The Financial Services Council (FSC) supports greater compliance and enforcement activities aimed at strengthening the legality and penalty framework of the current unfair contract terms (UCT) regime.

In a submission to Treasury, the FSC says it is against the two other options made in the consultation paper.

Making UCTs illegal and attaching heavy penalties is one of the recommendations under consideration. According to FSC, the civil penalty regime is a “penal sanction of the state” and is not appropriate for determining UCT obligations.

“In any event, the civil penalties proposed are not commensurate to the subject matter of the contravention,” the FSC says. “Prior period turnover bears little or no relationship to the conduct involved in contravening the UCT regime.

“This may result in a very large amount which may not correlate in any way to the seriousness of the offence or the actual benefit obtained and is therefore inappropriate.”

Under this proposal, a court would be allowed to apply up to 10% of annual turnover as a penalty for UCT contravention.

On giving more powers to regulators, FSC says infringement notices or determinations are suitable for relatively minor offences or absolute liability type but not for UCT provisions.

“In an insurance context, the UCT regime is not appropriate for [Australian Securities and Investments Commission-issued] infringement notices as complex actuarial and pricing and detailed factual and legal analysis is required to assess whether a term is fair or unfair in light of the UCT legislation,” the FSC says.

“Given the complexity and potential for subjective analysis in UCT cases, we believe these should be assessed by a court, and therefore the infringement notice regime is not appropriate for unfair contract terms.”