‘tick and flick’ compliance;
- amendments to the advertising guideline, including review and remediation of people affected by misleading advertising of Part IXs.
We are strongly opposed to the proposed figures for the ‘payment to income’ ratio in draft Legislative Instrument 2. The proposed figures would see people living in poverty on annual incomes above $12,500 go without essentials to make patently unaffordable repayments on credit card and other unsecured debts. Unless the prescribed amounts are dramatically raised, the Parliament’s intention of ensuring affordable, sustainable repayments under Part IXs will be defeated. We strongly recommend amending the prescribed figures so that the payment to ratio creates an effective minimum annual income threshold based on:
- the Base Income Threshold Amount ($57,239) to align Part IX repayments with income contributions in bankruptcy;
- alternatively, the National Minimum Wage ($37,398), which is formulated with the living standards and the needs of the low paid in mind and is intended to guarantee a modest but adequate standard of living.