Fels does remark: ‘Consumer activism by politicians is no bad thing. Consumer policy was understated in the Howard era’. And he should know, since he ran the ACCC from 1993 until 2005. But former PM Howard’s Treasurer did eventually kick off the reform debate by getting the Productivity Commission (PC) to investigate improvements in Australia’s consumer product safety regulation (2005 – February 2006), and then consumer law and policy more broadly (2007 – March 2008). A year after the latter, the Rudd Government is still at the stage of a ‘Consultation Paper’ – proposing a more harmonized regime nation-wide to come into effect only from 2011! Australia’s Constitution means that responsibility consumer law is shared between federal and state governments, but this timeframe doesn’t seem very ‘activist’.

Further, the Consultation Paper’s focus is very much on one aspect of the PC’s recommendations: reducing transaction costs through harmonization. This was a major component of the PC’s estimate that reforming consumer law could generate net economic benefits of A$1.5-4.5 billion. I can certainly see major benefits from simplification. Accumulated legislation and case law creates a legal morass – as Jocelyn Kellam and I found when analyzing Australia’s product liability law and practice in 2007, and when updating last year the CCH Australian Sales and Fair Trading Reporter looseleaf. In addition, the Consultation Paper does propose ‘trading up’: using the federal Trade Practices Act 1974 (TPA, possibly renamed the Competition and Consumer Law) as the core, but updated for ‘best practice’ developments enacted in state Fair Trading Acts since the late 1980s. So, for example, the Paper proposes a nation-wide version of Victoria’s regime to control proliferating unfair contract terms, in force since 2002 but based on an EU Directive dating back to 1993.

Yet the Consultation Paper seems to be re-opening a debate about the contours of such controls that should have been settled by the PC’s Inquiry. The EU model is working well, so is the Victorian variant, and Japan’s Consumer Contracts Act 2000 is also making a significant difference. Why does Australia feel the need continually to reinvent the wheel? There is a real risk that the wheel we end up won’t be ‘fit for purpose’, as the Consumer Law Roundtable in effect points out in our Submission regarding the Paper.

An even bigger problem lies in the Consultation Paper’s focus on harmonizing nationally, rather than internationally. For example, it omits any reference to Recommendations by the PC (in 2006, and again in 2008) to require suppliers to notify regulators about serious product related accidents. Yet another EU Directive enacted this duty in 2001, Japan added a variant in 2006, and another is currently before the Canadian Parliament. The US has also had stricter rules since 1990, even though the uniquely high levels of product liability claims quickly inform the public of potential safety risks anyway. So here is a global standard, which Australia should be catching up to, as I urge in my Submission on the Paper. If this doesn’t happen in the present round of reforms, it probably won’t happen for another decade.

Anyway, Australian exporters to the EU, Japan, Canada or the EU are increasingly likely to be required to monitor and report safety risks, under contracts with importers in those countries who themselves have reporting requirements to their own regulators. Why shouldn’t Australian exporters also disclose such information to Australian regulators? If the latter collaborate, informally or preferably formally, with regulators abroad, this could even directly assist exporters who take product safety risks seriously. Even Fonterra’s voluntary disclosure to the NZ government last year belatedly helped to address the Sanlu milk products disaster in China.

So Australia should at least ‘trade up’ in its consumer law to meet current global standards, not just local ones. But the nation should also push the envelope and help create some new global standards – as it helped do with its TPA, back in the 1970s. Fels highlights the Consultation Paper’s proposal to concentrate power over consumer credit regulation in Canberra, suggesting that the ACCC should be the regulator rather than the Australian Securities and Investment Commission (ASIC, ‘with its noted lack of consumer zeal to date’). But I am more interested in some new substantive rules. For example, why not a nation-wide ‘suitability rule’ for at least some types of consumer credit – unsecured or secured – requiring lenders to assess borrowers’ ability to repay? Japan enacted such rules in 2006, and similar protections are increasingly available for investors in other financial products world-wide. And why not try a ‘world-first’ – requiring suppliers of unsecured credit to inform regulators when their products are linked to abnormally high levels of financial distress (insolvencies, even suicides)? After all, an explosion of unsecured consumer lending was linked in the US and elsewhere to booms (and now busts) in home mortgage lending, property prices, securitisation and other markets.

Instead, the Australian government seems to be losing sight of the bigger picture. At long last some debate is now emerging, for example, about the grant of at least A$14,000 being handed out to first home buyers. In January 2009, such grants accounted for 26.5 per cent of the A$8 billion in new home lending. In the same section of the Sydney Morning Herald (‘Pros and cons of granting a fiscal favour’, p6), the CEO of Australia’s Commonwealth Bank recently drew a parallel with the US subprime housing loans debacle that triggered the current global crisis, pointing out that: ‘All of us have to make sure we’re lending responsibly to first-home buyers’. This echoes something I’ve been thinking and saying privately for months regarding this grant. It is tempting for governments to try anything in the short term to revive spending, including such measures to make credit more readily available. But a key lesson from the present mess is worth remembering. Market participants often suffer from ‘over-optimism bias’ and other irrational impulses, as well as raw greed, which can lead to enormous and widespread adverse consequences over the long term.

Lastly, if the Rudd government really wants to be ‘activist’, it should also consider – as Fels points out – ‘creating a separate consumer agency’. Once again, Australia doesn’t need to reinvent the wheel; a similar debate continues in Japan, for example. A separate agency might help generate more comprehensive, careful and expeditious ongoing reforms to Australia’s consumer law – now in mid-life crisis. Policy-makers must respond to the current economic meltdown with more innovative and energetic proposals that promise long-term socio-economic benefits, not just short-term ones.