In brief - New credit licensing regime in Australia
If you engage in credit activities for the first time from 1 July 2010, you will generally need an Australian Credit Licence or an authorisation from a licensee before commencing business. Businesses involved in credit related activities for personal, household or domestic purposes should be aware of the implications of the new credit licensing regime which has been recently implemented.
Registering with ASIC and applying for a Credit Licence
Businesses which were undertaking regulated credit activities prior to 1 July 2010 should now be registered with ASIC. If your business is not registered with ASIC, the business cannot provide regulated credit services unless you have an Australian Credit Licence. If your business is registered, it will need to apply for a Credit Licence before 31 December 2010. Only those who have applied for a Credit Licence or are appointed as a credit representative by a holder of a Credit Licence may continue to undertake credit activities from 1 January 2011.
Scope of the new credit licensing regime
The new regime only applies to credit that is provided to a natural person or strata corporation wholly or predominantly for personal, household or domestic purposes or residential investment and is provided in the course of carrying on a business of providing credit in Australia, or as part of, or incidental to, any other business carried on in Australia.
Credit activity has been defined as including activity relating to credit contracts, consumer leases, related mortgages and guarantees and credit services.
The two broad categories of people engaged in credit activities who need to be licensed are credit providers (i.e. lenders and lessors) and providers of credit services, including intermediaries and brokers.
Credit providers, credit contracts and consumer leases
The category of credit providers covers the following groups:
- Lenders under a credit contract
- Lessors under a consumer lease
- Lenders or their representatives in relation to mortgages
- Beneficiaries of guarantees or their representatives in relation to guarantees
A credit contract is a contract under which credit is or may be provided. Common types include personal loans, credit cards and housing loans.
A consumer lease is a contract for the hire of goods under which the consumer does not have a right or option to purchase the goods. For a consumer lease to be regulated, the goods must be wholly or predominantly hired for personal, domestic or household purposes and the lease entered into by a natural person or a strata corporation. A second condition is that the fees and charges payable under the consumer lease must exceed the cash price of the goods. Finally, the lessor must hire the goods in the course of a business carried on in Australia and the borrower must not have a right or option to purchase the goods.
Providers of credit services
Providing a credit service is another type of credit activity. You are providing a credit service if you give credit assistance to a consumer, or if you act as an intermediary between a lender and a consumer (in relation to a credit contract) or between a lessor and a consumer (in relation to a consumer lease).
You are giving credit assistance to a consumer if you suggest that the consumer do any of the following:
- Apply for a particular credit contract with a particular lender, or apply for a particular consumer lease with a particular lessor
- Apply for an increase to their credit limit on a particular credit contract
- Remain in their current credit contract or consumer lease
Providing credit assistance also includes assisting the consumer to apply for a particular credit contract with a particular lender, apply for a particular consumer lease with a particular lessor or apply for an increase to their credit limit on a particular credit contract.
Credit activity must be provided to a consumer for specific purposes
The licensing regime applies only to credit provided to a consumer for specific purposes. For the regime to apply, you must be providing (or intending to provide) credit to a consumer wholly or predominantly for personal, household or domestic purposes, or, in the case of credit contracts only, to purchase, renovate or improve residential property for investment purposes, or to refinance such credit.
The purpose for which the credit is obtained is defined as being predominantly for that purpose if it is the purpose for which more than half of the credit is intended to be used. If the credit is to be used to obtain goods or services, the purpose for which the goods or services are intended to be most used is the predominant purpose.
Definition of carrying on business in Australia
The regime states that a business is being carried on in Australia if, in the course of carrying on the business, you engage in conduct that is intended to induce people in Australia to use the goods or services the person provides, or is likely to have that effect.
You do not need to have a physical presence in Australia to be treated as carrying on business in Australia. It is sufficient, for example, if you use the internet or intermediaries to provide credit to consumers in Australia.
Who does not need to be licensed?
A person or class of persons may be exempt from the licensing requirements. You generally do not need to hold a Credit Licence if you are a representative of a licensed principal and you engage in authorised credit activities on their behalf.
The two main categories of such representatives are:
- Employees and directors of the licensee or a related party of the licensee
- Credit representatives (and their employees) authorised by the licensee or a related party of the licensee
How to apply for a Credit Licence
If you need to apply for a Credit Licence, you can do this online at the ASIC website. Further detailed information about the new credit licensing regime is available on the same web page.
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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.