Australia: Regulation of Credit Providers and Finance Brokers

Last Updated: 11 November 2008
Article by Jon Denovan

Part 1 - Registration and licensing requirements – finance brokers

Place Licensing Type of credit Legislation
Queensland Nil N/A Nil
New South Wales Negative licensing UCCC regulated credit Consumer Credit Administration Act 1995
ACT Registration UCCC regulated credit Consumer Credit Administration Act 1996

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Part 2 - Registration and licensing requirements – credit providers

Place Licensing Type of credit Legislation
Queensland Negative licensing UCCC regulated credit Consumer Credit (Queensland) Act 1994
New South Wales Negative licensing UCCC regulated credit plus loans for investment in housing Consumer Credit Administration Act 1995
ACT Registration UCCC regulated credit Consumer Credit Administration Act 1996

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Part 3 - Specific legislative requirements for finance brokers

New South Wales

The Consumer Credit Administration Act 1995 requires finance brokers negotiating UCCC regulated credit to enter a written finance broking contract ("FBC") with the borrower and disclose commission, irrespective of who is paying the commission. Details of these requirements are available in a separate document titled "Finance Broking Contracts NSW – Practice Module".

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Part 4 - Australian Financial Services licences

Normally credit is not a financial product, and so finance brokers dealing with "pure" credit will not need to hold an Australian Financial Services licence or be the authorised representative of an AFSL holder.

Intermediaries who provide additional services need to be aware of the types of activity governed by the AFSL regime. The MFAA and Gadens Lawyers have a separate module titled "Australian Financial Services Licensing".

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Part 5 - Disclosure of commission – industry rules

Even where there is no legislation requiring disclosure of commission, finance brokers should disclose to borrowers full details of the commission they receive, irrespective of who is paying the commission, for the reasons specified below.

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Part 6 - Finance Brokers Control Act (WA)

For information specific to trust, securitisation, and mortgage managers see the "WA Finance Brokers Licensing – Mortgage Managers Practice Module".

For information in relation to the Code of Conduct commencing on 29 June 2007 and finance broking contracts for WA, see the "WA Code of Conduct Module" and the WA finance broking contract.

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Part 7 - WA Credit Provider Licensing

The Credit (Administration) Act 1984 (WA) requires credit providers who provide UCCC regulated credit to be licensed**. There is an exemption for banks and building societies.

**The legal analysis of why only lenders of UCCC regulated credit must be licensed is complex. The Credit (Administration) Act under s.6 requires persons who carry on a business of providing credit to be licensed. Section 4 defines credit widely. However, s.7(2) states that a reference to carrying on a business does not include providing credit "otherwise than under a contract to which this Act applies". Section 4 defines a "contract to which this Act applies" as being UCCC regulated credit contracts.

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Part 8 - Door to Door Sales legislation

All states and territories have Acts regulating door to door sales. The legislation will probably apply if:

  • a broker charges for arranging credit or financial management or any other service; and
  • the sale is the result of an initial unsolicited approach; and
  • the sale is not made at the broker's office; and
  • the purchase is not for business purposes.

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Part 9 - The Hawking Provisions in the Corporations Act

Some mortgage brokers may fall under the hawking prohibitions in the Corporations Act. These provisions only apply to the sale of financial products to "retail clients". Credit is not a financial product but other products such as deposits, insurance, and investment products are financial products.

Sections 736, 992A and 992AA of the Corporations Act 2001 provide that a person (the "offeror") must not offer financial products (other than securities or managed investments) for issue or sale to retail clients in the course of, or because of, an unsolicited meeting. There are also procedures which must be complied with if there is an unsolicited telephone call.

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Part 10 - eMarketing Code of Practice including the SPAM Act

What are the objectives of the Code?

The Code's objectives are to:

  1. reduce the volume of unsolicited commercial electronic messages received by consumers;
  2. provide a plain English outline of how the Spam Act 2003 (the Spam Act) applies to current eMarketing practices; and
  3. promote best practice use of commercial electronic messages in compliance with the Spam Act.

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Part 11 - Financial Sector (Collection of Data) Act

The Financial Sector (Collection of Data) Act requires most mortgage lenders to be registered.

Who is regulated by the Act?

A business is required to register if:

  • its total assets exceed $5 million; and
  • its sole or principal business in Australia is borrowing money and provision of finance; or
  • its assets arising from the provision of finance exceed 50 per cent of its total assets in Australia.

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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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