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The Australian Securities and Investments Commission (ASIC) has introduced Consultation Paper 371 (CP 371) to gather feedback regarding the potential extension of product intervention orders on short-term credit facilities and continuing credit contracts, which mortgage brokers help secure.
The current orders established on 15 July 2022 are being reviewed in response to findings that indicated significant harm to retail clients when such products were combined with high-cost services.
The regulator said the current orders have shown effectiveness in reducing risks for retail clients when offered alongside high-cost services. Should these orders not be extended, they would expire on 15 January 2024.
In the consultation paper, ASIC claimed that if the order did not remain in force it would be a “significant detriment to retail clients”.
The regulator stated in the paper that given the positive view and effectiveness of the intervention orders “extending the orders so they remain in force until they are revoked or sunset, is preferable to a shorter extension period, such as three or five years”.
ASIC added that a shorter extension period would also “necessitate a further consultation process to consider whether it should be extended again and would come at an additional cost and effort to ASIC and other stakeholders”.
The consultation paper emphasised ASIC’s commitment to overseeing the short-term credit and continuing credit contracts markets and taking appropriate regulatory measures.
Since the inception of the order in July 2022, no adverse or unintended effects on retail clients or the market as a whole have been observed, as stated in the paper.
The deadline for feedback on CP 371 is 5pm on 31 August 2023, with the paper stating ASIC would review all relevant submissions and prepare a report to the minister between August and October with a notice to be published on the regulator’s website if the product intervention orders are extended.
Continuing credit contracts, as defined by section 204 of the National Credit Code, involve multiple credit advances and increasing available credit as the loan amount decreases.
ASIC has previously identified issues in the provision of such credit, leading to significant harm for borrowers facing excessively high costs relative to the loan amount.
The regulator is particularly concerned about these products being offered to vulnerable clients, including those already experiencing financial difficulties.
[Related: ASIC proposes censure on credit product]
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