Recently Mr Bill Shorten MP surprised everyone when he announced
that the Federal Government would be dropping the small business
lending reforms to the National Consumer Credit Protection Act
The small business lending reforms were part of the Federal
Government's Phase 2 Consumer Credit Reforms. The Phase 2
Consumer Credit Reforms cover:
credit provided for investment lending;
some forms of private lending;
short term and indefinite term consumer leases; and
The small business lending reforms were the most significant of
the reforms that had been proposed by the Federal Government. As a
result of considerable protest and lobbying from various small
business groups, the Federal Government decided, many believe due
to the fact that it is an election year, to drop the small business
The official notice from Treasury is that the small business
lending reforms have been 'delayed' because:
"there is a need to further examine a number of key
issues. The release of the exposure draft has raised consideration
of whether the benefits could be delivered in a more targeted way,
through the development model from that in the Phase 2 Bill. As a
result any reforms to small business finance will be deferred, and
the Government will not be seeking passage of Schedule 2 in the
life of the current Parliament."
INVESTMENT PURPOSES LENDING
Under the proposed reforms, any credit which is provided for
investment purposes will be subject to the consumer protection
regime currently in place under the NCCP, other than:
in relation to residential property for investment purposes;
to refinance credit provided in relation to residential
property for investment purposes; and
if more than half of the credit is intended to be used for
those investment purposes; or
where the credit is used to obtain goods or services for
different purposes – the goods or services are intended to be
most used for those investment purposes.
Currently, the NCCP and National Credit Code
(NCC) only covers loans used for investment in
residential real estate. The reforms will require that all
providers of loans for investment purposes to individuals and
strata corporations obtain an Australian Credit Licence
(ACL) and the terms of any such investment be
regulated under the NCC.
OTHER CREDIT REFORMS
Other proposed reforms worth noting are:
Short term leases and indefinite term leases:
currently the NCC exempts these credit leases. However, under the
reforms these types of leases would be regulated where:
at the time of entering into the lease, the lessor should have
known that the consumer wanted the use of the goods for a longer or
different period of time ("the anticipated period of
the consumer would pay more than the cash price of the goods if
they made rental payments for the anticipated period of use (rather
than for the term of the lease).
Regulation of "credit activity
investors": this includes individual or small
entity lenders or lessors who engage in credit activities through a
service arrangement with an intermediary. A credit activity
investor will be exempt from the requirement to hold an ACL, but
they are a member of an ASIC-approved external dispute
the intermediary holds an ACL; and
there is an agreement between the intermediary and the private
credit providers and private lessors.
Introduction of anti-avoidance provisions prohibiting parties
from carrying out schemes to avoid the operation of the NCCP and
It is not known whether the current Schedule 2 reforms will
become a reality, given that the Government will not be seeking
passage in the current Parliament and most are tipping a change in
Government on 14 September 2013. In the meantime, you can contact a
member of our national Banking & finance team if you have any
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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