Australian Competition, Fair Trading and Consumer Protection Laws: A Review

=====================================================

In an effort to safeguard consumers and promote fair competition in the banking sector, the Australian government has introduced several reforms aimed at strengthening consumer protection laws and regulations.

Deposit Guarantee and Ownership Interest

The Australian government guaranteed deposits up to A$250,000 held with Authorised Deposit-taking Institutions (ADIs) since October 2008. This guarantee covers all ADIs incorporated in Australia, including banks, building societies, and credit unions. However, the government’s ownership interest in the banking sector ceased with the full privatisation of the Commonwealth Bank of Australia between 1991 and 1996. Currently, there are no plans to own any interest in private banks, excluding minor holdings by public sector superannuation schemes and the Future Fund.

Banks are subject to the same rules that govern related-party transactions as public companies generally. This means that member approval is required for the giving of a financial benefit to a related party, unless an exception applies.

Regulatory Challenges

The banking industry faces several regulatory challenges, including:

Implementation of consumer data rights and open banking, which could erode the major banks’ advantage in data analysis and credit risk assessment.
The government’s response to the Australian Payments System Review Report, which has recommended mandating ASIC’s ePayments Code for all payment licensees, expanding the scope of the Reserve Bank of Australia’s designation power, and setting a strategic direction for payments systems.

Consumer Protection Rules

Banks are subject to consumer protection rules, including those related to credit facilities. The Corporations Act requires banks to hold an Australian Financial Services Licence (AFSL) and comply with consumer protection provisions. ASIC is responsible for enforcing these obligations.

Additional Protections

The ePayments Code provides additional protections, including:

Advance written notice of changes to terms and conditions
No liability for unauthorized transactions
Cooperation in recovering mistaken payments

Industry Self-Regulation

The banking industry also self-regulates through voluntary codes of practice developed by industry associations. However, compliance with an industry association’s code is not mandatory for all ADIs.

Looking Ahead

It is anticipated that there will be greater legal and regulatory policies implemented to safeguard consumers and prohibit financial services providers from engaging in misconduct. With the adoption of the Banking Royal Commission recommendations, there are expected to be more stringent legislative regulations on the banking industry.

ASIC and APRA may implement new legislative and regulatory changes in the industry, given their recent Corporate Plans for 2021-25. According to APRA’s plan, the goal is to “protect today, prepared for tomorrow”.

Last Update: January 25, 2022