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Adverse impacts on business – Unfair contract terms the Victorian experience
Sydney, 15 June, 2009: The Australian Bankers’ Association (ABA) said the effect of the unfair contract terms regime in Victoria has been a drain on businesses resources with little benefit for consumers.
David Bell, Chief Executive of the ABA, said: “It is disappointing that the problems created in Victoria have not been taken into account when the Federal Government has been developing the national unfair contract terms regime.”
“The unclear nature of the Victorian law will increase compliance costs on the business community in assessing the impacts of the regime and reviewing contracts. This compliance cost will only be duplicated once a national regime is introduced.”
“Now there is double trouble because Victoria has extended the regime which means this defective State legislation now applies to consumer credit. It is very disappointing that Victoria has legislated outside the Federal Government’s national process because the banking sector hoped to set aside costly State-by-State compliance programs and aim for a nationally consistent model.”
The ABA continues to raise concerns with the proposed national regime, some of which has been taken from the Victorian experience. It will create uncertainty for the banking sector resulting in increased risk for banks, higher costs for consumers and conflicts with the Government’s own best practice regulation guidelines.
The ABA notes that a consumer group is reported to have said that lenders’ claims of increasing costs to consumers and lenders, if unfair contract terms became law nationally, were ‘disingenuous’1. This cannot be correct.
The track record in Victoria clearly suggests otherwise and given the costs associated with that regime provides little, if any, justification for a national response to unfair contract terms for the following reasons:
- Unclear drafting and uncertain application – there are significant doubts as to many of the terms used in the Victorian legislation. The drafting of the Victorian regime introduced many untested concepts to Australian law giving rise to a variety of interpretative issues. Only one court decision has been handed down since 2003 and others have been overturned or contradicted. (see over Notes for Editors)
- Underutilised – you would expect that a law with ‘proven’ benefits would be turned to regularly, especially when consumers are able to raise concerns at very little cost - either via Consumer Affairs Victoria (CAV) or themselves in the Victorian Civil and Administrative Tribunal (VCAT). But the regime has been poorly utilised with CAV2 noting there have only been a handful of relevant decisions (see Notes for Editors) and private claims appear to be relatively uncommon. The reason for this is the legislation is too uncertain.
- Redundant provisions – much of the drafting was done without proper consultation which led to unclear and redundant provisions finding their way into the regime. We are now seeing the costly results. Only last week did the Victorian Government pass legislation to remove the “good faith” concept from the text of the law with little explanation whatsoever because no-one understood its role in the regime.
- Costly and lengthy compliance process – feedback from businesses in Victoria is that CAV has caused significant disruption by investigating terms of standard form contracts and alleging many of the terms are unfair without any clear reason. In some cases, the ABA understands that it has cost more than a years worth of negotiation, and significant time and financial resources to amend contracts simply to placate the concerns of an over zealous regulator, without any tangible evidence of actual consumer benefit.
Mr Bell said: “This regime is creating more problems than it solves because it is deeply flawed. The changes have been rushed and will undermine the legality of important and necessary clauses in banks’ standard lending agreements. This is precisely the sort of legislation that Australia does not need in these difficult economic times.”
The ABA called on the Government to consult more widely and spend more time considering the Victorian experience. The ABA remains unclear why this proposed law is necessary given other established consumer protection laws such as unconscionable conduct and misleading and deceptive laws.
Notes for editors
More information on the problems caused by uncertain drafting and uncertain application – The problems caused by the broad and uncertain concepts, some of which have been duplicated in the national legislation, are compounded by the lack of jurisprudence in this area of law in Victoria, with only one court decision since 2003. Of the few cases heard by VCAT, many were decided without proper explanation given or analysis. Some cases which were proclaimed by CAV as “landmark” decisions (such as Director of Consumer Affairs v AAPT Ltd [2006] VCAT 1493 and Free v Jetstar Airways Pty Ltd [2007] VCAT 1405), have since been overturned or contradicted by the Supreme Court of Victoria (in the recent decision of Jetstar Airways Pty Ltd v Elizabeth Winifred Free [2008] VSC 539).
For further information:
Heather Wellard
Director, Public Relations
Phone: 02 8298 0411
Mobile: 0409 830 439
ENDS
[1] Lenders fear credit reform laws by Ashley Midalia, “Australian Financial Review”, Friday, 5 June, 2009, page 53.
[2] Peter Hiland of CAV to the Monash Centre for Regulatory Studies titled “Update on Victoria’s unfair contract terms legislation – the cases” on 17 February, 2009. |
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