Credit Union and Mutual Law Blog

Generational differences in dealing with compliance (part 2)

We have all been to conferences where there has been discussion about the differences between baby boomers, Gen X and Gen Y in terms of work attitudes or in terms of lifestyle preferences and marketing. If those presentations haven't meant anything to you, then the current game shows featuring different generations emphasise the difference.

[Read this BBC News story about a  teenager who gave up his iPod for a week and replaced it with his father's 25-year-old Sony Walkman to get an idea of the generational changes. For example it took the teenager three days to figure out that there was another side to the cassette tape!]

If you have an employee born before 1945, you could in fact have 4 different generations of employees.

Different generations have different savings attitudes, preferences for interacting on the Web and in the branch and relationships with financial institutions. And they are more mobile in their jobs.

It's now also becoming obvious that the different generations need to be communicated with in different ways in the workplace for compliance and training purposes.

This will influence your attitude to giving feedback, use of technology, mentoring, rewards and career opportunities.

For example training may need to be delivered in a variety of easy to access formats at convenient times.

Gen Y will have a preference for online or portable (eg podcast) type training.

The first step is to recognize that there are vast differences between today’s staff and previous times. The second step is to understand what makes each generation of employees different. Finally, the third step is to use this understanding to rethink your strategies for training employees and improving customer care, risk management and compliance.

See Part 1 here

Bank direct debit review

The Code Compliance Monitoring Committee for the Code of Banking Practice has published its report on its review of bank compliance with direct debit rules.

The aim of the review was to identify whether:

• Banks have adequate policy and procedures to ensure they comply with the requirements of the Code; (cl.19);

and

• Banks receive and process cancellation requests for direct debits without first referring customers to the business or service provider.

The review concluded that while appropriate policies and procedures were documented, 8 out of 10 of the Committee's “shadow” shoppers received incorrect or partially incorrect information. The result was similar for call centres and branches.

Overall the results did not meet the CCMC expectations of what would be reasonable considering the strong commitments expressed in the Code.

As part of the review process the Committee has met with all of the Banks concerned. The banks have undertaken a range of activities to improve performance relating to this aspect of the Code.

In addition the Committee has consulted with the Australian Payments Clearing Association (APCA), who oversee the direct entry system for payments. APCA have resolved with their members to undertake additional steps to improve direct debit cancellations and the obligations under both the Code of Banking Practice and their own Rules.

The Mutual Banking Code of Practice has similar provisions relating to the cancellation of direct debits and some of the initiatives undertaken by APCA will have an impact on Mutual ADIs.

Making compliance fun

How would you handle compliance training if you had 300 branches and 5000 employees?

I recently attended a presentation (organised by ACI) by Kellie Powell,Compliance Manager, and Jane Anderson, People & Leadership Specialist, Super Cheap Auto Group (Super Cheap Auto, BCF & Gold Cross) about their compliance training program.

They demonstrated their retail staff training program which features animation and is interactive.

It was designed when they realised their original trade practices compliance program was too high level and generic to make any impact on their more than 5000 retail staff ("team members") across 3 brands in 300 stores. Most of these are Gen Y (born between 1980 and 1994), many are casuals and there is a 30% annual turnover.

They decided that they needed to focus on compliance as part of caring for customers rather than as an enforcement issue.

They looked for fresh ways to make compliance training practical, relevant, fun and exciting for their organisation's front line employees, in particular those in Generation Y.

And while they haven't the statistics yet to prove reduced customer complaints the staff reaction and participation has been positive.

Have you thought about how you can deliver better compliance training to your front line staff?

National Consumer Credit Reform exposure draft bill changes

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP has introduced the reform package into Parliament (details here).

He announced that changes have been made to the exposure draft bills following industry and consumer consultation.

The significant changes include:

• Breach reporting by holders of an Australian Credit Licence has been removed;
• An express provision has been included to allow some flexibility to the application of the obligations of a licence holder according to the nature, scale and complexity of the credit activities engaged in by the licensee;
• Licence requirements only apply to legal (not equitable) assignees of debts and rights under credit contracts (this will assist securitised loans);
• The requirement for credit providers to perform the credit assistance obligations (eg a separate credit assistance guide) when providing credit assistance in relation to their own proprietary credit products has been removed;
• Responsible lending conduct requirements have been applied to consumer leases;
• Inclusion of a provision in the law that presumes that if a consumer will only be able to comply with the consumer's financial obligations under the contract by selling the consumer's principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is established;
• A prohibition on a credit assistant from securing their fees for providing credit assistance by taking a caveat has been included;
• The timeframe within which a written assessment requested by the consumer must be provided has been extended to seven business days, if the request is made within two years of the quote or contract date or 21 business days if the request is made thereafter. A consumer's right to request a copy of the assessment is limited to seven years after the date of the quote or contract;
• A lender will be required to give the debtor (and any guarantor) a notice within 10 business days of the first direct debit payment failing in relation to a direct debit instruction;
• The civil penalty infringement notice amount is reduced from 1/20th to 1/40th.;
• The criminal penalty is reduced to two years jail term and 100 penalty units. This reflects the different economic risks in credit matters compared to other financial products.

Langes is currently reviewing the draft bills in detail.

We will be discussing the legislation at our seminars in Brisbane, Sydney, Melbourne and Adelaide in August.(More information here).

Also see our new National Consumer Credit Reform website.

No GST payable on credit card late payment fees

In one of his interviews last week Peter Costello said the hardest thing he had done as Treasurer was the introduction of the GST.

It is incredibly complicated and technical and there isn't a lot of case law.

In American Express International Inc v Commissioner of Taxation [2009] FCA 683, Amex asked the Federal Court to decide whether payments made by the holders of credit cards and charge cards to the issuers of such cards, following default by the holders, constitute consideration for a “financial supply” within the meaning of s 40-5 of the GST Act and r 40-5.09(1) of the A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) (the GST Regulations).

The issue is important in the calculation of Amex's input tax credits.

The Court decided that "while the obligation to make Fee Payments to a card issuer would not arise unless there was the Credit Card Facility or Charge Card Facility in place between the card holder and the card issuer, the liability to make the Fee Payments arises because the card holder has failed to perform that card holder’s obligations under the Credit Card Terms and Conditions or the Charge Card Terms and Conditions, as the case may be. They are not consideration in connection with opening, keeping, operating, maintaining or closing the relevant facility. A card holder becomes liable to make the Fee Payment only because that card holder has failed to discharge, that is, has breached, the card holder’s contractual obligations under the relevant facility. "

The late payment fee was not consideration in connection with the provision, acquisition or disposal by the card issuer of an interest. Accordingly, the fee payments were not consideration in connection with a financial supply.

Victorian unfair credit terms law: are your fees unfair?

If you provide credit to Victorian residents (even if your business is based outside Victoria) you are affected by the Victorian Fair Trading and Other Acts Amendment Act 2009 which commenced operation on 11 June 2009.

In particular you need to review your fees to determine whether they are unfair under the new law.

The new unfair contract law (set out in Part 2B of Victoria’s Fair Trading Act 1999) pre-empts the Commonwealth's unfair contract terms law which is due to apply nationally from 1 January 2010,

Consumer Affairs Victoria (“CAV”) has published Guidelines on unfair terms in consumer credit contracts.

What is the impact of the unfair contract terms provisions of the Victorian Fair Trading Act?

Whilst the Guidelines consider a range of fees, credit card terms and reverse mortgages, it identifies 2 fees in particular:

1. There is a risk that CAV may consider an early termination fee to be “unfair” if it exceeds the “average reasonable administrative costs” relating to termination; it cannot include “general overheads such as rent, salaries and advertising”. CAV particularly objects to such a fee when the lender has unilateral rights to vary a contract's terms.

2. There is a risk that Consumer Affairs Victoria may consider default fees to be unfair if it exceeds a “genuine pre-estimate” of your “costs arising from the consumer’s breach”.

Whilst CAV's Guidelines are only guidelines it is worth reviewing your fees to test how they were calculated and to assess the risk that a court may find them unfair.

Dealing with economic cycles

In what has to be one of the worst speech titles for a while (Some Australian Perspectives on Procyclicality) Wayne Byres, Executive General Manager, Diversified Institutions Division APRA, has delivered an interesting analysis of the banking industry's ability to cope with economic cycles and the ability of APRA, as regulator, to influence that response.

He discusses the benefits of enforcement (eg APRA's response to NAB's forex losses), good governance, provisioning and capital adequacy in dealing with cycles.

Mandatory Comparison Rates regime extended

The Consumer Credit Code has been amended to remove the sunset date of 30 June 2009 in relation to the mandatory comparison rate scheme.

Last year, COAG agreed that responsibility for the regulation of credit will be referred by the states and territories to the Commonwealth.

The Commonwealth laws will maintain comparison rates.

Mandatory comparison rates will therefore continue under the existing law until the Commonwealth law commences.

Mortgage duty update

Currently Victoria, Tasmania, ACT, NT, Queensland and Western Australia have no mortgage duty.

South Australia will abolish mortgage duty on 1 July 2009.

After 1 July 2009 NSW will be the only state with mortgage duty.

In New South Wales, mortgage duty has already been abolished on owner occupied housing and investment housing. But the abolition of the remaining mortgage duty has been deferred until 1 July 2012.

The recent 2009-10 NSW Budget proposes removing the distinction between limited and unlimited mortgages and requiring production for up-stamping each time a further advance is made.

Changes are also proposed for the stamping of multi-jurisdiction mortgages in NSW.

NSW New Home Buyers Supplement extended

The NSW Treasurer has announced the NSW New Home Buyers Supplement has been extended to 30 June 2010.

The Supplement is a grant of $3000 in addition to any Commonwealth grant for First Home Buyers. It is for building a new home or unit purchasing a newly constructed home or unit .