Loans approved prior to 1 July 2010
Whether a loan is governed by the National Consumer Code (NCC) or Uniforms Credit Code (UCCC) is determined by the date of the credit contract, not the date the loan is made. Sometimes the loan contract states that the date of the credit contract is the date of settlement (in which case settlement is the relevant date), but in other cases it is the date of the contract (ie the date the borrower dates the contract when they sign). In this respect the terms of the individual credit contract are relevant when determining the date of the contract.
From 1 July 2010 (1 January 2011 for ADIs and RFCs), a lender must not make a loan unless it has complied with the responsible lending (unsuitable loans) provisions of the NCC. Technically, this will mean all pipeline loans made pursuant to contracts dated after 1 July 2010 will need to have passed the 'not unsuitable' test. This requires a written assessment (which can be electronic) stating the period for which the assessment applies (usually 90 or 120 days).
Although lenders may need to re-assess (or at least record that an assessment has taken place), brokers will not need to rework so long as they provided credit assistance prior to 1 July 2010. In this regard, brokers' credit assistance usually ends once a loan is approved.
Regulations made on 30 June 2010 provide that for residential investment loans, if the offer was made before 1 July 2010, so long as the offer is accepted before 1 October 2010, the loan documentation need not comply with the format for NCC regulated loans, and the responsible lending (unsuitable loan) provisions will not apply.
Loan assessment – need for writing
Lenders, lessors, brokers, and other credit assistants are required to assess whether a loan is unsuitable from 1 July 2010 (except for ADIs and RFCs).
It's important to remember that the law requires this assessment to specify the period it covers. This implies that the assessment must be in written form (can be electronic). The requirement for a written assessment specifying a validity period is perhaps the major change for most businesses, as most had already been making an assessment or a preliminary assessment as to whether a loan was unsuitable (or for MFAA members, whether a loan was appropriate).
Businesses need to ensure they have systems to capture the information gathered for the assessment and the verification process.
Loan assessment – what extra information is required?
Should loan application forms be changed to seek more information to allow assessment of loan suitability, and if so how should they be changed?
Only a small number of lenders are subject to the responsible lending (unsuitable loans) provisions from 1 July 2010. We are already seeing a significant divergence in approaches from these lenders. If these differences persist, significant inefficiencies and costs will emerge for brokers and eventually be passed on to borrowers. It is suggested that, because of these significant inefficiencies, a uniform approach should be adopted, with the added benefit that it would also reduce cost and risks for lenders.
The MFAA is therefore keen to obtain agreement from lenders on a common approach to gathering information for loan assessment. This is an important project.
Direct debit default notices
Each time a default occurs in payment pursuant to a direct debit authority, the lender must give a prescribed notice to the borrower and any guarantor within 10 business days of the default occurring. The form for this notice is prescribed in reg.85 Form 11 of the regulations.
Reg 69 provides that a direct debit default notice need not be given if the default is rectified before the notice is given.
The notice need only be given once in respect of each direct debit authority. So for example, if a new direct debit authority is put in place, a second notice will need to be given if a direct debit under the second authority defaults. One direct debit authority triggers only one direct debit default notice ever.
The rule applies to UCCC regulated loans written prior to 1 July 2010, but only if the direct debit default that occurs after 1 July 2010 is the first default ever under that particular direct debit authority. Therefore, if a direct debit authority that was in place prior to 1 July 2010 defaulted at some point before 1 July 2010, and then defaults again at some point after 1 July 2010, a direct debit default notice does not need to be given.
When two or more entities conduct a business in partnership, a 'notional' person is created – see s14 of the NCCP Act. So, when obtaining a licence, this notional person becomes the licensee. Employees of the partnership will automatically become representatives.
However, even if the partnership is made up of companies, the notional person is not a company, and so its directors are not automatically representatives, and if they are acting as credit representatives they will need to be appointed as credit representatives by the partnership.
Credit representative partnerships
When two or more people conduct a business in partnership, a 'notional' person is created – see s14 of the NCCP Act. So, when being appointed as a credit representative, this notional person becomes the licensee, and not the partners themselves. It will be necessary for the partners to be separately appointed as credit representatives by the licensee (if the are conducting credit activities). Even if the partnership is made up of companies, the notional person is not a company, and so it cannot sub-authorise.
When two or more trustees are the trustee of a single trust, there is no provision creating a 'notional' person. So, when obtaining a licence, this notional person becomes the licensee. The same principles as stated above for partnerships will apply to this 'notional' person.
When a single entity is trustee of a trust, there is no provision creating a 'notional' person.
Accordingly, in accordance with normal statutory interpretation principles, the trust is ignored. The trustee is appointed and the 'normal' consequences flow depending on whether that trustee is a company or a natural person.
Thus, if Joe is trustee of the Joe Blow Trust, and Joe is a licensee or credit representative, Joe is entitled to act in his personal capacity as well without further appointment.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.