Bringing vendor introducers within the ambit of the NCCP Act's application would subject vendor introducers to an array of new conduct and disclosure obligations.
The Treasury Department is currently reviewing Regulation 23 of the National Consumer Credit Protection Regulations 2010 (Cth) which currently exempts retailers who engage in credit activities at the point of sale from the requirements of the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act).1
Under the exemption, point of sale vendors have been able to engage in various activities, from assisting consumers apply for credit at the point of sale to recommending certain credit products. It's premised on the status of vendor introducers rather than the nature of the credit-related functions the vendor introducers are performing.
The Government has convened a Point of Sale Working Group which has drafted a January 2013 discussion paper, "The exemption of retailers from the National Consumer Credit Protection Act 2009". It sets out three main options in relation to regulating vendor introducers and calls for public comments as to whether further regulation is necessary and, if so, the nature of that regulation. The options include:
- maintaining the existing exemption in the Credit Regulations for vendor introducers; or
- applying the NCCP Act to vendor introducers; or
- applying obligations to vendor introducers that differ according to the functions they are performing.
Bringing vendor introducers within the ambit of the NCCP Act's application would subject vendor introducers to an array of new conduct and disclosure obligations. For example, under Option 2 where vendor introducers engage in credit activities, they may be required to either hold an Australian Credit Licence (ACL) or be appointed as a credit representative of a licensee. Both these avenues entail increased obligations under the Act.
Vendor introducers would also be required to become members of an Australia Securities and Investments Commission (ASIC) approved External Dispute Resolution (EDR) scheme (thus giving ASIC certain powers in relation to vendor introducers' functions particularly those involving systemic breaches). This would also allow consumers to seek redress through complaint to an EDR scheme.
According to the Discussion Paper, if the NCCP Act were to apply to vendor introducers, the internal structure of retail and car dealership businesses is expected to change. Fewer point of sale staff are expected to be involved in arranging finance due to licensing requirements, and retailers may adjust their functions to have a less active role in providing point of sale finance. Some vendor introducers may not be able to find financiers who are prepared to provide them with point of sale credit, and may experience a fall in the volume of sales as a result. Other vendor introducers may particularly become credit representative of "fringe financiers" who offer credit that is more expensive than existing mainstream arrangements.
The Discussion Paper notes there is also the possibility that financiers may lose access to distribution channels or have reduced origination volumes if financiers decide to refuse to allow vendor introducers to also arrange products offered by their competitors
If option three is applied, vendor introducers would be regulated under the NCCP Act according to the functions they perform, not their status. Those who are more actively involved in product selection and delivery would be subjected to a higher degree of regulation than those who are less involved. The discussion paper lists three complementary and exhaustive alternatives for vendor introducers' level of engagement in credit activities as well as the recommended level of regulation for that function:
- vendor introducers who act as a broker would be required to hold an ACL or be appointed as a credit representative by an ACL holder;
- vendor introducers who act only on behalf of a single financier or under first or second choice arrangements would be subject to modified regulation under the NCCP Act as a "suppliers representative"; and
- vendor introducers who have a role in product selection but have a limited role in arranging finance would be subject to modified regulation under the NCCP Act as a supplier representative (2 above) plus additional obligations. Five different proposals are set out in the discussion paper:
- Proposal A: Vendor introducer is required to provide generic disclosure of available finance options;
- Proposal B: Vendor introducer is required to provide tailored comparative disclosure of available finance options;
- Proposal C: Vendor introducer is required to meet reduced responsible lending conduct obligations;
- Proposal D: Prohibition on vendor introducers influencing the consumer's choice of product; and
- Proposal E: Vendor introducers and POS financiers would be required to meed additional report requirements.
Determining which obligations a vendor introducer is engaging in is central to operation of option 3.
Submissions close on 25 March 2013 and can be made to firstname.lastname@example.org. Please contact the Clayton Utz credit team if you need our help preparing a submission on the proposed reforms or have any questions.
Thanks to Emma Thompson for her help in writing this article.
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1Although regulation 23A provides a further exemption for retailers in relation to the provision of co-branded credit cards, the discussion paper is reviewing regulation 23 only.
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