Treasury is currently considering options for regulation of
business and investment lending. Did you know that to a large
extent it is already regulated?
Most credit businesses are Australian credit licensees or credit
representatives, and so are members of an external dispute
resolution (EDR) scheme.
The jurisdiction of EDRs extends to credit provided to
individuals (ie natural persons) and small businesses irrespective
of whether the credit is regulated by the National Credit Code.
Accordingly, loans to individuals and small businesses for
investment purposes (eg to buy shares, buy art work, general
business finance) can be the subject of disputes at EDR. (Loans to
individuals to purchase or refinance residential investment
properties are already subject to the National Credit Code and
margin loans are financial products so these borrowers already have
access to EDR.)
This means that there is a big difference for borrowers when
they deal with a credit business which is not a licensee or credit
representative. These borrowers will not have access to EDR
Treasury concerns include:
many small business borrowers are not aware of their ability to
complain to EDR schemes even when their lender or broker is a
member of an EDR scheme.
ASIC has very little power to deal with unlicensed lenders and
people who guarantee these loans have no recourse to EDR.
I am a strong believer that we should have a 'regulation
break'. We should let the dust settle to see what happens from
the major changes introduced over the last two years. Despite this,
there is a strong argument that there is a major imbalance for
borrowers depending on whether the lender or broker is a member of
an EDR scheme.
If all 'business' lenders and brokers are required to be
registered or licensed with ASIC and be members of EDR schemes, a
key question is whether this would significantly reduce the
availability of credit or increase costs? The objective of getting
rid of 'dodgy' businesses may have the unintended effect of
making it even harder to arrange finance.
Another question is if these lenders and brokers are required to
join an EDR, should responsible lending practices require them to
implement a process of enquiring into objectives and requirements,
financial situation, verification, and then make an assessment?
Possibly, responsible lending should only apply where the
borrower's primary residence is being used as security.
If this initiative is pursued, we anticipate it will be several
months before there is any proposed legislation.
This part will cover the legal position in relation to promotional materials and misleading and deceptive conduct.
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