The recently enacted National Consumer Credit Protection Act 2009 (National Credit Act) establishes a new national licensing regime for the regulation of consumer credit in Australia. The new regime includes a licensing requirement. If you currently engage in a credit activity, such as providing credit or advice in relation to credit, you may need to register with ASIC before 30 June 2010. Failure to register in time will result in you being required to cease the credit activities as of 1 July 2010 until licensed.
The National Credit Act incorporates much of the existing Uniform Consumer Credit Code, though its scope has been extended. The National Credit Act applies to credit provided wholly or predominantly for personal, household or domestic purposes or to refinance such credit, as well as credit provided to purchase, renovate or improve residential property for investment purposes.1 This means that lenders will need to ensure that loans to individuals for investment in residential properties comply with the National Credit Act. The Australian Securities and Investment Commission (ASIC) will become the sole regulator of this regime, with broad powers for review and enforcement.
Under the National Credit Act it will be an offence to engage in a 'credit activity' without an Australian credit licence (unless otherwise exempt).2 The transitional provisions associated with the National Credit Act create strict timelines, involving two stages, to enable persons to obtain an Australian credit licence.3 Entities who engage in credit activities before 1 July 2010 need to register with ASIC by 30 June 2010, after which time they have from 1 July 20104 to 31 December 2010 to apply for an Australian credit licence.5
Key regulated activities
There are two broad categories of conduct which are deemed to be 'credit activities' and consequently fall within the purview of the new licensing regime.
The first category relates primarily to the provision of credit under credit contracts or consumer leases, and "activities in relation to mortgages and guarantees where they are taken to secure or guarantee obligations under a credit contract or lease".6 Persons who are likely to engage in these types of activities include lenders, lessors and mortgagees.
The second category relates to the provision of credit services and is likely to have a greatest impact, capturing many entities who previously would not have been subject to consumer credit regulation.7
'Credit services' is defined as the provision of credit assistance or acting as an intermediary,8 in the course of, as part of or incidental to, a business carried on in Australia.
Credit services - Credit assistance
Credit assistance relates to situations involving both credit contracts and consumer leases. Specifically, a person is considered to provide credit assistance if they:9
- 1.suggest that a consumer:
- apply for a provision of credit in respect of a particular credit contract or consumer lease;
- apply for an increase to the credit limit of a particular credit contract; or
- remain in a particular credit contract or consumer lease; or
- 2.assist a consumer, in respect of a particular credit contract
or consumer lease, to:
- apply for a provision of credit; or
- apply for an increase to the credit limit of a particular credit contract.
A key feature of this definition is that it only relates to instances where a particular credit contract or consumer lease is, for example, suggested. Merely suggesting to a consumer that they apply for credit generally will fall outside that ambit of the National Credit Act.
The regulation of credit assistance is likely to result in finance brokers and financial planners who recommend a particular contract or lease and retailers that offer third party in-store finance being caught by the new licensing regime.
Credit services - Intermediaries
A person will 'act as an intermediary' if they liaise between a consumer and credit provider (in relation to a credit contract) or consumer and lessor (in relation to a consumer lease) for the purposes of securing credit or a lease.10 The consequence of this provision is that every person who is an intermediary between the consumer and credit provider will be regulated.11 The National Credit Act also expressly extends to persons who act as an intermediary either directly or indirectly. Accordingly, persons who do not themselves have contact with a consumer will still be deemed to be intermediary if they prepare or pass on information by another intermediary, and their role is to secure credit or a consumer lease.
In practice there is likely to be some overlap between those persons who may be classed as intermediaries and providers of credit assistance. However, the definition of intermediaries is likely to have wider consequences, capturing mortgage managers who arrange credit, aggregators who act as a conduit between a broker and a credit provider, and even persons who refer a consumer to another person, where it is done for the purpose of securing credit.
Persons engaging in credit activities that would otherwise require a licence will not be required to obtain a licence if they act as an authorised representative of a licence holder.
Obligations of licensees
Holders of an Australian credit licence will be subject to a broad range of general obligations including obligations to:12
- do all things necessary to ensure that credit activities are engaged in efficiently, honesty and fairly
- ensure that representatives are adequately trained, and competent, to engage in the credit activities authorised under the licence
- have an internal dispute resolution procedure that covers disputes in relation to credit activities engaged in by the licensee or its representatives, and
- have arrangements for compensating persons for loss or damage suffered because of contravention of the National Credit Act.
The National Credit Act also imposes additional obligations on licensees associated with responsible lending which differ depending on whether the licensee is a credit provider, lessor or provider of credit assistance.13
What to do next...
Entities engaged in either the provision of credit or credit services should consider whether they engage in any activity caught by the National Credit Act. If they do, they need to consider whether they will apply for a credit licence or seek to become an authorised representative of a licence holder. Any entity wishing to apply for a credit licence must register with ASIC by 30 June 2010 and apply for the credit licence by 31 December, 2010. Failure to register by 30 June 2010 will mean that the person will be restricted from engaging in the regulated activity until they have actually obtained (as opposed to applied for) a credit licence.
1. s 4 Schedule 1 of the National Credit Act.
2. s 29 of the National Credit Act.
3. National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009.
4. s 11 of Part 3 Schedule 2 of the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009.
5. s 45 of the National Credit Act.
6. Paragraph [2.34] of the Explanatory Memorandum, National Credit Act; see s 6 of the National Credit Act s 6 of the National Credit Act.
7. s 6, Item 2 of the National Credit Act.
8. s 7 of the National Credit Act.
9. s 8 of the National Credit Act.
10. s 9 of the National Credit Act.
11. Paragraph [2.40] of the Explanatory Memorandum, National Credit Act.
12. See s 47 - 53 of the National Credit Act.
13. See Part 3 of the National Credit Act.
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.