As a part of the Federal Government's Phase 2 Consumer
Credit Reforms, Treasury has released exposure draft legislation
amending the National Consumer Credit Protection Act 2009
(NCCP Act) which covers:
small business lending;
credit provided for investment purposes;
some forms of private lending;
short term and indefinite term consumer leases; and
The text of the proposed draft legislation together with
explanatory material can be found
here. Submissions on the draft legislation are due on 15
A transition period of 6 months has been proposed for the
reforms to take effect. A start date has not been set for the
legislation at this stage.
Small business lending and leasing
The key points of the small business lending reforms are as
The small business lending and leasing regime would generally
apply to all business loans and leases provided to businesses which
have fewer than 20 employees or fewer than 100 employees for
manufacturing businesses. The small business lending regime
will not apply to loans over $5 million.
Providers of small business lending and leasing services will
be required to obtain a permit from ASIC. The permit is different
to an Australian Credit Licence (ACL) which authorises consumer
credit activities. To obtain a permit, the small business
lender/lessor will need to be a member of an external dispute
resolution service such as the Financial Ombudsman Service or the
Credit Ombudsman Service and not be someone who is disqualified
from providing credit services (i.e. insolvent or otherwise
New responsible lending obligations have been introduced for
small business lending and leasing providers as well as credit
assistance providers in this area. Under the new responsible
lending requirements, providers of small business loans and leases
and credit assistance providers will now be required to provide
disclosure documents setting out details such as the amount of
credit, applicable interest, repayments and fees and charges.
Further, in the case of certain types of small business refinancing
contracts (i.e. protected small business contracts), lenders will
be required to make inquiries and are prevented from making loans
or leases where the small business is assessed as unsuitable for
Credit provided for investment purposes
It is also proposed that any credit which is provided
predominantly for investment purposes would be subject to the
consumer credit protection regime currently in place under the NCCP
Act. This means that all providers of loans for investment purposes
to individuals and strata corporations will need to obtain an ACL
and the terms of any such investment lending would be regulated
under the National Credit Code. Previously, the NCCP Act and
National Credit Code only covered loans which are predominantly
used for the purposes of investing in residential real estate.
It is expected that providers of financial services may now be
captured under the investment lending regime. Treasury proposes to
set up a streamlined process for financial services licensees
applying for ACLs.
Other reforms which are part of the Phase 2 Consumer Credit
Reform Package include:
Regulation of "credit activity investors", which are
individual or small entity lenders or lessors who engage in credit
activities through a service arrangement with an intermediary (e.g.
persons who participate in lending schemes operated by lawyers or
accountants). Under the proposed reforms, credit activity investors
will need to be members of an ASIC approved external dispute
resolution service and the intermediary will need to hold an ACL.
Previously, exemptions applied to these types of activities.
Short-term and indefinite term leases, presently exempt under
subsection 171(2) of the National Credit Code will be regulated
where the lessee is likely to pay more than the cash price of the
good under the lease and the lender ought have known, after making
reasonable inquires, that the lessor required the goods for a
longer or different period of time.
The reforms also introduce anti-avoidance provisions which
would prevent parties from entering into schemes which are designed
to avoid the operation of the NCCP Act and the National Credit
What do you need to do?
In the first instance, credit providers should review their
client lists to identify whether they are currently providing
credit to small business or to individuals for investment purposes.
If so, advice should be obtained in order to comply with the
reforms once enacted as law.
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.
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