Consumer research from The University of Queensland could drive new laws to help Australians understand the “true cost” of credit contracts and avoid overwhelming debt.
UQ Law School Senior Lecturer Paul O’Shea’s study on consumer credit was largely the basis for the Commonwealth Treasury’s proposed amendments to pre-contractual disclosure requirements under the National Consumer Protection Act 2009, released in a discussion paper in April.
Dr O’Shea said the Treasury proposals included the introduction of simplified financial summary tables for home loan contracts, credit cards, personal loans, reverse mortgages and consumer leases.
“When I worked as a consumer lawyer in a community legal centre, credit issues were at the root of almost every case I dealt with,” Dr O’Shea said.
“Clients frequently did not understand the nature of their credit obligations and the extent of their commitment when they entered into credit contracts.”
“The results were disastrous, with many people becoming bankrupt and even homeless.”
Dr O’Shea’s 2010 research report, Simplification of Disclosure Regulation for the Consumer Credit Code, was commissioned by the Standing Committee of Officials of Consumer Affairs and published by UniQuest in April 2010.
Dr O’Shea, who has 20 years experience working as a legal practitioner, policy advocate and researcher in the consumer credit space, said he was pleased the UQ Law School was having a direct impact on the development of laws that affect every consumer in Australia.
“I’m very proud that my work will potentially improve customers’ understanding of their credit contracts in such a direct way,” he said.
“The new simplified financial summary tables explain in plain English exactly the cost of credit and what the consumer has to pay, so it improves on the current position by making the credit provider perform all the calculations so that the consumer knows the true cost of their credit product,” said Dr O’Shea.
“Although the interest has always been required to be disclosed separately from other fees and charges, it was left to the consumer to add this together and multiply it out over the lifetime of the loan to discover the true cost of credit.
“It would all be done for them in plain sight.”
The Treasury discussion paper also proposed amendments that would require lenders to provide disclosure documents earlier in the credit process.
This was based on Dr O’Shea’s findings that consumers tended to choose lower risk and lower cost products if disclosure was provided at an earlier stage of the transaction.
Consumers also felt more confident in their choice and level of comprehension of the product if they had this information when they began credit shopping.
The research has already been used to support new consumer credit protection legislation passed by the Senate in the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011.
Submissions to the Treasury paper are due on 13 May 2013, but any changes will take at least 12 months to implement if the proposals are accepted into law.
Media: Dr Paul O'Shea, TC Beirne School of Law, 07 336 56614, p.oshea@law.uq.edu.au or Melissa Reynolds, 07 3365 2523, m.reynolds@law.uq.edu.au
