Final Report and Recommendation to Remove
Much of the focus within the Final Report of the 'Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry', at least as it relates to the provision of credit, has been directed at the sufficiency of current responsible lending measures. The key message is that no changes to the current law are required, but rather that they need to be followed and enforced. However, a significant distribution channel for a range of credit providers and lessors is at the premises of retailers and car dealers under the 'Point-of-sale' (POS) exemption. This exemption was ear-marked by the Final Report to be removed.
Background on Exemption
The POS exemption broadly enables a 'supplier of goods or services' (which could include car dealers, retailers etc) to establish arrangements with a credit licensee to offer their credit products to be used (predominantly) for the purchase of those goods or services from the supplier. And to do so without being licensed or authorised as a representative of the credit provider. When the initial POS exemption was introduced as part of the National Consumer Credit Protection reforms in 2009-10, it was originally intended to be an interim measure and re-examined 12 months later. A review was initiated in 2013 with the Government issuing a discussion paper, calling for submissions to respond to a range of options offered: Maintain, remove or modify (or a combination). 16 submissions were received with a mixed response from the various perspectives of industry and consumer groups. No review materialised, and the exemption continued to operate.
The concerns, as raised in the 2013 discussion paper, was the absence of any oversight on those engaging in the face-to-face credit discussions with the consumers, the lack of any legal requirements to ensure that the credit was appropriate (before having the credit discussion) and the subsequent limitation on consumers to access appropriate remedies. Over the course of the Royal Commission, additional concerns were raised including how those at point of sale (such as car dealers) were being remunerated and how their commissions were calculated, in some cases based on a differential in the interest rate offered to the consumer (flex-commissions) over a fixed minimum rate. Such commissions have since been banned by ASIC instrument. A second concern raised was the reliance by credit providers on the information provided by the point of sale retailers or dealers.
Government Response to Recommendation
The Government has on its face agreed to the removal of this exemption, but commented further that it recognises the impact of this change on business (presumably credit providers and retailers/dealers) and will consider how this reform is implemented. It is unclear whether this measured response implies a phased removal of the exemption over time or the introduction of a modified regime that offers a moderate approach, for example by including some degree of limited consumer protection without requiring the retailer to be licensed or to carry out responsible lending as an intermediary or credit-assistance provider. The Government has also indicated its intention to complete the 2013 review as recommended by the 2018 Productivity Commission Inquiry report. This could suggest that there are no immediate plans to remove the POS exemption without first completing this review under which a number of options were to be considered (other than merely removing the exemption) despite claiming to 'agree' to this recommendation. The Government response is also suggestive that other similar retailer exemptions discussed under the review (which includes the distribution of co-branded credit cards at point-of-sale) will also be considered. The Labour Party has been less reticent in its response, claiming that it would implement all recommendations as is.
If removed, what next?
If (and when) removed, this will have a significant impact on the landscape of how consumer products, ranging from cars to whitegoods and furniture are sold. For higher cost products (such as dealers), credit providers may consider exploring appointments of this distribution network as their credit representatives (as some already do). This should address the concerns about gaps in sufficient regulatory oversight however may open the door to extended liability through dealers or retailers acting as their agents which has been avoided to date. For lower cost products, the removal of this exemption may have the perhaps unintended effect of further opening the door to other forms of unregulated credit products which are already gaining traction in the market place. The standing Government (Labour or Liberal) will need to be mindful of all this when moving forward to implement the removal (or modification) of this exemption, but based on the current Government's response, this may take some time yet.
If you are a credit provider or dealer/retailer that currently relies on the POS or other similar exemptions, we encourage you to contact us to discuss how this may apply to you or your products.