Labor initially supported Commissioner Kenneth Hayne’s recommendation to phase in changes over time so the borrower, not the lender, pays the up-front fee to the broker.
The government opposes this recommendation and Labor has softened its language in recent weeks, promising to fully consult on any change and do it slowly.
‘Reckless’ to rush
On Tuesday, Labor stepped up pressure on the federal government to start legislating banking royal commission reforms, presenting draft laws for five changes it said could be passed before the election.
Although the government maintained it would be “reckless” to rush the process and that the 40 recommendations which require legislation should be addressed after the election, it will start releasing draft legislation as early as this week on some changes so as not to be left flat footed.
From July 1, 2019 and June 30, 2020, Australian Financial Complaints Authority would consider unresolved financial complaints dating back to January 1, 2008.
There will be compensation of up to $500,000 for consumers, $1 million for small businesses and $2 million for primary producers.
As the major parties locked horns on banks, the government argued Labor’s five proposals were either unworkable or had unintended consequences because they were not thought through.
Labor’s proposals included abolishing grandfathered commissions on January 1, 2020, a year earlier than the government is proposing, and removing exemptions from responsible lending standards for point-of-sale lenders such a car dealers who offer finance.
The government has so far committed to look at this recommendation but in consultation, mindful of the effect it may have on business.
The third change would be to remove the claims handling exemption for insurance companies. Currently the handling and settlement of insurance claims are exempt from the definition of financial service and, therefore, are not regulated.
‘There really is nowhere you won’t go’
“There really is nowhere you won’t go,” he said.
Labor’s fourth proposal was the enforcement of greater co-operation between the banks and the AFCA when settling disputes. The fifth was remove exemptions for funeral expenses policies. The current exemption allows companies like Aboriginal Community Benefit Fund (not an Indigenous company) to sell low-value funeral expenses products without having to comply with the rules around insurance. They are basically unregulated.
But the government, acting on Treasury advice, argued Labor’s bills were poorly drafted.
For example, it said if a point-of-sale retailer lost their exemption from responsible lending standards, they would have to apply for a credit licence which could take up to 12 months, meaning customers could not apply for credit. Therefore, there needed to be a transition.
Forcing greater cooperation with AFCA was too narrowly defined and should be extended to include other financial institutions. The clampdown on funeral expenses policies could force the ACBF to become insolvent, voiding all current policies. The government believes this change can be done by regulation, not legislation
It claimed Labor’s proposal for ending commissions was unworkable and potentially unconstitutional and its idea for removing the claims handling exemption for insurance companies was unworkable.
Frydenberg’s commission plan to come
Later this week, Mr Frydenberg will release his own draft legislation for ending grandfathered commissions by January 1, 2021 and, next week, the government will release a discussion paper on removing the claims handling exemption for insurance companies.
The Turnbull government made bank CEOs appear before Parliament’s the House of Representatives Economics Committee for a regular grilling when it was trying to stave off a royal commission. Those hearings will continue under Labor, but the CEOs will have to give updates on their compliance with Hayne.
“Forcing the banks to front up and report their progress in implementing the royal commission will be a key part of ensuring there is permanent change in the financial services industry,” Mr Shorten said.
It showed that almost half of voters, or 49 per cent, trust Labor to respond to the royal commission. By contrast, about one third, or 34 per cent, trust the Coalition government, which fought establishing the commission for over a year before its hand was forced.
The government released the final report of the royal commission on February 4 along with its final response to all 76 recommendations. It backed most, but gave qualified support for about a dozen.