When the National Consumer Credit Protection Act 2009 ("NCA") came into effect on 1 July 2010, retailers involved in arranging point of sale ("POS") finance were declared exempt from that legislation (see Regulation 23 and 23A of the Regulations made under the NCA).
It was only shortly before the NCA became operational that Government fully realised the sheer magnitude of retailers' operations in this area. The recent consultation paper issued by Treasury on this issue states:
"It is estimated that currently in Australia the following numbers of vendor introducers are engaged in credit activities:
- between 12,300 retailers (with approximately 75,000 staff); and
- about 630 vehicle dealerships (with an estimated 30,000 persons engaging in credit activities)."
Note the use of the expression "vendor introducers". It is not only retailers in the traditional sense who are impacted, but all vendors of goods and services, eg. doctors and tradespeople.
The exemption granted to retailers involved in POS finance activities was always intended by Government to be subject to review. As part of this review process, Government convened a point of sale working group to examine the issues.
Public consultation took place in early 2013 - a discussion paper was issued, submissions invitedi and consultation closed at the end of March 2013. Retailers and financiers are now awaiting the outcome of the review process.
The discussion paper stated there are 3 options available to Government.
- One option is to maintain the existing exemption. It is clear to us that Government cannot afford to have retailing outside the ambit of regulation. Some form of regulation is likely to be imposed on retailers who engage in POS finance activities.
- The second stated option is to apply the NCA unamended to POS finance activities. The submission of the Mortgage Finance Association of Australia supports this option – understandably. Credit Ombudsman Service Limited ("COSL") takes a similar position, but recognises there will still be a need for some "carve outs".
- A third option being considered by Government is to introduce "function based" regulation for POS retailers involved in finance. The concept of "supplier representatives" has been mentioned. To our mind that would lead to significant complexity. Already, we have referrers and credit representatives. Soon we might have supplier representatives as well. That might result in a very complex regime for retailers.
POS finance activities in the retail sector present particular difficulties. We are reminded of the ebay® expression "white line fever" which describes the "must have" state of mind experienced by some ebay® bidders as an auction ends.
As mentioned in the discussion paper:
"Research demonstrates that consumers purchasing items such as household goods are often focussed on obtaining the product and are financially or psychologically committed to the transaction."
Professor Malbon reviewed consumer behaviour at point of sale. He found that 46% of respondents reported they had entered into a credit contract simply to purchase an item, rather than because the terms of the credit offered were favourable.
In the discussion paper, particular note is mentioned about the used car industry, where often much of the profit from a car deal arises from the selling of finance and the commission structure often encourages dealers to recommend the more expensive forms of finance which result in a higher commission.
However, it is not only car dealers and white goods retailers where finance can be arranged at point of sale.
Increasingly, finance is offered for services including:
- most medical;
- car repairs;
- garden shed installations;
- minor household repairs and renovations.
Basically, any area where there is a high initial purchase price/ cost and where the average person finds it difficult to pay the cost from their own day to day resources, can benefit from POS finance.
The ubiquitous nature of POS finance was brought home to the writer a couple of years ago when he was told the story by a client about one of their staff members who sought advice on how best to finance her breast implant procedure – whether through a finance facility offered via her plastic surgeon or alternate means. While better finance deals could have been obtained elsewhere, it was easier to obtain finance arranged through the plastic surgeon, albeit at a higher interest rate. Convenience is an important consideration in POS finance.
We believe that there will be a major shake-up for retailers/ suppliers involved in POS finance when the final report is issued by Federal Treasury.
No date has been given for release of the report, but we will let clients know when further information becomes available. "Stay Tuned!"
iDiscussion Paper titled "The exemption
of retailers from the National Consumer Credit Protection Act 2009,
issued January 2013 by Federal Treasury.
iiTaking Credit: A Survey of Consumer Behaviour in the Australian Credit Market (the Malbon Report), referred to at paragraph 16 of the Discussion Paper.
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.