22 February 2012





There wouldn’t be many people in this room who haven’t felt, at some stage during their life, that they didn’t quite have their financial situation under control.


And that as a consequence, personal confidence and peace of mind was a long way from where it should be.


I make that claim because I have experienced it myself.  It’s often part of being a student who can only work part time or indeed being a parent with a mortgage.


Financial distress is one of the most stressful and unsettling things a person can experience.


Acute and prolonged financial distress can tear apart many marriages.  And reverberate throughout communities.


It threatens people with bankruptcy, with a diminution in their quality of life - and in some cases with homelessness.


Ultimately, it can threaten perfectly normal people with a sense of doomed destiny.


The Government I work for knows financial counselling is a profession dedicated to helping people navigate their way out of financial troubles that are too difficult to cope with on their own.

The relationship between financial counsellor and client may at times seem akin to priest and penitent, where financial sins hidden from even the closest of family are finally confessed.


Yet unlike the religious doctrines, confession itself will not let to absolution in financial matters.


The mountains of bills, the years of debt, the failure to engage – these things take years to unwind.


So what you do each day is significant.  And as Minister for Financial Services, I thank you warmly for your work and commitment.


Financial Counselling Australia and its forebears have been helping financial counsellors to fill that role for many years now.


Your work leads to outcomes – and the earlier the intervention, the better. Early financial counselling services focus clients on the things that many of us take for granted, but that can so easily be neglected.


Things like budgeting and debt repayment.


Through engagement over time, financial counsellors communicate with clients in a different manner; not just as victims, to be given material aid, or as incompetents to be lectured about changing their ways.


Financial counsellors work with and for their clients, listening and suggesting rather than telling.


And in the process this unique role allows a clearer picture to emerge of the systemic and structural challenges that low income consumers face in accessing products and services on safe and fair terms.


I believe the Gillard Government has adopted a similar approach and many of its reforms in the financial services sector are about empowering people to make more informed decisions.


Government also plays a critical role in helping the FCA.


AFCCRA, the FCA’s predecessor, was successful in attracting government funding to perform its peak body role. That funding was withdrawn in 1996 when the Howard Government was elected – that is a matter of historical record.


The fact that the body was able to continue, is a testament to work of many dedicated volunteers, particularly Jan Pentland.


In the 2008 budget, Treasurer Swan announced that funding for the Commonwealth Financial Counselling Program would be doubled, from the then $2.5 million per year (unchanged since the program began in 1990) to $5 million.


In early 2009, the Federal Government again provided funding for AFCCRA to allow it to perform its peak body role adequately.


That brings us to this year’s budget.




The Government has just delivered a Budget that delivers a surplus.


This is appropriate given the macroeconomic context.


We are in the middle of a mining boom that has the terms of trade at the highest level since the convict era.  The Asian giants are urbanising – and their appetite for our minerals is unlikely to subside soon.


There is $450 billion in the investment pipeline.


Returning to surplus is the responsible thing to do to allow the economy to adjust to these once in a lifetime conditions.


But the Budget is about more than returning to surplus.


It is about converting Australia’s economic successes and the opportunities of the mining boom into tangible benefits for the majority of Australians.


It will do this by supporting families with the cost of living, delivering help to those who need it most, and improving important frontline services.


Specific measures


The Government will strengthen support to those people most in need including families struggling with cost of living pressures, people with disability, older Australians and Indigenous Australians.


While still returning the Budget to surplus on time and as promised, the core of this Budget is a plan to spread the benefits of the mining boom to help families on low and middle incomes with the costs of living.


This includes an investment of an additional $2.1 billion in a new Schoolkids Bonus that will replace the Education Tax Refund with an automatic payment that is more timely, simpler for families and means that nobody misses out.


There is an extra $1.8 billion in family payments to over 1.5 million families.


And an additional $1.1 billion for a new Supplementary Allowance to help the unemployed, students and parents with young children, who are in receipt of income supports, to meet the costs of essential bills.


Beginning March 2013, the new supplement will be paid in two equal instalments in March and September each year.


The supplement of $210 for singles and $350 for couples combined will reach over 1.4 million Australian households.


These measures will help many of the people that financial counsellors deal with.


As a Labor Government we’ll always do everything we possibly can to look after low and middle income families under financial pressure — that means shielding them from the impact of savings measures in delivering a surplus and providing extra cost of living relief.




Combined with reforms such as a National Disability Insurance Scheme (NDIS), aged care and dental health, this is the best way to convert Australia’s economic successes into tangible benefits for the majority of Australians, including the most vulnerable.


I want to single out the NDIS – an issue that I am particularly passionate about.


This is an idea whose time has come.


A time to end the ration-based, service driven lottery that prevents people with disability and their carers from achieving their full potential.


A time to end the midnight anxiety ageing parents of adult children with disability over the fate of their most beloved when they are gone.


An NDIS will fundamentally change the way disability care and support is provided. The Government is committing $1.0 billion over four years for the first stage of the historic NDIS.

It’s time that the States and territories and the Opposition put aside petty politics and committed unreservedly to an NDIS.  This Budget announcement is real and tangible.


From mid-2013, assessments will begin in launch locations to provide 10,000 eligible adults and children, growing to 20,000 from mid-2014, in up to four launch locations with individualised reasonable and necessary care and support.


The Government will work with states and territories to determine the launch locations. But these service systems have disintegrated on their watch – so its time they step up to the plate on real and lasting reform.


The Government is also undertaking a number of reforms in the area of financial services.






In 2008, the Government committed to modernising Australia’s consumer credit laws under a Council of Australian Governments’ two-phase implementation plan.


Phase 1 was implemented by the passage of the National Consumer Credit Protection Act 2009 to include a licensing regime and the conversion of the Credit Code from State and Territory law to Commonwealth law.


The Act also included improved consumer access to free and independent dispute resolutions schemes and the introduction of responsible lending obligations.


COAG also agreed further reforms were required and would be undertaken in Phase 2.


Reforms in Phase 2 began with the introduction into Parliament in September last year of the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011.


The Enhancements Bill includes measures for the regulation of reverse mortgages, consumer leases, small amount credit contracts, and introduces caps on costs for credit contracts.


Despite our best efforts, this bill was NOT supported by the current Parliament and went through the committee process including the Parliamentary Joint Committee on Corporations and Financial Services.   And I will come to small amount credit contracts in detail shortly.


The Government's Competitive and Sustainable Banking Package announced last year has also introduced a range of consumer protection benefits including the banning of mortgage exit fees; and from 1 January this year a simple, standardised, one-page fact sheet for consumers to compare home loans.


The measures are aimed at assisting consumers to get a better deal.


In the next phase of credit reforms the Gillard Government will be looking into the regulation of credit to small business, investment lending, and further enhancements in relation to Phase 1, and enhanced disclosure to enable better informed consumers.


All these reforms are important elements in increasing levels of consumer protection in the consumer credit sector and particularly aim to ensure that consumers across Australia are equally and consistently protected when it comes to obtaining credit, and that that credit is available on fair terms.




The Enhancements Bill includes a number of significant changes to the regulation of small amount credit contracts, a sector often referred to as payday lending.


Extensive consultations have occurred throughout the process of credit reform including with the Enhancements Bill, and I acknowledge and thank the contribution of financial counsellors and others in the audience today in providing your invaluable first-hand experience.


The payday lending sector would be a sector known well by many here today.


You have dealt with consumers in financial difficulties as a result of the high cost of this credit, as this sector undoubtedly impacts more heavily on the financially vulnerable in our community.


That’s why we are committed to reform.


While not finalised, the Government is working to significantly improve consumer protection by ensuring that consumers are not exploited because they cannot obtain credit from mainstream lenders.


We want to reduce the likelihood that vulnerable individuals  will fall into a spiral of debt, of hardship and of poverty.


This will be principally achieved through the introduction of Australia's first national cap on costs – indeed one of the few in the world.


A cap on costs will mean that payday lenders will be required to charge more reasonable, rather than excessive interest and charges.  A National, comprehensive cap will not be circumvented in the same way State based legislation enables.


I do not believe that Government is an exercise in ideology. Rather it is about sustainable and balanced long-term reform. Sometimes it is achieved in increments.


I am working to achieve a pragmatic policy outcome within the real constraints of minority Government.


But this is NOT possible without your support.


The Government is working to ensure that we look at financial exclusion holistically.


  • Over 15 per cent of Australians, or 2,650,000 individuals, are fully or severely excluded from financial services including credit.

Six per cent of adults have minimal access to financial services and around 120,000 people have no ownership of financial products.


According to the National Financial Services Federation (NFSF), in 2008 small amount lending constituted approximately $500 million worth of loans per year in Australia.  That was four years ago and evidence suggests the sector is still growing.


A review of Australian research shows that consumers using payday loans have annual incomes of less than $36,000, with approximately 40 to 49 per cent having incomes of less than $24,000; 50 per cent are partially employed or unemployed; and around 50 per cent of small amount loan customers are in receipt of government benefits.


This is a significant industry and borrowers who use payday lenders are not price-sensitive.  Reviews of small amount lending show some lenders charging significantly higher costs and borrowers in need are not necessary discerning in their quest for extra funds.


A 2008 survey by Griffith University found that for a loan of $1,000 over a period of a year, consumers could be charged between $622 and $2,074 (a difference of $1,452).


The differences in cost reflect the lack of competition in this area, where consumer choices are driven by the need to access credit rather than the price.


Typical needs are for rent, bills and food, car repairs - a high level of nondiscretionary spending.


These figures shows how important it is to improve the financial wellbeing of all Australians, particularly the more financially and socially disadvantaged in society.


They also show how it’s issue that can’t be addressed through regulation alone. Legislation is pivotal point but it’s not the only answer.


That’s why we Mark Butler, the Minister for Social Inclusion and I are having the Social Inclusion board look into financial capability.


It’s also why we funded a pilot program of Community Development Financial Institutions through FaCHSIA. These organisations seek to build the capacity and resilience of disadvantaged and financially excluded individuals by offering financial services and products they would otherwise not be able to access from mainstream sources.


Each CDFI in the pilot is working closely with a bank or credit union for funding purposes.


And it’s why the Government has released a discussion paper Strategies to reduce reliance on high-cost, short-term, small amount lending - setting out a range of options aimed at encouraging consumers away from payday lending to cheaper and fairer alternatives.


This task is being undertaken jointly with the Minister for Community Services, Julie Collins.  Together with tips and other resources available on ASIC’s MoneySmart website, consumers need to have access to information to find better ways to manage their money and budget, and offering better alternatives will provide that.


I encourage you to contribute to that discussion – the paper is available on Treasury’s website, and closes on 7 June.


The Government is also encouraged to see initiatives such as NAB’s ‘Good Money’ hubs which offer access to financial assistance and support services such as NILS, StepUP and financial counselling all under the same roof.


These hubs are a joint community partnership between Good Shepherd Microfinance, the NAB and the State Government of Victoria.



Regulation of small amount lending


The Government is committed to a viable but tightly regulated small amount lending sector to ensure consumers are better protected.


The move to a 20/4 cap is based on encouraging longer term loans, and this will serve to reduce the impact of servicing a small loan on a day to day basis.



The Government is keen for the cap to be effective rather than result in widespread avoidance as has happened  in NSW and Qld.


For example Section 39B in the Enhancements Bill will address avoidance where costs are inflated by requiring consumer to purchase DVDs and the like.

The Bill also introduces a total cap limit of 200% on the amount of credit a consumer receives in the hand that can be paid to the lender in the case of default.


A Discussion Paper reviewing some of the proposed small amount lending reforms in the Enhancements Bill was released by Treasury recently, and the submissions are now being considered.





The Government’s record on consumer reform must be viewed through a wide lens, not just that of consumer credit.


In my own portfolio areas there has been much progress.


Many of you are hopefully aware that the Government is also progressing a major overhaul of the Australian financial advice industry.  The Future of Financial Advice (or FOFA) reforms are intended to strengthen investor protection and increase access to financial advice.


The legislative elements of the FOFA reforms passed through the House of Representatives on 22 March 2012, and are on track to become law on 1 July 2012.


FOFA includes a number of specific, targeted measures, such as the ban on conflicted remuneration and the introduction of an ‘opt-in’ arrangement where ongoing advice fees are charged.


However, the impact of FOFA is expected to be much broader.  FOFA is expected to facilitate and drive an increasing level of professionalism in the financial services industry, underpinning trust and confidence in the sector.


Overall, the benefits of the reforms for Australian consumers are:

  • better quality advice – consumers will be able to trust that the advice they receive is not influenced by product commissions;

  • a more competitive advice market – greater fee transparency means advisers will have to compete for clients on cost;

  • a reduction in product fees – as commissions are removed and product manufacturers also have to compete on cost;

  • greater availability of low-cost advice on single issues – through the expansion of scaled advice; and

  • less rogue advisers in the industry – because ASIC will have greater powers to remove licensees and individual advisers from the industry.


Rice Warner, a leading Australian actuarial firm, estimates that the FOFA reforms will result in more than double the pieces of advice provided by 2026, compared to if the reforms were not introduced.


This growth will primarily be driven by increased demand for scaled advice by customers.


Rice Warner also found that FOFA will lead to a significant reduction in the average cost of advice, from $2,135 to $1,188 by 2025/2026 (in 2011 dollars).


I expect that the post-FOFA financial services industry in Australia will be well placed to meet the increasing need for quality financial advice demanded by an ageing population.





Standard definition of flood


On 14 April 2012, the Insurance Contracts Amendment Bill 2012 which contained the standard definition of flood and Key Facts Sheet measures received Royal Assent.


The standard definition of flood will reduce consumer confusion regarding what is and is not included in insurance contracts.

This will ensure that situations where neighbouring properties, affected by the same inundation event, will no longer receive different claims assessments because the policies covering them will use the same definition of flood.


The legislation that will require the standard definition of flood has been passed by Parliament.  The regulations that contain the precise wording of the definition will be finalised within the next couple of weeks.


Key Facts Sheet


The Government has also passed legislation that will mandate a Key Facts Sheet for all home building and contents policies.


The Key Facts Sheet will contain key information relating to the policy.  It will make the purchase of home building and home contents insurance policies simpler for consumers, assisting them to compare policies with a consistent document (particularly as home building and home contents  policies are similar), and facilitate more effective and informed decision making.


Key Facts Sheets may also provide financial savings for consumers through increased competition in the insurance industry.


On 29 February 2012, the Government released a discussion paper on the Key Facts Sheet which sought stakeholder views on the format, content, structure and provision of the Key Facts Sheet.  10 submissions were received in response to the discussion paper.


The comments received during the consultation process aided in the development of a prototype Key Facts Sheet.

On 2 and 3 May 2012, consumer testing of the prototype Key Facts Sheet was undertaken.  Once the outcomes of the consumer testing have been taken into consideration, regulations will be made to give effect to the Key Facts Sheet.




The Advisory Panel on the Economic Potential of Senior Australians recommended that the Government work with industry, peak organisations and senior Australians to look into the issue of availability and affordability of travel insurance for senior Australians.


The issue of travel insurance for senior Australians was discussed at the 29 March Insurance Reform Advisory Group (IRAG) meeting.  This meeting brought together insurers and peak bodies for the insurance industry, consumer groups and seniors groups.


Representations continue to be made to the Government about the difficulties faced by some older Australians in obtaining travel insurance.  These concerns were echoed by seniors groups at the IRAG meeting, which noted that many seniors seeking a travel insurance policy face premium penalties for risks unrelated to age.


In this regard, I think the industry can do better.


In my view, insurance companies should be able to offer travel insurance for risks not related to age.


This is because many travel risks are not related to age, such as the risk of cancellations or lost luggage.


This would allow individuals to choose the type of cover that best suits their needs.


In addition to limiting age-based premium adjustments to only those risks that are actuarially linked to age, the insurance industry should communicate clearly to consumers which risks have had age-based premium adjustments and which haven’t.


Where there are risks that increase with age, my view is that individuals should have the opportunity of demonstrating to insurers that they either do not face the same risk as others of their age or that they have credible ways of managing the risk.

With an ageing population with a growing thirst for travel, ensuring senior Australian have access to appropriate insurance is an important issue upon which I am keen to see positive progress.


My preference is to find an industry solution to improve travel insurance outcomes for senior Australians.


To its credit, the insurance industry has agreed to join a soon to be convened roundtable to look into a number of concerns with relevance to travel insurance and senior Australians, including the issue of pricing of travel insurance premiums for senior Australians.




The Australian superannuation industry manages around $1.3 trillion in hard‑working Australian’s retirement savings.  Every dollar diverted in fees or other unnecessary overheads is a dollar less going towards member’s retirement income.  Over a working life these fees can amount to tens of thousands of dollars of lost retirement income.


That is why the Government is implementing the Stronger Super reforms that will provide a better deal to the many Australian’s who do not take an active role in managing their superannuation.


The Government ‘s reforms will make the process of everyday transactions easier, cheaper and faster and will make clearer the duties for directors of superannuation trustee boards by improving the governance and integrity of the superannuation system.


A key plank of the Government’s reforms is the introduction of MySuper from 1 July 2013.  MySuper is a new simple, cost effective default superannuation product that all Australians can rely on.


MySuper will be limited to common set of features to make it easier for members, employers and other stakeholders to compare performance across MySuper products, placing downward pressure on fees.  Importantly, hardworking Australian’s will no longer have to pay for unnecessary ‘bells and whistles’.


In combination, the Government's superannuation reforms are estimated to increase retirement superannuation balances by almost $150,000 for a 30 year old worker earning average full‑time wages.




Door knocking is a big problem in ATSI communities.


There is a lot more “scam” activity via door knocking in these communities than in mainstream Australia.


Some common examples include over-priced water coolers, first aid kits and funeral plans.


I have been informed of cases in which car first aid kits worth $50 have been sold for over $300.


This often involves aggressive sales people who harass people to sign contracts.

ATSI people may not understand their rights and are more likely to be polite to visitors and say “yes”.


English may be a second language and this also makes people vulnerable.

Financial counsellors are at the forefront of this and see the problems


Lynda Edwards, an Indigenous financial counsellor, and the team at Centacare, Wilcannia-Forbes got on the front foot to do something about the problem.


They are part of the Do Not Knock campaign being run by the Consumer Action Law Centre  and Financial Counselling Australia.


The ATSI Do Not Knock sticker builds on the sticker developed originally by Consumer Action Law Centre. The design is from young Indigenous detainees in a detention centre in NSW.


A salesperson who ignores a Do Not Knock sticker is committing trespass.

The new national energy laws, once passed, have a clear provision saying that a seller must abide by a sticker.


Package of Resources


Today, I would like to launch a package of resources.


For individual households (Centacare Wilcannia-Forbes), it includes:


  • An indigenous Do Not Knock sticker

  • A flyer – What to say to a salesperson at your door (to put on the front of the door)

  • And another flyer – Don’t get clawed over the phone (to leave near the phone)


There is also Community Education Resources, for use by Money Management Workers and Financial Counsellors in Indigenous Communities (Financial Counselling Australia)


  • Fact sheet – 1.  About the door knocking provisions in the new Australian Consumer Law

  • Fact sheet – 2.   About the Do Not Knock campaign

  • Flash cards – A3 with pictures and text for a community education session

  • PowerPoint – another option for presenting material


Case Study in the Pilbara


A company was selling car first aid kits and water coolers in the Pilbara last year.

A financial counsellor in the area had 26 clients from one reserve.


They all thought that the commodities were either $15 or $30 all up.


In fact, that was the fortnightly amount to be deducted over 104 fortnights by direct debit (a total cost of over $3,000 in some cases).

Some people actually thought they were free goods.


One client signed five contracts. Clients were on Centerlink payments.


This is the kind of abuse that this initiative is aimed at.




The Government is keen to complement the good work of financial counsellors – such as the program that is being launched today.


That includes reforms such as FOFA, pay day lending, insurance and superannuation.


It also includes targeted financial support, which the Government has maintained in this year’s Budget even while returning to surplus.


Thank you again for what you do.


As a Labor Minister I say with some pride that the people you look after are our people, the citizens that motivate the legislative and advocacy energies of so many on our side of politics.


Your time is important so thank you for listening to me today and best wishes for the remainder of your discussions at this important gathering.