EXPLANATORY STATEMENT
Statutory Rules 1984 No. 230
Issued by the authority of the Attorney-General
TRADE PRACTICES (REMOVAL OF EXCEPTIONS)
REGULATIONS (AMENDMENT)
These Regulations, made under subsection 172(1) of the Trade Practices Act 1974, amend the Trade Practices (Removal of Exceptions) Regulations.
Sub-section 172(1) of the Trade Practices Act 1974 (the Act) provides, amongst other things, that the Governor-General may make regulations, not inconsistent with the Act, prescribing matters required or permitted by the Act to be prescribed or which are necessary or convenient to be prescribed for carrying out or giving effect to the Act.
The Regulations amend regulation 3 of the Trade Practices (Removal of Exceptions) Regulations to remove the possibility for States to specifically authorize any prescribed societies to engage in such arrangements. A lending institution engages in tied insurance arrangements if it compels borrowers to take out insurance with nominated insurance companies.
This is a form of “third line forcing” (i.e. supplying goods or services on condition that other goods or services will be acquired from another person) which is prohibited by sub-section 47(6) of the Act. However, paragraph 51(1)(b) of the Act excepts from that prohibition conduct specifically authorized by State Acts or Regulations, unless such State authorization is overridden by Regulation under the Act.
The Trade Practices (Removal of Exceptions) Regulations, when originally made in 1975, overrode State legislation specifically authorizing tied insurance arrangements by building societies, co-operative societies and credit unions. Amendments of the Regulations in 1979 and 1981 had the effect of removing the application of the Regulations to these arrangements in respect of terminating building societies and NSW co-operative housing societies, which meant that State legislation could once again specifically authorize tied insurance arrangements by these societies. The Regulations continued, however, to override any purported specific authorization of tied insurance arrangements by other building societies, co-operative societies and credit unions.
Following numerous consumer complaints (particularly about grossly excessive premiums), continuing consultations have taken place with all State Governments with the aim of amending the Regulations to remove the possibility of States authorizing tied insurance arrangements by the presently excepted building societies.
All States have agreed to the amendment.
The effect of the amending Regulation is to remove the power of the States to specifically authorize any societies engaging in tied insurance arrangements so that all building societies (permanent, terminating, etc.), co-operative societies and credit unions are treated in the same way under the Act.
Overview
The Trade Practices (Removal of Exceptions) Regulations (Amendment) 1997, issued under the authority of the Attorney-General and made under subsection 172(1) of the Trade Practices Act 1974, aim to address the issue of tied insurance arrangements by amending the Trade Practices (Removal of Exceptions) Regulations. This amendment seeks to rectify a legislative gap where certain States could still authorize prescribed societies to engage in practices that compel borrowers to take out insurance with nominated insurance companies, a practice prohibited by the Act. The objective of these regulations is to ensure uniform treatment of all building societies, co-operative societies, and credit unions under the Act, thereby preventing the exploitation of consumers through excessive insurance premiums and promoting fair trade practices. All States have agreed to this amendment, reflecting a collective policy objective to enhance consumer protection and compliance with trade practices laws.
Scope and Application
The Trade Practices (Removal of Exceptions) Regulations (Amendment) Statutory Rules 1984 No. 230, issued under the Trade Practices Act 1974, serve to amend the existing Trade Practices (Removal of Exceptions) Regulations by removing the capacity of states to specifically authorise prescribed societies to engage in tied insurance arrangements. This legislation applies to all entities involved in tied insurance arrangements, which involve compelling borrowers to purchase insurance from nominated companies, a practice prohibited by subsection 47(6) of the Act. However, the Act had previously allowed for exceptions to this prohibition if the conduct was authorised by state legislation, unless those exceptions were overridden by regulations under the Act. The amendment ensures that all building societies, co-operative societies, and credit unions are uniformly treated under the Act, thereby prohibiting state legislation from specifically authorising tied insurance arrangements by these entities. The amendment extends to the entire Commonwealth of Australia and is applicable to any transaction involving third line forcing within the specified entities. There are no stated exclusions or thresholds in these Regulations, and the scope is not further extended or restricted by subordinate instruments.
Key Provisions
The Trade Practices (Removal of Exceptions) Regulations (Amendment) primarily focus on modifying regulation 3 of the Trade Practices (Removal of Exceptions) Regulations ((regulation 3)). These amendments serve to eliminate the ability of State governments to specifically authorise prescribed societies, such as building societies, co-operative societies, and credit unions, to engage in tied insurance arrangements. Tied insurance arrangements refer to situations where a lending institution requires borrowers to purchase insurance from nominated insurance companies, a practice prohibited by section 47(6) of the Trade Practices Act 1974 (the Act), unless exempted by state legislation or regulations (section 51(1)(b) of the Act).
These regulations impose specific obligations on the entities they govern. Firstly, they prohibit the ability of State governments to authorise tied insurance arrangements by any prescribed societies, thus aligning all such societies under a uniform regulatory framework under the Act. The primary aim of these regulations is to ensure that no prescribed society can engage in third-line forcing, a practice where the supply of goods or services is contingent upon the acquisition of other goods or services from a different entity, as per section 47(6) of the Act. The Regulations strive to achieve this by overriding any State-level authorisation of tied insurance arrangements, thereby ensuring consistency in the application of the Act across different jurisdictions.
Failure to comply with these regulations could lead to various consequences. While the Act itself does not specify particular offences or penalties for breach of the amended regulations, violations of the Act's provisions could lead to civil or criminal penalties, depending on the nature and severity of the offence. The penalties for breaches of the Act can range from fines to imprisonment, depending on the specific section of the Act that has been breached. For example, contravening section 47(6) could result in fines up to $1,100,000 for a corporation and/or imprisonment for up to 10 years. However, it is important to note that these penalties pertain to breaches of the Act and not specifically to the amended regulations.