30 September 2010 marks the end of the first three months of the National Consumer Credit Protection Act. We've updated our industry to-do list. We report on a few current issues.
1. Licensee or credit rep?
Decide whether to be licensed or be a credit representative. Make this decision promptly as applying for a licence requires some preparation.
2. Assemble the necessary documents and 'proofs'
If applying for a licence, make sure you've arranged all the necessary 'proofs'. Some of these may take some time to arrange. We recommend you should attempt to have your licence application lodged by early November in case there are any last minute difficulties or omissions. Incomplete applications may not be accepted by ASIC and if there is no current application at 31 December 2010, your registration will lapse and you will have to cease business.
You will need to have:
- a credit history report no more than three months old when the application is lodged and a national criminal check no more than 12 months old when the application is lodged for:
- you (if the licensee is a natural person)
- each partner (if a partnership)
- each director, each secretary, and any senior manager performing duties relating to credit (if a company)
- each responsible manager (ie the key people managing your business).
- the address, date of birth and place of birth for each of the above people
- details of the roles and educational qualifications, and relevant previous employment for each responsible manager
- a business description
- an internal dispute resolution (IDR) scheme
- PI insurance (unless solely a lender or lessor)
- a compliance plan.
Although you do not have to lodge all these items with ASIC, you may be called upon to produce them.
Full details are available from the MFAA NCCP licensing kit which is available free to members from the MFAA site.
1 October 2010 has come and gone so you need to have your referrer agreements in place with referrers who are not licensed or appointed as credit representatives and make referrals incidental to their business. You must maintain a referrers' register and must say prescribed words when making contact after a referrer has given you a potential customer's contact details.
4. Comparison rate schedules
There is some confusion about the status of these schedules. The requirement to display and provide comparison rate schedules ceased on 30 June 2010. However, comparison rates must still be quoted in advertisements which specify an interest rate or repayment amount. There are some important exceptions and some additional requirements.
5. NCCP Act disclosure regime
The NCCP Act disclosure regime commences on 1 January 2011. Regulations are expected to be made in relation to credit guides soon and we will then prepare an example credit guide for MFAA members. We are still hopeful that where more than one credit guide is required in relation to a single transaction that the documents can be combined to avoid overloading borrowers with paper.
Treasury and ASIC have stated that they do not propose any regulations or guidance on the form of quotes, credit proposal disclosure documents, and the form of credit assessments to be given to borrowers, so work on drafting those documents can now commence. We will prepare example documents for MFAA members.
6. Authorisation of credit representatives
When dealing with a credit representative, how do you know whether the credit representative is authorised to conduct the proposed business?
There are significant penalties for conducting business with a business that is not properly authorised.
7. What do ASIC's records show?
When a credit representative is appointed, ASIC's records will indicate whether the credit representative has the same authorisations as the licensee who appointed that credit representative. A search of the ASIC records will simply disclose 'Yes' where the authorisations are the same, or 'No'.
When applying for a licence, an applicant has a choice of ticking one of the three boxes under the heading 'Authorisations'. In brief, these boxes are:
- engage in credit activities as a broker, mortgage manager, or loan servicer, but not as the lender/lessor of record;
- engage in credit activities as a lender or lessor of record;
- engage in both credit activities.
So, most businesses that are not lenders/lessors of record will tick the first box and will be authorised to conduct a wide range of activities.
Many licensees, in particular aggregators, when they appoint credit representatives want to limit the activities of credit representatives. One common form of limitation is to limit the credit representative's authority to introducing loans to or through the aggregator (ie only arranging loans for panel lenders). In these cases it will be important that 'No' is selected.
If you have been appointing credit representatives and their appointment is limited, ensure you have answered 'No' and if not, amend the notification.
If dealing with a credit representative and the ASIC search shows 'No', you need to see a copy of the appointment to determine whether the credit representative is authorised to conduct the business proposed.
For more information, please contact:
t +61 2 9931 4927
t +61 2 9931 4753
t +61 2 9331 4810
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.