‘Pain on the road to recovery’ – So what, for consumer (credit) law reform for Australia (and beyond)?

Author: Luke Nottage

The Prime Minister, Kevin Rudd, has just contributed a long essay with this title to the Sydney Morning Herald (25-6 July 2009). Here are some extracts that should be connected to ongoing initiatives and discussions about consumer credit and consumer law more generally:

Australian PM Kevin Rudd

1. Rudd’s grand plan now for the forthcoming ‘building decade’:

‘It will take time to build the foundations of Australia’s long-term global competitiveness. But we must take time to do it thoroughly. We must take time to invest in the infrastructure of the future, the skills of the future, the competitive tax system we need for the future, an ambitious agenda for competition and regulatory reform, and to maintain the best national balance sheet of major advanced economies.’

2. On ‘causes of the current crisis’:

Similarly to the US, ‘Australian consumers also spent up big. Between 1996 and 2007 there was a 460 per cent increase in credit card debt, a 340 per cent increase in household debt, a 450 per cent increase in corporate debt and a 200 per cent increase in net foreign debt.’

3. On ‘the ideological hypocrisy of the right’:

‘As I have argued elsewhere, the boom-and-bust economic cycle of the past decade has been an unavoidable consequence of a decade of neo-liberal free market fundamentalism that reinforced a culture of corporate greed and excess in the financial sector. The central principles of this extreme form of capitalism are that markets are self-regulating; that government should get out of the road of the market altogether and that the state itself should retreat to its core historical function of security at home and abroad.

This fundamentalist ideology of self-regulating markets has imploded comprehensively with the current crisis. We have seen spectacular market failure requiring equally spectacular government intervention in the economy to effectively save the system from itself.’

4. As for ‘new challenges of recovery’:

‘This crisis has shown we have reached the limits of a purely debt-fuelled global growth strategy. Not only will the neo-liberal model of the past not provide growth for the future, its after-effects will make recovery more difficult. Mountains of global public and private debt, global imbalances, and a weakened global financial system will drag on global growth for a long time.’

5. Out of ‘five key areas to boost productivity’ and hence Australia’s new global competitiveness, ‘First, regulatory and competition reform’ (plus Infrastructure, Innovation, Skills and Tax – then a broader reform agenda including savings and retirement income):

‘Competitive markets encourage business innovation and productivity. Sound regulation can bring many benefits to consumers and businesses by promoting employee welfare, consumer safety, fair competition and protecting property rights. Poor regulation, however, can damage wealth creation, stifle business innovation and hamper our ability to deliver core public services. Efficient regulation strikes a balance that encourages competition but protects employees, consumers, small businesses and macro-economic stability. That is why the Government has launched a comprehensive regulatory reform agenda under the Council of Australian Governments.’

To my mind, it is heartening that Rudd hasn’t recanted from his critique of market fundamentalism in policy formation and implementation, despite the considerable controversy it engendered (for various more thoughtful responses, see the May 2009 issue of The Monthly).

But ‘consumer safety’ gets only a bare mention from Rudd. And that comes in the context of CoAG’s broader (BRCWG) regulatory reform agenda. The latter in fact looks rather like business as usual – ‘the reduction of the regulatory burden on businesses by accelerating and broadening the regulation reduction work program, and improving processes for regulation making and review’. Especially since this BRCWG agenda also now includes a more conservative government in New Zealand.

Rudd’s essay also doesn’t mention unfair consumer contract terms legislation, perhaps because the Trade Practices Amendment Bill was tabled already in late June. But we know from the Victorian state legislation from 2002 and the 1993 EU Directive that the success of such legislation is very dependent on commitment by regulators (and therefore their political masters and mistresses) to follow-up with publicity, guidance and enforcement activity. Even more surprisingly, Rudd doesn’t mention the broader ‘Australian Consumer Law’ project led now by the Treasury, nor its National Consumer Credit Law proposal. The latter includes new ‘suitability rules’ for lenders that should significantly restrict their ability to take advantage of increasingly obvious psychological biases and heuristics that have underpinned the burgeoning consumer over-indebtedness highlighted again by Rudd in this essay.

Do such omissions mean that these reform initiatives already have so much backing from the Prime Minister and his Cabinet (including a new Consumer Affairs Minister) that the reforms are expected to be implemented without any problems? Or instead do the omissions indicate consumer law’s low priority for this Government, as well as Howard’s over 1996-2007, despite Rudd’s renewed call now for a more level playing field in policy-making overall? We should be able to judge this better by next year’s election, when the entire Consumer Law and consumer credit packages are supposed to have been enacted. The answer has important repercussions not only for Australian consumers, businesses, and governments. It also matters to those close trading partners already increasingly integrated in regulatory harmonization extending beyond the scope of classic WTO/FTA agreements (such as NZ) or potentially so (such as Japan).