Updated: 27 October 2023

The Australian Financial Complaints Authority (AFCA) has published its response to ASIC’s consultation on the proposed use of its product intervention powers to address significant consumer detriment arising from continuing credit contracts being provided to retail clients under a ‘collateral services’ model.

AFCA strongly agrees with ASIC’s assessment of the potential harm that continuing credit contracts provided under this model can cause. The submission highlights that continuing credit contracts, like short term credit contracts, are often used by vulnerable consumers in financial stress. The fee structure associated with the ‘collateral services’ model can have significant adverse effects on individuals, their families and communities, as well as the broader financial services system.

 “AFCA strongly welcomes and supports ASIC’s proposal to make a product intervention order by legislative instrument that would prohibit credit providers and their associates from issuing continuing credit contracts, that are structured in this way” said Chief Ombudsman and Chief Executive Officer David Locke.

“Without this measure, AFCA is concerned that these products are likely to exacerbate financial stress and financial hardship for low-income and vulnerable Australians.”

“We strongly support ASIC taking the proposed action and believe that all financial firms who offer credit products to consumers that in substance fall within the consumer credit laws should be held to appropriate standards and be regulated by the credit regulations which seek to protect consumers.”

Additionally, AFCA says in its submission that due to their business structure, firms using this model may not require an Australian Credit Licence (ACL), which means they are generally not required to be a member of AFCA.

“This significantly limits a consumer’s ability to access cost-effective and independent dispute resolution when they have a complaint that can’t be resolved directly with the credit provider,” said Mr Locke.

Mr Locke also expressed concern that as COVID-19 relief measures wind down and the economic situation worsens over the next three to six months, there is a real possibility that increasing numbers of vulnerable consumers may seek temporary relief by entering into continuing credit contracts.

“AFCA believes that it is essential to ensure that all consumers entering these types of facilities, especially during this unprecedented time, have access to the consumer protections afforded under the National Credit Code (NCC) and free and independent EDR”.

For more information, read AFCA's submission to ASIC - CP 330 Using the product intervention power - continuing credit contracts


Published: 5 August 2020


Media enquiries media@afca.org.au

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The Australian Financial Complaints Authority (AFCA) is a non-government ombudsman service providing free, fair and independent help with financial disputes. It is a one-stop-shop for consumers and small businesses who have a dispute with their financial firm, over things such as banking, credit, insurance, advice, investments or superannuation. Where an agreement cannot be reached between parties, AFCA can issue decisions that are binding on financial firms.

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