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Australian Senate Standing Committee for the Scrutiny of Bills - Scrutiny Digests |
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Purpose
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Schedule 1 to this bill seeks to amend the National Consumer Credit
Protection Act 2009 to improve the flow of credit by reducing the time that
it takes consumer and businesses to access credit
Schedules 2 to 6 to this bill seek to amend the National Consumer Credit
Protection Act 2009 to enhance the consumer protection framework for
consumers of small amount credit contracts and consumer leases, while ensuring
that
these products can continue to fulfil an important role in the
economy
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Portfolio
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Treasury
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Introduced
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House of Representatives on 9 December 2020
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1.38 The bill provides for a number of significant matters to be determined in delegated legislation.
1.39 Items 62 to 64 of Schedule 1 seek to amend section 133DB of the National Consumer Credit Protection Act 2009 (the Credit Act) to provide that licensees must show a consumer a comparison of the consumer’s stated expected aged care costs with equity projections before providing credit assistance for a reverse mortgage, entering into a reverse mortgage, increasing the credit limit of a reverse mortgage or making an unconditional representation about the consumer’s eligibility. The comparison must be given to the consumer in a way prescribed in the regulations.[21]
1.40 Item 67 of Schedule 1 seeks to insert proposed section 133EA into the Credit Act which would allow the minister to determine non-ADI credit standards by legislative instrument. These standards set requirements for credit licensees who are not 'authorised deposit taking institutions' (ADIs) in relation to their systems, policies and processes relating to non-ADI credit conduct.[22]
1.41 Item 12 of Schedule 2 seeks to insert proposed section 133CD into the Credit Act, which establishes that a licensee must not enter into or offer to enter into a small amount credit contract with a consumer unless the contract provides for equal repayments at equal intervals over the life of the loan, and the interval between the date on which the credit would first be provided and the due date of the first repayment is no more than twice the length of the interval between each repayment.
1.42 Proposed subsection 133CD(5) provides that ASIC may, by legislative instrument, determine conditions whereby repayments that would be required under a small amount credit contract are taken to be equal.
1.43 Item 12 of Schedule 2 also seeks to insert proposed paragraph 133CF(2)(c) which provides that regulations may prescribe circumstances where a communication is taken, or is not taken, to be an unsolicited communication. Unsolicited communications are subject to prohibitions in proposed subsection 133CF(1). Proposed subsection 133CF(2) further provides that the regulations may prescribe that specified kinds of communications are not unsolicited communications to which section 133CF applies.
1.44 Non-compliance with the obligations to provide comparisons of equity projections and aged care costs, to provide equal repayments and intervals, and the prohibition on unsolicited communications is subject to criminal offences in addition to civil penalties.[23] Non-compliance with requirements in the non-ADI credit standards would attract significant civil penalties of at least 5000 penalty units.[24] Failing to comply with requirements in relation to equal repayments and intervals will also be an offence of strict liability, subject to a penalty of 10 penalty units.[25]
1.45 The committee's view is that significant matters, such as obligations where non-compliance attracts significant civil penalties or may constitute a strict liability offence, should be included in primary legislation unless a sound justification for the use of delegated legislation is provided. In this instance, in relation to non-ADI credit standards, the explanatory memorandum states:
The content of the non‑ADI credit standards being determined by legislative instrument is intended to enable consistency to be achieved on an ongoing basis between the regulation of the provision of credit by both ADIs and non‑ADIs (the former of which will be set out in legislative instruments made by APRA). This allows the law to adapt to changes over time.[26]
1.46 In relation to equal repayment requirements, the explanatory memorandum states:
These options are designed to give licensees reasonable flexibility where the total amount to be repaid under a small amount credit contract cannot be divided equally, or where there are other circumstances in which ASIC considers that unequal repayments may be appropriate. Any instrument made by ASIC would be subject to parliamentary scrutiny and disallowance.[27]
1.47 In relation to unsolicited communications, the explanatory memorandum explains:
This adds flexibility and ensures the new prohibition on unsolicited communications can remain responsive to evolving industry practices. This regulation-making power is also consistent with the current arrangements in subsection 133BE(6) of the Credit Act, which provides that the regulations may make provisions that apply to determining whether a communication is a credit limit increase invitation. Any regulations made would be subject to parliamentary scrutiny and disallowance.[28]
1.48 The explanatory memorandum contains no justification regarding why it is necessary to allow matters in relation to the manner of providing comparisons of equity projections and aged care costs to consumers to be set out in delegated legislation.
1.49 While noting these explanations, the committee has generally not accepted a desire for administrative flexibility or consistency with existing provisions to be a sufficient justification, of itself, for leaving significant matters to delegated legislation. It is unclear to the committee why at least high-level guidance in relation to these matters cannot be provided on the face of the bill.
1.50 The committee notes that a legislative instrument, made by the executive, is not subject to the full range of parliamentary scrutiny inherent in bringing proposed changes in the form of an amending bill.
1.51 In light of the above, the committee requests the Treasurer's detailed advice as to:
• why it is considered necessary and appropriate to leave these matters to delegated legislation;
• whether the bill can be amended to include at least high-level guidance regarding the following matters on the face of the primary legislation:
• the manner of giving a comparison of equity projections and aged care costs to a consumer;
• the content of the non-ADI credit standards;
• conditions whereby repayments under a small amount credit contract are taken to be equal; and
• circumstances in which the regulations may prescribe that specified kinds of communications are not unsolicited communications for the purpose of the prohibition on unsolicited communications in proposed section 133CF.
1.52 Schedule 4 establishes a prohibition on schemes that are designed to avoid the application of the Credit Act in relation to small amount credit contracts and consumer leases. Item 3 of Schedule 4 seeks to insert proposed section 323C which sets up a presumption in relation to civil cases that it is reasonable to conclude that a person entered into or carried out a scheme for an avoidance purpose if the scheme is a scheme prescribed by the regulations or determined by ASIC in a legislative instrument. Proposed subsection 323C(2) provides that the presumption does not apply if the person proves that it would not be reasonable to conclude that there was a relevant avoidance purpose, having regard to matters set out in proposed subsection 323B(1). A legal burden of proof is proposed to be placed on the defendant, ensuring that the defendant would need to prove, on the balance of probabilities, it would not be reasonable to conclude that there was a relevant avoidance purpose.
1.53 At common law, it is ordinarily the duty of the prosecution to prove all elements of an offence. This is an important aspect of the right to be presumed innocent until proven guilty. The inclusion of presumptions in relation to offences interferes with this common law right by placing a legal burden on the defendant to rebut the presumption. The committee expects any provision that places a legal burden of proof of the defendant to be fully justified in the explanatory materials. Additionally, the committee notes that the Guide to Framing Commonwealth Offences states that the inclusion of presumptions in relation to offences should be kept to a minimum.[30]
1.54 The committee also notes that the presumption in proposed section 323C relates to a civil penalty, rather than to a criminal offence. However, the committee recognises that, in certain cases, there may be a blurring of distinctions between criminal and civil penalties, with civil penalties applied in circumstances that are akin to criminal offences. The committee considers that reversals of the burden of proof in such cases merit careful scrutiny, as there could be a risk that reversing the burden of proof in such cases may unduly trespass on personal rights and liberties. This is particularly the case where more significant penalties are imposed. In this instance, a range of civil penalty provisions may apply to a failure to comply with the prohibition, each of which attracts a civil penalty of up to 5000 penalty units.[31]
1.55 Further, the committee's view is that significant matters, such as the prescribing or determination of schemes that will be presumed to contravene the prohibition on avoidance purposes, should be included in primary legislation unless a sound justification for the use of delegated legislation is provided.
1.56 The explanatory memorandum explains:
Placing the legal burden of proof on the person is appropriate as it will be considerably easier for the person to establish that it would not be reasonable to conclude that there was a relevant avoidance purpose, compared with requiring ASIC to disprove that matter. For example, if the scheme in question does have a legitimate (non-avoidance) purpose, that matter would be peculiarly within the knowledge of the person.
Further, the presumption applies only in civil cases (not in criminal proceedings), and any regulations or legislative instrument made to prescribe or determine schemes that are presumed to have the relevant avoidance purpose will be subject to parliamentary scrutiny and disallowance.
The conferral of a regulation-making power and a power for ASIC to make a legislative instrument in this context also reflects historical experience that avoidance schemes tend to proliferate quickly if they are seen by other industry participants to be effective. This flexibility therefore ensures that either the Government or ASIC can respond quickly to evolving practices as needed.[32]
1.57 The committee notes that the Guide to Framing Commonwealth Offences (Guide) provides that the considerations relevant to whether a presumption should be included in an offence are the same as those applying to an offence-specific defence.[33] The Guide provides that a matter should only be included in an offence-specific defence (as opposed to being specified as an element of the offence), where:
• it is peculiarly within the knowledge of the defendant; and
• it would be significantly more difficult and costly for the prosecution to disprove than for the defendant to establish the matter.[34]
1.58 In this case, it is not apparent that matters such as whether it is reasonable to conclude that there was a relevant avoidance purpose, are matters peculiarly within the defendant's knowledge, and that it would be significantly more difficult or costly for the prosecution to establish the matters. These matters may be matters more appropriate to be included as an element of the civil penalty provision or offence.
1.59 In addition, proposed paragraph 323B(1)(c) provides that matters that are relevant to determining whether it is reasonable to conclude that a scheme has been entered into for an avoidance purpose may be prescribed in the regulations.[35] The explanatory memorandum states:
The regulation-making power recognises that industry participants may develop new avoidance practices which may require the Government to specify additional matters that must be considered in determining whether the relevant avoidance purpose exists. This flexibility is therefore necessary to ensure the prohibitions remain fit for purpose as entities prepared to engage in avoidance purposes will respond to legislative changes by identifying gaps in its scope and changing their practices accordingly.[36]
1.60 While noting this explanation, and that above in relation to the prescription or determination of avoidance schemes, the committee has generally not accepted a desire for administrative flexibility to be a sufficient justification, of itself, for leaving significant matters to delegated legislation. The committee notes that using delegated legislation to prescribe or determine avoidance schemes and matters relevant to making a conclusion that a scheme is an avoidance scheme provides a broad power to expand or restrict the scope of the prohibition established in proposed section 323A. It is unclear to the committee why at least high-level guidance in relation to the schemes that will be presumed to be avoidance schemes cannot be provided on the face of the bill.
1.61 In light of the above, the committee requests the Treasurer's detailed advice as to:
• why it is considered necessary and appropriate to leave the prescription or determination of avoidance schemes and matters relevant to making a conclusion that a scheme is an avoidance scheme to delegated legislation;
• whether the bill can be amended to include at least high-level guidance regarding schemes that will be presumed to be entered into for an avoidance purpose on the face of the primary legislation;
• why it is proposed to place a legal burden of proof on the defendant by including presumptions in relation to these civil penalty provisions; and
• why it is not sufficient to reverse the evidential, rather than legal, burden of proof in this instance.
1.62 The committee's consideration of the appropriateness of provisions which include presumptions in relation to civil penalty provisions or offences is assisted if it explicitly addresses relevant principles as set out in the Guide to Framing Commonwealth Offences.[37]
1.63 Item 3 of Schedule 4 also seeks to insert proposed section 323D into the Credit Act, which would provide ASIC with a power to exempt a scheme or class of schemes from all or specified parts of the prohibitions on avoidance schemes set out in proposed section 323A by legislative instrument. The explanatory memorandum states:
This ensures that ASIC is able to provide appropriately deal with a scheme and provide certainty, where the scheme:
• does not cause harm to consumers or regulated industry participants; and
• has a legitimate (non-avoidance) purpose.[39]
1.64 In the view of the committee, proposed section 323D appears to confer a broad power on ASIC to exempt schemes from the application of the law. This is therefore akin to a Henry VIII clause, which enables delegated legislation to alter or override the operation of primary legislation. The committee has significant concerns with Henry VIII-type clauses, as such clauses have the potential to impact on levels of parliamentary scrutiny and may subvert the appropriate relationship between Parliament and the Executive.
1.65 In this instance, the committee acknowledges that proposed section 323D does not enable delegated legislation to modify primary legislation, but rather enables ASIC to override the usual operation of the primary legislation in particular circumstances. However, the committee remains concerned about the breadth of the proposed power, and its potential impact on parliamentary scrutiny.
1.66 In light of these matters, the committee would expect a sound justification for the power conferred on ASIC to be provided in the explanatory memorandum. In this instance, the committee considers that the explanatory materials have not sufficiently justified the conferral on ASIC of the broad power to exempt schemes from the operation of the prohibition on avoidance schemes in proposed section 323A.
1.67 In light of the above, the committee requests the Treasurer's more detailed advice as to:
• why it is proposed to confer on ASIC the broad power to exempt schemes from the operation of the prohibition on avoidance schemes in proposed section 323A; and
• whether the bill could be amended to include at least high-level guidance regarding the circumstances where it will be appropriate for ASIC to exempt a scheme from the operation of the avoidance prohibitions.
1.68 Proposed paragraphs 133DB(1)(ba) and (bb) establish a civil penalty for failure to provide a consumer with a comparison of equity projections and the consumer's expected aged care costs before entering into a reverse mortgage or providing other specified advice or services in relation to a reverse mortgage. Currently, subsection 133DB(2) also makes it an offence to engage in conduct that breaches requirements in subsection 133DB(1). Proposed subsections 133DB(4A) and (4B) provide exceptions (offence-specific defences) to the civil penalty and offence, providing that the offence does not apply if:
• another person has already given the required comparison; or
• circumstances prescribed by the regulations exist.
1.69 The criminal offence carries a maximum penalty of 50 penalty units and the civil penalty provision applies a civil penalty of 5000 penalty units.[41]
1.70 At common law, it is ordinarily the duty of the prosecution to prove all elements of an offence.[42] This is an important aspect of the right to be presumed innocent until proven guilty. Provisions that reverse the burden of proof and require a defendant to disprove, or raise evidence to disprove, one or more elements of an offence, interferes with this common law right.
1.71 While in this instance the defendant bears an evidential burden (requiring the defendant to raise evidence about the matter), rather than a legal burden (requiring the defendant to positively prove the matter), the committee expects any such reversal of the evidential burden of proof to be justified. The reversals of the evidential burden of proof in proposed subsections 133DB(4A) and (4B) have not been addressed in the explanatory materials.
1.72 The committee also expects that significant matters, such as circumstances that will constitute a defence to an offence or significant civil penalty, to be provided for in primary legislation, unless a sound justification for the use of delegated legislation is provided. In this instance, the explanatory memorandum contains no justification regarding why it is necessary to allow such significant matters to be set out in delegated legislation.
1.73 As the explanatory materials do not address this issue, the committee requests the Treasurer's advice as to why it is proposed to use offence-specific defences (which reverse the evidential burden of proof) in this instance. The committee's consideration of the appropriateness of a provision which reverses the burden of proof is assisted if it explicitly addresses relevant principles as set out in the Guide to Framing Commonwealth Offences.[43]
1.74 The committee also requests the Treasurer's detailed advice as to:
• why it is considered necessary and appropriate to leave to delegated legislation the prescription of circumstances in which it will be a defence to the offence or civil penalty provision of failing to comply with requirements to provide material to a consumer;
• whether the bill can be amended to include at least high-level guidance regarding the relevant circumstances that may be prescribed on the face of the primary legislation.
[20] Schedule 1, items 63 and 67; Schedule 2, item 12, proposed subsection 133CD(5) and proposed paragraph 133CF(2)(c). The committee draws senators’ attention to these provisions pursuant to Senate Standing Order 24(1)(a)(iv).
[21] Schedule 1, Item 63, proposed paragraph 133DB(1)(ba).
[22] Non‑ADI credit conduct relates to credit contracts where the contract is not a small amount credit contract and the credit provider is not an ADI. See explanatory memorandum, pp. 19‑20.
[23] Subsections 133DB(1) and (2), National Consumer Credit Protection Act 2009; Schedule 2, item 12, proposed subsections 133CD(1) and (7) and 133CF(1) and (3).
[24] Schedule 1, item 67, proposed sections 133EB to 133ED. See also sections 167A and 167B of the National Consumer Credit Protection Act 2009.
[25] Schedule 2, item 12, proposed subsection 133CD(8).
[26] Explanatory memorandum, p. 20.
[27] Explanatory memorandum, p. 79.
[28] Explanatory memorandum, p. 84.
[29] Schedule 4, item 3, proposed sections 323B—323C. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(i) and (iv).
[30] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, p. 53.
[31] Schedule 4, item 3, proposed subsections 323A(1), (3), (4) and (5).
[32] Explanatory memorandum, p. 125.
[33] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, p. 53.
[34] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, p. 50.
[35] Schedule 4, item 3, proposed paragraph 323B(1)(c).
[36] Explanatory memorandum, p. 124.
[37] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, pp 50-52.
[38] Schedule 4, item 3, proposed section 323D. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(iv).
[39] Explanatory memorandum, p. 125.
[40] Schedule 1, item 65. The committee draws senators’ attention to this provision pursuant to Senate Standing Order 24(1)(a)(i) and (iv).
[41] See subsections 133BD(1) or (2) of the National Consumer Credit Protection Act 2009.
[42] Subsection 13.3(3) of the Criminal Code Act 1995 provides that a defendant who wishes to rely on any exception, exemption, excuse, qualification or justification bears an evidential burden in relation to that matter.
[43] Attorney-General's Department, A Guide to Framing Commonwealth Offences, Infringement Notices and Enforcement Powers, September 2011, pp 50-52.
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