How corporate cops will use incredible new power
CONSUMER advocates say they are some of the most important new powers in our history. And they are about to be wielded for the first time.
The brakes could also be put on peddlers of buy-now-pay-later schemes and credit repair services, consumer advocates say.
Legislation passed federal parliament in April giving the Australian Securities and Investments Commission (ASIC) the ability to intervene to protect the public even if a law hasn't been broken as long as it is satisfied "significant consumer detriment" is occurring.
The intervention options include a freeze or restriction on sales or imposing warnings on marketing material.
Such powers were proposed as far back as the Financial System Inquiry of 2014.
An intervention can only last 18 months. During that time, the product sellers may realise they need to clean up their act. If they don't, the Government can make the intervention permanent - or change the law to end to the rort.
Today ASIC published a consultation paper on the use of the new powers that says it may start the process of intervening before the feedback period ends of August 7.
In February, the financial services royal commission final report identified accident insurance and funeral cover as potential targets.
"Post royal commission, it's unsurprising some problem products may be on our radar,"
ASIC deputy chair Karen Chester told News Corp Australia.
But she said it was not appropriate to comment on which products were in ASIC's crosshairs while it was consulting.
In May, ASIC flagged the possibility it would use the powers to restrict the sale of "contracts for difference" and binary options.
The changes means ASIC could step in within three months of becoming aware of a problem product. In the past, action has taken years and that has cost consumers big time.
For example, ASIC learned in 2009 that banks were deliberately duping savers through a "dual pricing" structure for deposits that saw many customers moved to rates nearly half what that during their initial term.
It took several years of public shaming just to curb this practice.
In 2010, ASIC found about $560 million a month was being defaulted into low-rate term deposits; in 2013, $270 million was.
"If there had been a product intervention power in 2009, we may have considered using it in these circumstances," ASIC said in today's consultation paper.
Choice CEO Alan Kirkland said much of the "anger" towards ASIC during and after the royal commission was that it hadn't acted proactively.
"But it hasn't been able to do that before now," Mr Kirkland said.
He encouraged ASIC to use its new powers on accidental death cover.
"There are some parts of the life insurance industry that should be very worried," Mr Kirkland said.
Ditto sellers of consumer credit insurance and funeral cover.
"A great way that ASIC could step in would be to say funeral insurance can't be sold to people under a certain age," Mr Kirkland said.
Consumer Action Law Centre CEO Gerard Brody recommended a move against "buy-now-pay-later providers that avoid credit laws.
"ASIC could use the product intervention powers to require responsible lending obligations as these providers don't have to comply with those important protections," Mr Brody said.
He also urged action against payday lenders with tricky business models and "debt vultures" that claim to help with credit repair and budgeting yet don't have to act in the best interest of their customers.