It has been over a year since reforms were introduced under the Fair Trading Act 1987 (NSW) (the Act) requiring suppliers (including of financial services) to take reasonable steps to disclose to their customers prejudicial contract terms and for intermediaries to disclose the arrangement under which they are acting, including referral commissions. The disclosure requirements imposed on intermediaries (including brokers) in particular is worth highlighting in the financial services space.
With the disruption caused by COVID-19 restrictions in the past year and an increased focus on unfair contract terms laws across the financial services industry, it’s useful now to focus again on the impact of these changes (particularly given that they extend to providers like wealth managers, mortgage brokers). It is also helpful to reflect on how the broadening of the definition of ‘consumer’ under Australian Consumer Law (ACL) in mid-2021 impacts on the disclosure obligations of financial service providers under the Act.
There were two key reforms to disclosure obligations under the Act that came into effect on 1 January 2021. These reforms apply to businesses with consumers based in NSW, meaning that financial service providers who may be based interstate but are suppling goods or services to consumers in NSW are nevertheless bound by them.
A supplier must, before supplying a consumer with goods or services, take reasonable steps to ensure the consumer is aware of the substance and effect of any term or condition that may substantially prejudice the interests of the consumer, including terms that:
An intermediary must before acting under an arrangement take reasonable steps to ensure the consumer is aware of the existence of the arrangement. An intermediary is a person who, under an arrangement providing for a financial incentive, arranges contracts for the supply of goods or services as an agent or refers consumers to another supplier of goods or services. Financial service providers, wealth managers, brokers and agents are all intermediaries and need to make this disclosure.
Importantly, there are no exemptions to these disclosure obligations, and are in addition to the existing prohibitions on unfair contract terms under ACL.
In mid-2021, the definition of ‘consumer’ under ACL was expanded pursuant to the Treasury Laws Amendment (Acquisition as Consumer – Financial Thresholds) Regulations 2020 (Cth). The effect is that now a person is taken to have acquired goods or services as a consumer if, and only if:
Previously, the monetary threshold for goods or services sold was $40,000. The impact of the increase in the threshold to $100,000 is that now goods or services between $40,001-$100,000 being supplied by financial service planners, wealth managers and brokers now fall within the scope of the ACL. Under the Act, ‘consumer’ has the same definition as ‘consumer’ under the ACL, and so the reforms to disclosure obligations apply to the supply of goods or services in NSW up to $100,000.
Some compliance measures that could be considered, if they have not already, include:
If you have any queries or would like further information please contact Edward Martin or Trish Kastanias.
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Edward Martin, Partner
Trish Kastanias, Senior Associate