Article by Ashley Pelman and Matthew Vicars
On 27 April 2009 the Federal Government released the exposure draft National Consumer Credit Protection Bill 2009 ("NCCP Bill") and the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009 (collectively referred to as "Draft Legislation"). The Draft Legislation represents phase one of the Federal Government's National Consumer Credit ("NCC") Reform Package which was announced in October 2008.
In the Draft Legislation, the Federal Government proposes to:
- assume responsibility for credit regulation in Australia by enacting the Uniform Consumer Credit Code ("UCCC") as Commonwealth law;
- extend the UCCC to cover mortgages for residential investment properties and will regulate margin loans as a financial product under Chapter 7 of the Corporations Act (Cth);
- establish a national licensing scheme which will require consumer credit providers and credit-related brokering services and advisors ("Providers and Brokers") to be licensed with the Australian Securities and Investment Commission ("ASIC");
- increase the threshold for hardship cases, allowing consumers to request a change to certain terms of their credit contract for credit contracts up to $500,000;
- establish ASIC as the sole regulator of the NCC framework; and
- require Providers and Brokers to take out mandatory membership to an external dispute resolution body.
In phase two, which is to be in place by mid 2010, the Federal Government proposes to make further changes to specific obligations on Providers and Brokers to limit unfavourable lending practices. The Federal Government has indicated that this will involve a review of credit card limit extension offers, State approaches to interest rate caps and other lending issues. Other proposals due in phase two are to further regulate investment loans and the provision of credit to small businesses, reform mandatory comparison rates and default notices, and enhance regulation and tailored disclosure notices of reverse mortgages.
The comprehensive licensing scheme introduced by the Draft Legislation will be implemented through a two-stage transition process. The key elements of the licensing scheme include:
- a requirement that persons engaged in credit activities initially register with ASIC and to subsequently hold an Australian Credit Licence ("ACL"). Applications for registration with ASIC must be made between 1 November 2009 and 31 December 2009. From 1 January 2010 all registered persons will have six months to apply for an ACL, between 1 January 2010 and 30 June 2010.
- entry standards for registration and licensing will enable ASIC to refuse an application where those standards are not met. These standards are to include minimum training requirements, enhanced standards of conduct including a requirement to act 'honestly, efficiently and fairly' and mandatory membership of an external dispute resolution body; and
- ongoing requirements for Providers and Brokers to maintain standards of conduct while they engage in credit activities.
Central to the licensing scheme is an ongoing requirement for Providers and Brokers to maintain standards of conduct and comply with the 'responsible lending requirements' proposed by the Draft Legislation. The key feature of these requirements will require that Providers and Brokers must:
- not provide or suggest or assist with a credit contract that is unsuitable to a consumer; and
- assess whether the consumer has the capacity to meet the financial obligations of the credit contract and, if not, they should not be provided with the credit contract.
Providers and Brokers will also be required to give to consumers a credit guide containing information about who the Provider or Broker is, the obligations that they have under the Draft Legislation and make certain disclosures, including in relation to fees, charges and commissions. Also, if a consumer is being provided with credit assistance, they must be given a binding quote.
In order to regulate and enforce the licensing scheme, the Government proposes to give ASIC a raft of powers, which include:
- the power to ban, suspend or cancel an ACL of a Provider or Broker where ASIC believes that it is necessary to protect consumers from financial harm;
- the ability to issue fines to penalise Providers and Brokers for strict liability offences; and
Significant criminal penalties for misconduct by licensed Providers and Brokers are also proposed, including possible imprisonment for up to five years for breaching the responsible lending requirements.
Civil penalties for misconduct by licensed Providers and Brokers of up to $220,000 for an individual and $1.1 million for a corporation are proposed. Consumers will also be able to apply to a court for compensation or to have their credit contract varied due to loss and damage suffered as a result of a contravention of the NCCP Bill.
Another key aspect of the Draft Legislation is its proposal to promote procedural simplicity and a lowering of costs to dispute resolution through a proposed three-tiered process. Under this process, consumers will have access to the Providers' and Brokers' internal dispute resolution process first, and, if not satisfied, consumers may access the Providers' or Brokers' external dispute resolution body. Finally, consumers will have access to all relevant Commonwealth, State and Territory courts.
It is also proposed by the Draft Legislation that 'small claims' actions by consumers will have access to streamlined court procedures, including a presumption that consumers will not have legal representation and informal legal procedures.
The Draft Legislation will impact on any person involved in the provision of, assistance with, or enforcement of, consumer credit, including consumer leases and credit for residential property for investment purposes. Specifically the Draft Legislation will impact upon Providers and Brokers, lessors of consumer leases and retailers that offer third-party finance.
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.