In Australia, the regulatory oversight of credit and financial products is primarily vested at the federal level. Credit products are regulated by the National Consumer Credit Protection Act 2009 (Cth). This Act replaced the prior state-based system, notably the Uniform Consumer Credit Code. This chapter expounds upon the regulatory architecture governing financial products. It is paramount to acknowledge that additional regulations, regulatory guides and sector-specific codes are crucial to the Australian regulatory matrix concerning financial affairs. Before embarking on a detailed analysis, a brief overview of the historical context leading to the present regulatory system for financial products in Australia is warranted. Pivotal moments in this narrative are the Wallis Inquiry, the Murray Inquiry and the Banking Royal Commission, which largely shaped financial regulation as it is today. With this foundational understanding established, our subsequent focus transitions to the requisite licensing conditions and the salient duties incumbent upon licensees. The most recently introduced product design and distribution obligations and product intervention order are also discussed.

This chapter commences with a comprehensive overview of Australia’s legal framework on consumer credit. Subsequently, it considers the major obligations applied to Australian credit licence holders in this context, with a particular focus on licensing requirements, disclosure, responsible lending, best interests obligations and various consumer rights. Additionally, given the increased consumer access to high-cost payday loans facilitated by digitalisation, this chapter discusses the relevant issues and proposals for reform.

The relationship between the bank and the customer gives rise to several duties on the part of the bank. The most important of these is the duty of confidence, also known as the ‘Tournier duty’. In addition, there are two duties implied into the banker–customer contract that are owed by the customer to the bank: the Macmillan duty, which is the duty to exercise reasonable care in drawing cheques so as not to facilitate fraud; and the Greenwood duty, which is the duty to notify the bank of any forgeries known to the customer. Neither of these duties is particularly onerous, and each gives rise only to estoppel, which the bank is able to set up to negate any claim for wrongful debiting of the account.

By and large, the relationship between a bank and its customers is contractual and governed by the usual contract rules. Such a relationship is also regulated by various statutes. Still, it is a contract in a specialised market with a long history and, consequently, it has acquired a large raft of terms implied by custom and usage. These may, of course, always be ousted by express terms, but clear and unequivocal words are required for the effect.

The financial system fulfils several quintessential roles within the economic framework. For instance, it expedites transactions by administering a secure and robust payment system. This mechanism not only assures the secure transference of financial assets but also accommodates transactions across borders, thus facilitating arm’s-length commercial interactions on a macro-economic scale. The financial system is also instrumental in mobilising savings from households that possess financial resources surplus to their immediate consumption needs. In doing so, it enables these households to accrue returns on their capital, thereby enhancing their consumption possibilities in subsequent periods.

In this chapter, we continue our discussion of lending, focusing on major types of loans and issues that typically arise from the private transactions between borrowers and lenders, with reference to the NCCPA whenever relevant. Lending often goes hand in hand with some sort of security. Such security serves as legal protection in case of a default. Depending on the nature of the loan, security can take different forms: lenders may take security over a borrower’s property, whether real (eg a house) or personal (eg vehicles). Taking security over the real property interests of a borrower enables the lender to exercise certain rights against the property in the event of default. The most usual form of security is a mortgage. Alternatively, guarantees are common in Australia’s financing transactions. To be sure, lending is a complicated process; creating and registering security interests for financing can be equally, if not more, problematic in practice. The issues discussed herein are, therefore, not exhaustive.

For a long time, cheques were the main, if not the only, means of third-party payment and deposit from and to bank accounts. The process is simple. A customer provides a third party a cheque that contains important details such as their account number, the date of issue, a payment amount and an endorsement (their signature). The third party then gives this cheque to a bank. The bank then confirms the cheque’s authenticity and processes it. If necessary, this requires communicating with the customer’s bank if the third party and the customer bank with different banks. The end result is the transference of money from the customer’s bank account to the third party’s account.

Deposits are a loan from the customer to the banker. The terms of that loan are the terms of the ‘account’. We refer to ‘an account’ because the amount deposited is subject to change, and there is a continuous accounting of it as transactions occur so as to show the amount currently on deposit. The terms of the loan are theoretically subject to negotiation between the parties. In practice, they are imposed by the bank. Thus, the number of kinds – the ‘types’ – of accounts available to customers is generally limited, but terms do vary.

In recent times, banks, financial organisations and technology companies have leveraged emerging technologies such as artificial intelligence, big data and blockchain to transform the global financial market at an unparalleled pace. The term ‘Fintech’, a blend of ‘financial’ and ‘technology’, has become a part of common vocabulary. Generally speaking, ‘Fintech’ refers to the application of technology in providing financial services. The Financial Stability Board (FSB) describes Fintech as ‘technologically enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services’.

Having examined cheques and bills of exchange in Chapter 8, we now move onto more contemporary methods of payment. In this chapter, we introduce the regulatory framework and basic concepts, and then discuss the ePayments Code. We then consider two sets of emerging issues: Open Banking and Central Bank Digital Currency.