Treasurer urged to clarify reverse mortgage changes

In December 2020, the National Consumer Credit Protection Amendment (Supporting Economic Recovery) Bill 2020 was introduced into Parliament, setting out legal amendments relating to consumer credit and consumer leases, the controversial proposal to extend the best interests duty to more credit assistance providers and the removal of responsible lending laws for all but small credit contracts.

The bill was referred to the Senate economics legislation committee for review in December, with the Senate expected to report back to the chamber on 12 March 2021.

The Senate standing committee for the scrutiny of bills has also now considered the bill, and requested that the Treasurer provide more “detailed advice” on a range of topics relating to the bill.

While the standing committee does not make any requests around the proposed extension of the BID, it does seek clarity on some of the other proposals impacting mortgage brokers.

This includes the proposal that credit 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 bill also proposes 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. Further, the interval between the date on which the credit would first be provided and the due date of the first repayment cannot be more than twice the length of the interval between each repayment.

The Senate committee noted that non-compliance with the obligations are subject to criminal offences in addition to civil penalties.

Writing in the Bills Digest, the committee stated: “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…

“[T]he 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.”

Moreover, the committee noted that a legislative instrument made by the executive would not be subject to the “full range of parliamentary scrutiny inherent in bringing proposed changes in the form of an amending bill”.

As such, it is calling on the Treasurer to provide detailed advice as to a range of topics outlined in the bill, including:

• why it is considered necessary and appropriate to leave these matters to delegated legislation; and
• whether the bill can be amended to include at least high-level guidance regarding the manner of giving a comparison of equity projections and aged care costs to a consumer.

[Related: Reverse mortgage lenders highlight ‘solution’ to retirement income]