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Regulation Impact Statement for Decision September 2020

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Regulation Impact Statement for Decision September 2020 Enhancements to Unfair Contract Term Protections Regulation Impact Statement for Decision September 2020 i © Commonwealth of Australia 2020 This publication is available for your use under a Creative Commons Attribution 3.0 Australia licence, with the exception of the Commonwealth Coat of Arms, the Treasury logo, photographs, images, signatures and where otherwise stated. The full licence terms are available from http://creativecommons.org/licenses/by/3.0/au/legalcode. Use of Treasury material under a Creative Commons Attribution 3.0 Australia licence requires you to attribute the work (but not in any way that suggests that the Treasury endorses you or your use of the work). Treasury material used ‘as supplied’. Provided you have not modified or transformed Treasury material in any way including, for example, by changing the Treasury text; calculating percentage changes; graphing or charting data; or deriving new statistics from published Treasury statistics — then Treasury prefers the following attribution: Source: The Australian Government the Treasury. Derivative material If you have modified or transformed Treasury material, or derived new material from those of the Treasury in any way, then Treasury prefers the following attribution: Based on The Australian Government the Treasury data. Use of the Coat of Arms The terms under which the Coat of Arms can be used are set out on the Department of the Prime Minister and Cabinet website (see www.pmc.gov.au/government/commonwealth-coat-arms). Other uses Enquiries regarding this licence and any other use of this document are welcome at: Manager Media and Speeches Unit The Treasury Langton Crescent Parkes ACT 2600 Email: [email protected] Enhancements to Unfair Contract Term Protections – Decision Regulation Impact Statement Contents Abbreviations ....................................................................................................................... 3 Executive Summary ............................................................................................................... 5 What is the identified problem? .......................................................................................... 5 What are the preferred options? ......................................................................................... 6 Types of contracts impacted ............................................................................................... 8 Background .......................................................................................................................... 9 The Australian Consumer Law .................................................................................................. 9 UCT protection provisions ....................................................................................................... 9 Review of UCT protections for small business........................................................................... 10 1. The problem ............................................................................................................. 12 Unfair contract terms still exist in standard form contracts ........................................................ 12 Scale and scope of the problem ......................................................................................... 14 Awareness of the UCT protections ..................................................................................... 19 What are the potential risks and costs of maintaining the status quo?..................................... 20 The need for Government action............................................................................................ 22 Contract-issuing parties continue to exploit power imbalances .............................................. 22 Simply voiding a term does not provide an effective deterrent ............................................... 23 Automatically voiding a term may make a contract unworkable ............................................. 25 There could be improved access to remedies and more certainty around their use ................... 25 The same unfair terms can be used repeatedly .................................................................... 27 The current headcount threshold used to define small businesses is not always appropriate ...... 28 The contract value threshold reduces scope and leads to uncertainty ..................................... 29 It is not always clear whether a contract is a ‘standard form contract’ ..................................... 30 2. Objectives ................................................................................................................ 33 3. Options .................................................................................................................... 34 Legality and penalties ........................................................................................................... 34 Flexible remedies ................................................................................................................. 35 Definition of small business contract....................................................................................... 36 Headcount/turnover threshold .......................................................................................... 36 Related bodies corporate.................................................................................................. 36 Contract value threshold .................................................................................................. 37 Clarity on ‘standard form contract’..................................................................................... 37 1 Enhancements to Unfair Contract Term Protections – Decision Regulation Impact Statement Minimum standards ............................................................................................................. 38 4. Impact analysis ......................................................................................................... 39 Legality and penalties ........................................................................................................... 39 Flexible remedies ................................................................................................................. 54 Definition of small business contract....................................................................................... 58 Headcount/turnover threshold .......................................................................................... 58 Related bodies corporate.................................................................................................. 62 Contract value threshold .................................................................................................. 64 Clarity on ‘standard form contract’..................................................................................... 67 Minimum standards ............................................................................................................. 69 5. Consultation ............................................................................................................. 72 6. Evaluation, conclusion and estimated regulatory burden ............................................... 74 Estimated regulatory burden ................................................................................................. 75 7. Implementation and review ....................................................................................... 78 Implementation ................................................................................................................... 78 Review ............................................................................................................................... 79 Appendix A ......................................................................................................................... 80 Regulator action on UCTs ...................................................................................................... 80 ACCC ............................................................................................................................. 80 ASIC............................................................................................................................... 90 Appendix B ......................................................................................................................... 95 List of stakeholders who provided a submission ................................................................... 95 2 Enhancements to Unfair Contract Term Protections – Decision Regulation Impact Statement Abbreviations Ai Group The Australian Industry Group ANZ Australia and New Zealand Banking Group Limited AADA The Australian Automotive Dealer Association AAF Australian Association of Franchisees ABA The Australian Banking Association ACCC The Australian Competition and Consumer Commission ACF The Australian Credit Forum ACL Australian Consumer Law Australian Consumer Law Committee of the Legal Practice Section of the Law ACL Committee Council of Australia AFCA The Australian Financial Complaints Authority AFGC The Australian Food and Grocery Council AFIA Australian Finance Industry Association AFRA Australian Furniture Removers Association AICM The Australian Institute of Credit Management ALNA Australian Lottery & Newsagents Association ARCA Australian Retail Credit Association ASBFEO The Australian Small Business and Family Enterprise
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