: I rise also to support the Financial Sector Reform (Hayne Royal Commission Response—Protecting Consumers (2019 Measures)) Bill 2019. It's a bill that implements some of the recommendations of the Hayne royal commission. I'd like to firstly pay tribute to some of my former and current Nationals colleagues who played a big role in establishing the Hayne royal commission in the first place, particularly former senators Barry O'Sullivan and John Williams, who were at the forefront of advocating for this commission, and also the member for Wide Bay, Mr Llew O'Brien.

I must say on the record that, at the time, I had some robust conversations with my colleagues about this. I was not convinced of the merits of the case, but I take the opportunity to put on the record here that I was absolutely wrong, as has been shown clearly through what was uncovered in the royal commission. I recognise that many of the Labor members of parliament were also ahead of the game on this and put it forward first, but it does take a degree of courage and fortitude to advocate for a position that goes against your own side, as Barry, Llew and 'Wacka' did a couple of years ago. It's a great tradition in the National Party that we respect the different views of people within our party room. We give them the opportunity to express their views privately to us but also publicly without massive retribution. There's some degree of admonition at times, but they are free to do that. By being able to step just a little bit out of line, they have been able to deliver enormous benefits to Australian consumers by eventually successfully establishing this inquiry and, today, seeing the fruits of that, with stronger regulations to protect consumers. While Senator O'Sullivan and Senator Williams are no longer here to see the passage of this legislation, they can take great heart that their names are written all over this. It would not be here but for their efforts.

This example shows that we must always be cynical of the loud voices in our community that have a certain position, and we should seek to respect what we hear from farmers and from small businesses. These complaints were coming through, but many of us were reassured at times by the big banks that everything was fine and that these were isolated problems and it wasn't part of a widespread culture. But we know better now. After this commission we know better that there were indeed more systemic problems within the financial sector. What's important here for us, as a principle, is that it is always more important for us to listen to and act on the views of our constituents before simply seeking to please our colleagues here in Canberra. We have to work collaboratively as a team, but, ultimately, we're all here to represent the people who put us here. That's what I try to do in my role as a senator for Queensland—and certainly Barry, Llew and 'Wacka' have all provided a great example of how to do that.

I will now turn to the specific provisions of the bill. This bill is part of the response to the Hayne royal commission, and there's other legislation coming forward to respond to what was a very comprehensive report on the financial sector. This bill basically does three things. The three measures go to unfair contract terms—extending those to insurance contracts—dealing with misconduct in the funeral expenses industry and changes to obligations for mortgage brokers. On unfair contracts, I want to say that the coalition has a proud record of extending and supporting the regulation of unfair contract terms. I recognise that it was the former Labor government that first introduced unfair contract terms into our consumer laws. But, when the coalition came into government in 2013, we extended those unfair contract terms to small businesses, which I think was very important. When small businesses interact with larger businesses, they often are in the same power-type position as a small consumer, and they deserve similar protections to those a consumer gets. Those laws have been successful and they have stood the test of time.

Given that experience over the last decade, it makes sense that we extend unfair contract term legislation to the insurance industry through this bill. Schedule 1 of this bill will do that. It will mean that national unfair contract terms that currently only protect consumers and small businesses will now be extended to standard form insurance contracts. Until now insurance contracts have been exempt from regulation by these laws. The Insurance Contract Act will be amended to allow the ASIC Act's unfair contract laws to apply to insurance. This measure will offer protection to consumers who lack bargaining power and receive their contracts on a take-it-or-leave-it basis. These consumers are vulnerable to unfair terms, like exclusions or onerous conditions, which can be hidden in the contract. This will provide important protection in cases where an insurer has attempted to deny a claim or restrict the payout available to a consumer or a small business on the basis of an unfair term.

For insurance contracts, the regime will be tailored to increase clarity and certainty for industry and consumers. This includes defining the up-front price as premiums and excess or deductibles payable and defining the main subject matter of the contract as what is being insured. This change is in line with the Hayne commission's recommendation 4.7. Consumers and ASIC will be able to apply to the court for a declaration that a term of an insurance contract is unfair. If they succeed, the term will be void, as occurs under other unfair contract terms legislation. It is a very important change. It will mean better outcomes for consumers. A coalition government will always stand up for the rights and interests of consumers and protect them accordingly.

The second part of this bill, as I mentioned, deals with misconduct that the Hayne royal commission exposed in the funeral industry. Obviously, this is an industry where people interact at times of great heartache and sometimes hardship. It's extremely important that we ensure that particularly the people who at times would be in a vulnerable position are fully protected by the law, and there are strict regulations imposed on anyone seeking to in any way abuse someone's vulnerability. The Hayne royal commission uncovered evidence of significant harm caused by the poor sales practices adopted by some funeral expenses policy providers.

There is an exemption in the Corporations Act that has allowed these providers to escape the scrutiny of ASIC, the Australian Securities and Investments Commission. We are going to remove that exemption and they will now be subject to the Australian financial services licensing regime because the products they offer often do have a financial element in terms of requiring payment over a period of time. So the bill will ensure consumer protection provisions of the ASIC Act apply to funeral expenses policies, clarifying any ambiguity that may exist in these matters.

The removal of this exemption will ensure that consumers have appropriate protections when taking out policies to help fund the costs associated with a funeral. The provision of prepaid funerals will be unaffected by these reforms, on the grounds that they will be able to rely on the funeral benefit exemption in the Corporations Act. The bill will come into effect after royal assent. Providers of funeral expenses policies that do not already hold an Australian financial services licence will be required to gain one by 1 April this year.

Obviously, the Hayne royal commission uncovered misconduct across the financial sector. Another area where misconduct was identified was the mortgage broking industry. But I do want to stress upfront that I think the mortgage broking industry is incredibly important to the financial performance of the Australian economy. It's incredibly important to many Australian consumers whose home loans originated through a broking service. It is extremely important in rural and regional country areas, where often there's not a large presence of major banks but there may be a small broker who can help connect a family in a small town to financial service providers and home loan providers right across the country and, indeed, across the world. That allows someone living in Longreach, Cloncurry or Ingham the opportunity to access global capital markets through a mortgage broking system. We must ensure we have a healthy mortgage-broking system so that all Australians, not just those who happen to live in large markets, can benefit from that competition.

While I said there was evidence of some issues in the mortgage broking sector, I want to place on record that, in this area, having read the Hayne royal commission report, I don't think—with all respect to Justice Hayne—the conclusions he drew were exactly correct. We were supportive of the Hayne royal commission. As I've mentioned before, he did a comprehensive, excellent job. But no-one is a deity and no report should be accepted at face value. It should be interrogated by this place, interrogated by the government and interrogated through consulting with those affected by any potential recommendations, and we should come to a considered view after factoring those things into account.

I understood the issues that Justice Hayne had identified, but I didn't think he drew quite the proper comparisons between the mortgage broking sector and the plain-vanilla mortgage services operated by banks or deposit-taking institutions. For example, Justice Hayne made a significant issue of trailing commissions. When a consumer conducts business with a mortgage broker and originates a loan through that broker, there might be a fee upfront, maybe paid by the bank, but, over time, the broker will get additional money as the loan continues to be serviced or operated. Now, Hayne described those trailing commissions, in his own words, as 'money for nothing'. He asked:

      Why should a broker, whose work is complete when the loan is arranged, continue to benefit from the loan for years to come?

Prime facie, that's a compelling and almost rhetorical question. But I don't think it withstands examination in terms of how financial markets operate, particularly financial markets that involve the creation of long-term debt products for consumers who are often capital constrained.

While the trailing commission for a mortgage broker might not always be transparent to the consumer, although it should be, it's obvious there's a payment or transfer from the loan-originating institution through to the broker. As a direct payment, you can quantify it and you can see it—and, obviously, Hayne investigated it. But a trailing commission is not that much different from exactly how banks work when they originate home loans. The banks have trailing commissions; they're called net interest margins. That's how they make their money.

I've got a loan through the Commonwealth Bank, and they don't charge you much upfront to originate the loan. They've got a lot of costs upfront. They've got overheads. They've got to assess my application. They've got to have a branch network for it to go into. They don't recover all of those costs upfront through a fee. They often waive those fees. I've even seen ads by major banks that they'll pay you money to originate a loan. You get a subsidy to originate a loan. But they recover their costs. They're not doing it out of charity. Those banks recover their costs over time by charging me and other Australian families a higher interest rate than the rate they themselves borrow at—which is perfectly fine; that's how banks work. That's how they've worked, going back to Renaissance times: they make their money on the margin between the interest rates they charge and the interest rates they have to pay, to get money from consumers into the bank or on capital markets. That is a trailing commission. That gap, that interest margin that exists over the 30 years of my home loan and other people's home loans, is a trailing commission. It's no different from the mortgage broker; it's just not very transparent. It's all internal to the bank.

And so, if we are going to ban trailing commissions for mortgage brokers, which was suggested by Hayne, the question that arises is: why would you let banks do the same thing? That would be ridiculous. The whole reason you have a model like that is that people who are going to borrow money, obviously, at that time often don't have the capital they need to buy a house or buy a large product. So they can't pay upfront fees, and they would like—or at least they have a preference—to defer some of the overhead costs of originating the loan through the life of the loan, as they do through the costs of buying or building a home as well. So I didn't think it made sense, from an economic point of view, to ban those trailing commissions.

I welcome the fact that the government is not proceeding with that recommendation. If we did, I think it would put mortgage brokers at a disadvantage relative to banks that don't use mortgage brokers. That would mean smaller banks and smaller deposit-taking institutions would be put at a disadvantage compared to bigger banks, and we'd have this perverse outcome—that a royal commission that was set up largely to deal with malpractice in large financial institutions led to a result where those same large financial institutions would actually benefit, unfairly, compared to smaller financial institutions that rely on mortgage broking for their lifeblood.

The government will not proceed with that, but it will proceed, in this bill, with a best interests duty on the mortgage-broking industry. That's a sensible reform recommended by Hayne. It will see the outlawing of a number of different types of fees, such as volume based commissions. There will be a limit of just two years to clawback provisions in contracts. And we will review the operation of these reforms in three years time and look again at this issue of trailing commissions.

I support the measures in this bill. They will enhance protections for consumers, and it is a sensible response to the Hayne royal commission. Once again, I thank my Nationals colleagues for their efforts, and the fruits of those efforts are what we're seeing here. I look forward to the further changes that will come forward as a result of the Hayne royal commission's findings.