The regulation of credit providing is about to undergo
significant changes in Australia. The new National Credit
Code will be effective from 1 July 2010 and will result
in uniform credit regulation across Australia, with ASIC becoming
the sole national regulator.
2. Small Business Lending
Of particular interest for small business is that the second
stage of the process may result in lending to small business being
regulated by the National Credit Code, along with other proposals,
such as the imposition of interest rate caps, regulation of reverse
mortgages and point of sale credit assistance. However, the
terms of the second stage of the process are not yet certain.
3. Licensing – Are You Involved In Credit
All persons involved in "credit activities", or as a
provider of credit, will need an Australian Credit Licence from
ASIC. This is a new requirement, particularly for businesses
that provide services ancillary to lending, such as brokers,
sub-aggregators, aggregators, mortgage managers, program managers,
debt collectors and mortgage insurers.
As a first step, between 1 April and 30 June 2010 such
persons must apply to register with ASIC, and applications for a
licence can be made from 1 July 2010. From 1 July
2010, a person engaging in credit activity must be registered with
ASIC and have applied for a licence. From 1 July 2011, such a
person must hold an Australian Credit Licence.
4. No Cap On Level Of Credit Subject To The Code
The new regime will cover the provision of credit as part of or
incidental to a business of a credit provider to a natural person
or a strata corporation. The use of credit for the purchase,
renovation or refinance of residential investment property is an
additional regulated type of credit. Other regulated credit
is credit for personal or domestic purposes, credit for a consumer
lease or credit provided as a terms contract of real estate.
5. Significant Changes
Consumers will be able to request a change to credit contracts
on the grounds of hardship for loans up to $500,000 (an increased
A business purpose declaration will no longer be conclusive
evidence that the credit is not for personal or domestic purposes
and it will be an offence to procure a false business purpose
There will be new restrictions on taking security over essential
6. Responsible Lending Obligations
New responsible lending obligations will apply to license
holders who suggest, assist or actually enter into credit contracts
with consumers. The obligations also cover a suggestion,
assistance or actual increase in a consumer's credit
As part of the responsible lending obligations a credit guide
must be provided to the consumer. However, the more onerous
obligations are that the credit provider must make reasonable
enquiries about a consumer's requirements, objectives and
financial situation and must assess whether the credit contract is
unsuitable for the consumer.
7. Related Changes To Trade Practices Act And Corporations
The Trade Practices Act is being amended to introduce a national
unfair contracts regime across all industry sectors, including
financial services, which will apply to standard form consumer
The Corporations Act is also being extended to cover margin
lending with the addition of responsible lending obligations in
relation to margin loans provided to retail clients.
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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