The Australian Financial Complaints Authority (AFCA) has welcomed the Australian Securities and Investments Commission’s (ASIC’s) assessment that continuing credit contracts cause consumer detriment under a ‘collateral services’ model and supports the use of ASIC’s product intervention powers.
In a response to ASIC’s consultation on the proposed use of its product intervention powers to address this, AFCA said that credit contracts, like short-term credit contracts, were often used by vulnerable consumers in financial stress.
David Locke, AFCA chief ombudsman and chief executive, said it welcomed and supported ASIC’s proposal to make a product intervention order by a legislative instrument that would prohibit credit providers and their associates from issuing continuing credit contracts structured in this way.
“Without this measure, AFCA is concerned that these products are likely to exacerbate financial stress and financial hardship for low-income and vulnerable Australians,” Locke said.
“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.”
AFCA said that firms using this model may not require an Australian Credit Licence (ACL) due to its business structure which meant it was not required to be an AFCA member.
“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,” Locke said.
There was also the concern that as COVID-19 relief measures wind down and the economic situation worsens over the next three to six months, there was the possibility that an increased number of vulnerable consumers may seek relief by entering into continuing credit contracts.
