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Although freedom of contract between parties remains the norm in Australian

commercial contracting, since the 1960s there has been growing concern around

complex, take-it-or-leave-it contracts. This has generated a range of legislative

protective mechanisms, most notably the Trade Practices Act 1974 (Cth). Its recent

parallel state and territory Acts15 and industry directed regulation,16 has recast

relationships between suppliers, retailers, wholesalers and consumers. In particular,

standard form contracts can exacerbate problems arising from unfair market

practices, supplier conduct and product offer details. As a result, industries such as

electricity, telecommunications, insurance and superannuation are all now subject to

frameworks of regulatory and judicial oversight designed to protect consumers from

unfair contract terms.17

Legislation to protect against abuse of unequal bargaining power in contract

formation has become particularly focused around personal, family or household

acquisitions (i.e. consumer transactions). Broader laws and regulations focusing on

misleading and deceptive conduct and unconscionable conduct, as seen in ss 18, 21

and 22 Schedule II, CCA respectively (previously ss 51(AA) and 52 of the Trade

Practices Act 1974), have been effective in addressing broad issues of commercial conduct. More specific legislation offering more targeted relief, such as the 2010

introduction of the CCA’s Unfair Contracts (ss 22, 23, Schedule II), focus

specifically on unfair advantage created by unusual terms in standard form consumer

contracts. These Acts are further supported by the expanded judicial interpretation of

common-law precedents surrounding freedom of contract principles. Judicial

decisions such as Commercial Bank of Australia Ltd v Amadio18 have established

15

Such as Fair Trading Act 1992 (ACT); Fair Trading Act 1987 (NSW); Fair Trading Act 1989 (Qld); Fair Trading Act 1987 (SA); Fair Trading Act 1990 (Tas); Fair Trading Act 1999 (Vic); Fair

Trading Act 1987 (WA). Other examples exist such as the Contract Review Act 1980 (NSW).

16

Such as the Insurance Contracts Act 1984 (Cth)and Subdivision BA of the Australian Securities

and Investment Commission Act 2001 (Cth) which deals with unfair contract term provisions in finance contracts.

17

For example the Superannuation Industry (Supervision) Act 1993 (Cth); and the

Telecommunications (Consumer Protection and Service Standards) Act 1999 (Cth).

18

critical protective frameworks for interpreting unconscionable conduct and

establishing requirements for minimum information provision that sellers must meet.

Further industry-specific legislation has also been enacted to address concerns

about the level and type of disclosure in prescribed contracts. While the 2012 arrival

of KFS in consumer credit lending and home loans is the most recent example, a

number of other industry prescribed disclosure regimes pre-date this. Disclosure and

transparency issues in insurance contracts were the target of the Insurance Contracts

Act 1984 (Cth), ss 34, 35 and the Insurance Contracts Regulations 1985 (Cth). This legislation provides a matrix of standard cover rules to all policies issued in relation

to home buildings, home content, motor vehicle, personal accident and illness,

consumer credit and travel insurance. The Regulations as promulgated specify the

minimum cover such policies must provide; for example, in relation to minimum

sums insured and the required risks or insured events to be covered. The Insurance

Contracts Act 1984 further ensures an insurer can only avoid or limit liability to pay under a prescribed contract in designated circumstances. As one commentator

explains, the protective net afforded consumers under prescribed contracts in this

area is such that:

The combined effect of the Act and the Insurance Contracts Regulations 1985

(Cth) is that where an insured makes a claim under a prescribed contract (that is, a contract to which the standard cover provisions apply) and that claim is in respect of loss arising from an event prescribed in the Regulations, the insurer must pay the insured the minimum amount specified in the Regulations. The insurer cannot rely on the terms of the contract to deny liability or reduce the amount of liability below a certain prescribed

minimum [absent compliance with specific legislative requirements]. (Tarr, 2011, p. 112)

Overall, commentators have found the creation of prescribed contract

categories and the designation of uniform, non-waivable rights to be an effective

change (e.g. Bek, Bugra, Hjalmarsson, & Lista, 2013; Johansson, 2013). Despite

this, these commentaries note issues surrounding the interpretation of the Act’s

specific requirements in terms of both timing around the delivery of disclosure

information and the variation of definitions and concepts (as seen most recently in

relation to the Queensland floods of 2010), highlighting the need for clear regulatory

requirements.

Similar steps have been taken for telecommunication contracts to reduce

consumer confusion about terms and conditions in mobile phone contracts. The

Telecommunications Consumer Protections Code, introduced by the Australian

Communications and Media Authority (ACMA) in September 2012, mandated that

telecommunications service suppliers provide a prescribed two-page disclosure

document to each customer buying a new service (ACMA, 2011, p. 6). This

disclosure document is termed the critical information summary and is designed to address the inadequacies and shortcomings of the information available to

participants before they enter into a contract with a supplier (ACMA, 2011, pp. 2-3).

Similarly to the mortgage market (see Section 2.1.3.), inadequate disclosure has been

found to prevent telecommunications consumers from making an informed choice

that will suit their needs and is one of the key drivers of consumer complaints

(ACMA, 2011, p. 3). By replicating the approach taken in telecommunications (i.e.

available to them), it is expected that borrowers will make more informed home loan

decisions and that fewer consumers will face excessive costs.19

Interviews conducted by the ACMA found that the vast majority (82%) of the

participants who recalled seeing a critical information summary found it useful

(ACMA, 2014, pp. 88-89). The interviews highlighted that borrowers found the

summary style of disclosure helpful in both comparing information and reducing the

time required for each comparison. The use of simple language, bold fonts for key

information, and tabular formats were found to help consumers. However, through

interviews with the disclosure’s users the ACMA identified some deficiencies in the

form. The key findings as set out by the ACMA are summarised in Figure 2.1:

19

Further revisions aimed at protecting telecommunications consumers are currently being investigated. See: Consumer Action Law Centre (2014). Submissions to the Telecommunications

Consumer Protections Industry Code. From http://consumeraction.org.au/submission-revisions-to- the-telecommunications-consumer-protections-industry-code/

Figure 2.1. Customer perceptions of the telecommunications critical information summaries. Reprinted from Reconnecting the customer – Tracking consumer outcomes by ACMA, 2014.

Retrieved from http://www.acma.gov.au/theACMA/Library/researchacma/Research- reports/consumer-research-into-telco-reforms. 

These critical information summaries (CIS) have also been criticised by some

users for their form. Specific criticisms include using text-based disclosure (as

opposed to tabular formatting) and overloading the reader with too much

information, impairing overall effectiveness (see sections 2.4.1 and 2.4.2). These

responses show that good disclosure design dictates that all costing information

should be readily accessible in one location with an appropriate focus on providing

Superannuation contracts with industry providers attract similar legislative

requirements for disclosing fees and costs for superannuation products and managed

investment schemes.20 In an attempt to better inform consumers about the costs they

face, prescribed contract regimes detail requirements for the content, terminology

and presentation of information to consumers (Australian Securities and Investment

Commission (ASIC), 2014).21 More recently there is a move towards shorter product

disclosure statements and changes to terminology22 to lessen the information load

placed on consumers.

There is an increasing trend towards the use of prescribed contracts in

Australia, particularly in the last decade. Research and government reviews have

found that mandated disclosure practices effectively improve transparency and

reduce information asymmetry in complex contexts; however, there is also room for

improving consumer take-up (Financial Services Authority, 2006; Illuminas, 2008;

O'Shea, 2010). The introduction of KFS into the home loan market is, therefore,

timely and sits logically with other industries already subject to legislative

intervention. The KFS format and content have been shaped by these collective

experiences, those in foreign jurisdictions (see sections 2.4.1 and 2.4.2), and broader

dynamics around this country’s consumer credit legislative history, a theme to which

this thesis turns.

20_{Superannuation Legislation Amendment (Further MySuper and Transparency Measures) Act 2012}

(Cth).

21

Schedule 10 to the Corporations Regulations has seen several definitions amended or introduced to reflect fee and cost arrangements for superannuation trustees in the Superannuation Industry

(Supervision) Act1993 (Cth).

22

2.2

Consumer protection in the home loan industry: