New National Consumer Credit Protection - Legislation in Australia

Artikel gespeichert unter: Australien


by David Carter, Peter Ryan and Dr Wolfgang Babeck, Lawyers

1. Introduction

The new National Consumer Credit Protection Legislation, which came into effect on 1 April 2010, established for the first time in Australia a single, standard, national law for the regulation of consumer credit, to be known as the National Credit Act. The new Legislation introduces a national licensing regime regulating credit providers and providers of credit related services enforced by the Australian Securities and Investments Commission (ASIC). ASIC is Australia’s corporate, markets and financial services regulator and the sole regulator through the issuance of Australian Credit Licences for persons engaging in credit activities. In addition the National Credit Act introduces both general obligation and responsible lending obligations on Australian Credit Licence holders. The following publication gives a summary of the amendments and new obligations stated by the National Credit Act. First we give an overview of the licensing process (2.) and the general conduct of obligations of licensees (3.) followed by an explanation for which credit activities a license is needed (4.) and the regulations which are valid for Credit Representatives (5.). After that the lending obligations of licensees are described (6.). We conclude with an explanation of the consequences to the National Credit Code of the National Credit Act (7.) and an overview of the penalties and sanctions for breach with the new requirements (8.).

2. Licensing Process

2.1 Timetable

1 April 2010 to 30 June 2010 - Requirement for persons engaging in credit activities to register with ASIC

1 July 2010 to 31 December 2010 -  Requirement for persons engaging in credit activities either to be registered or to hold an Australian credit licence

31 December 2010 -  All registered persons must have applied for a licence

30 June 2011 -  All registrations cancelled (therefore all participants must be licensed)

1 July 2010 -   Requirement not to arrange or provide credit that is unsuitable – non ADIs and non RFCs (Registered Financial Corporations, under the Financial Sector Act, 2001 )

1 January 2011 -   Requirement not to arrange or provide credit that is unsuitable – ADIs and RFCs

1 January 2011 -   Other Responsible Lending Obligations (including disclosure requirements, such as the provision of quotes, credit guides and assessments)

State enforcement of UCCC until 30 June 2010 - National Credit Code

All NCC requirements commence from 1 July 2010
Deferred enhancements:

  • application to credit provided for residential investment properties;
  • introduction of default notices
  • amendments to business purpose declarations;
  • amendments to default notices; and
  • new notices response to application for hardship variations and postponements

2.2 Registration/Licensing

There is a two phase approach being adopted, initially comprising registration and then transitioning to licensing with ASIC. Persons who currently engage in credit activities are required to register with ASIC in the period from 1 April 2010 to 30 June 2010. After becoming registered a person will then have to apply to ASIC for an Australian Credit Licence in the period from 1 July 2010 to 31 December 2010. The entry requirements for licensing are more rigorous than for registration and will require ASIC to consider two key elements in respect of each application:

  1. the adequacy of the applicant’s organisational capacity, systems and competence when engaging in credit activities; and
  2. whether there is any reason to doubt that the applicant is a fit and proper person to be involved in the provision of credit services.

2.3 ADI’s

ADI is defined in the Australia Banking Act as abbreviation for authorised deposit-taking institution. This means a body corporate in relation to which an authority to carry on banking business in Australia is in force. This authority may be granted to the body corporate by the Australian Prudential Regulation Authority (APRA), if an application for an authority has been made. ADI’s are required to become registered and to apply for an Australian Credit Licence. In recognition of the adequacy of the existing rigorous levels of government oversight of ADI’s the procedural requirements for registration and licensing has been streamlined.

Whilst registration is a formality the Minister only (as opposed to ASIC) has the power to impose, vary or revoke a condition on registration which has or would have the result of preventing the ADI from being able to carry on all or any of its banking business. Unless a banning order or disqualification order is in place, ASIC must grant the ADI a licence upon application authorising the ADI to engage in credit activities that equate (as closely as possible) to the credit activities in relation to which the application was made. The only proviso is that the application includes a statement to the effect that the ADI will, if granted a licence, comply with its obligation as a licensee.

3. General Conduct of obligations of licensees

Once licensed the licensee must conduct its business in accordance with a number of specific obligations and must have in place systems and procedures to meet these obligations. It is obliged to do all things necessary to ensure that the credit activities authorised by the licensee are engaged in efficiently, honestly and fairly. Furthermore the licensee must have in place adequate arrangements to ensure that its clients are not disadvantaged by any conflict of interest that may arise wholly or partly in relation to credit activities engaged in by the licensee or by its representatives. The licensee is also required to comply with any conditions imposed by ASIC, with the credit legislation and with any additionally obligations imposed by the regulations.

The licensee has to take reasonable steps to also ensure that its representatives comply with the credit legislation and must ensure that its representatives are adequately trained and are competent to engage in the credit activities authorised by the licence. The competence to engage in the credit activities authorised by the licence has to be maintained by the licensee. In addition the licensee has to set up various security systems: It is obliged to have an internal dispute resolution procedure which complies with standards or requirements made or approved by ASIC, compensation arrangements, for loss or damage, as a result of breaches of their obligations, in accordance with the regulations or as otherwise approved in writing by ASIC, and adequate arrangements and systems to ensure compliance with its obligations and a written plan which documents those arrangements and systems.

The licensee must also be a member of an approved EDR scheme. EDR is an abbreviation for external dispute resolution. EDR schemes are one way that ASIC aims to balance the interests of the financial services industry in regulating itself with the broader goal of protecting consumers. The EDR process is independent and enables consumers to resolve disputes with financial service businesses outside the legal system. EDR schemes are a far less formal and less costly solution to dispute resolution than legal remedies.

Last, except where the licensee is a body regulated by APRA, it must have adequate resources to engage in credit activities and have adequate risk management systems.

4. Credit activities

There are two broad categories of persons who engage in credit activities: The first category primarily covers credit providers being consumer lenders and providers of consumer leases but is extended also to cover activities in respect of mortgages and guarantees where they are taken to secure or guarantee obligations under a credit contract. The second category is defined as persons who provide credit services. This is the case if a person provides credit assistance to a consumer or acts as an intermediary. A person provides credit assistance to a consumer where they suggest that the consumer applies for provision of credit in respect of a particular credit contract or consumer lease, applies for an increase to the credit limit of a particular credit contract or remains in a particular credit contract or consumer lease. A credit assistance is also provided where they assist the consumer, in respect of a particular credit contract or consumer lease to apply for a provision of credit in respect of a particular credit contract or consumer lease or to apply for an increase to the credit limit of a particular credit contract.

A person will provide credit assistance regardless of whether they deal directly with the consumer or the consumer’s agent. A person will act as an “intermediary” where they act as an intermediary between the credit provider and a consumer for the purpose of securing the provision of credit, or between the lessor and a consumer for the purpose of securing the provision of a lease.

Importantly, debt collectors will be exempt for 12 months and Point of Sale retailers (ie. retail outlets and intermediaries such as car dealerships) that facilitate credit assistance to consumers will initially be exempt from the requirements. Credit providers and consumer lessors in the retail sector will not, however, be exempt.

5. Credit representatives

5.1 Credit Representatives

A registered person or a licensee (credit provider) can authorise third parties to engage in credit activities on their behalf, without these persons having to hold a licence in their own right. These persons are known as “credit representatives”. Importantly, the credit provider is generally responsible for the conduct, and must specify in writing the credit activities which they can engage in.

Whilst it will be an offence to undertake credit activities without a licence there is a defence available being where that person engages in the credit activity on behalf of a licensee provided that the licensee is authorised to engage in credit activities of that type and the persons’ conduct is within the authority of the licensee. Furthermore the person themselves must either be an employee or a director of the licensee or of a related body corporate of a licensee, or a credit representative of the licensee.

5.2 Liability of Licensees for Representatives

Where a representative acts only for one principal, that principal is responsible for the conduct of its credit representative, whether or not the conduct is within the authority of the licensee. Where a credit representative acts for several principals, then the liability may relate only to one principal if it is clear that the representatives actions relate only to activities undertaken on behalf of that principal. In other cases the principals are jointly and severally responsible for the conduct, whether or not the representative’s conduct is within or outside his authority in relation to any of them. The licensee will therefore be liable to the borrower or lessee (a client) to account for any loss or damage suffered as a result of conduct of its representative.

6. Responsible lending conduct of licensees

Responsible lending obligations will be imposed on all holders of Australian Credit Licences as outlined in the Timetable. The Timetable has been effected on the basis that it will provide licensees time to put in place the systems, arrangements and training needed to comply with these obligations. The responsible lending conduct obligations arise in respect of certain conduct in relation to credit contracts and consumer leases (credit contracts) under the Code and impose specific conduct obligations in relation to lending and leasing responsibility. The responsible lending conduct obligations are in addition to the general conduct obligations of licensees outlined earlier (3.) to operate efficiently, fairly and honestly. The responsible lending conduct obligations differ depending upon whether the licensee is the credit provider or consumer lessor under the credit contract or is providing credit assistance in relation to the credit contract. The obligations set in place and expected standards of conduct of licensees when they enter into a consumer credit contract. The licensee has also to fulfil the lending conduct obligations where they either suggest a consumer enters into a particular credit contract with a particular credit provider or lessor or where they assist a consumer to apply for a particular credit contract with a particular credit provider or lessor.

There are two key aspects of the responsible lending conduct obligations: Assessment and disclosure. The key obligation for licensees is to ensure they do not provide, suggest or assist with a credit contract which is unsuitable for the consumer. To comply with this obligation it requires licensees to reasonably inquire and verify a customer’s financial circumstances. Licensees are obliged to make an assessment that the credit contract will meet the consumer’s requirements and that the consumer has the capacity to repay the contract.

Licensees must also make key disclosures of details about themselves that will assist the consumer to understand who they are dealing with and about other matters. The consumer has to be informed about the dispute resolution services and an indication of any costs the consumer may incur has to be delivered to him. ASIC and consumers will be able to take action against a licensee for non performance of the responsible lending conduct obligations.

6.1 Licensees who are Credit Providers under Credit Contracts

The rules for licensees who are credit providers are aimed at better informing consumers and preventing them from being in unsuitable credit contracts. The licensee is required to give its credit guide to a consumer. The credit guide has information about the licensee and some of the licensee’s obligations under the Act. In addition the licensee is obliged to make an assessment as to whether the credit contract will be unsuitable before entering into the credit contract. To do this the licensee must make inquiries and obtain verification about the consumer’s requirements, objectives and financial situation. The licensee must give the consumer a copy of the assessment if requested. A licensee is prohibited from entering into a credit contract that is unsuitable for a consumer.

6.2 Licensees who provide Credit Assistance

The rules for licensees who provide credit assistance are also aimed at better informing consumers and preventing them from being in unsuitable credit contracts. The licensee is required to give its credit guide to a consumer. The credit guide has information about the licensee and some of the licensee’s obligations under the Act. Furthermore a quote has to be given to the consumer before providing credit assistance. The quote must set out the maximum amount the consumer will be required to pay to the licensee. The Licensee must not charge more than that amount.

In Addition the licensee is obliged to make a preliminary assessment as to whether the credit contract will be unsuitable for the consumer before providing credit assistance. The licensee must make inquiries and verifications about the consumer’s requirements, objectives and financial situation and must provide the consumer with the copy of the assessment if requested. At last the licensee is required to give the consumer a document which discloses certain information (eg the commission the licensee is likely to receive), when providing credit assistance to the consumer.

The licensee is prohibited from providing credit assistance to a consumer in relation to a credit contract if the credit contract will be unsuitable for the consumer.
A detailed explanation of the required content of credit guides and quotes is set out in the Appendix.

7. National credit code

The current Uniform Consumer Credit Code is, (with specific amendments based upon the new Credit Legislation), being adopted as a Schedule to the new legislation and is to be known as the National Credit Code (the Code). The specific changes which the new Code will introduce include an expanding of the operation of the Code to apply to credit provided to individuals and strata corporations to purchase, renovate or improve a residential investment property or refinance such credit. The National Credit Act also replaces the Code requirement for the debtor to be a resident with a jurisdictional test which examines whether the credit provider carries on business in Australia. This is intended to capture credit providers who do not have a physical presence in Australia but may use the internet or intermediaries to offer consumer credit products to persons in Australia.

Furthermore the threshold under which a debtor can request a change to certain terms of their credit contract on the grounds of hardship is increased to $500,000. This increase will enable more consumers to apply for changes to the terms of their credit contract or request a stay of enforcement when in financial hardship because of illness or unemployment.
The new Code includes changes of the regulation of Terms Sale of Land Contracts, Conditional Sale Agreements and Tiny Terms Contracts. Terms Sale of Land Contracts are known as contracts where the purchase price is payable to the vendor in instalments and the vendor allows the purchaser to take possession of land but retains the title until payment of the final instalment is made.

Conditional Sale Agreements are defined as contracts where the purchase price is payable in instalments and the seller allows the purchaser to take possession of the goods but retains title until payment of the final instalment. In Tiny Terms Contracts the cost of credit is incorporated into the cash price and the transaction is represented as a sale of goods by instalment (without any credit charges or interest).

The short term credit exemption are also amended to ensure that payments to third parties are now included in calculating of fees and charges and only persons genuinely undertaking pawnbroking business are exempt by limiting the pawnbrokers recourse to the pawned goods. Further amendings are made to the business purpose declaration to become presumptive rather than conclusive by imposing an obligation on the credit provider to enquire as to the purpose of credit. It is ensured by the new Code that a goods mortgage cannot be created over goods which are essential household property or are used by a mortgagor in earning income by personal exertion. Essential household property includes sufficient beds for the members of the household, the only refrigerator, washing machine or television set in the home, and also recreational and sporting equipment which is reasonably necessary for the domestic use for the household.

In Addition the new Code includes several changes in case of debit default. An one-off notice has to be given to the customer the first time a direct debit default occurs on a credit contract. The notice is to be given within ten (10) business days of the default occurring. Before a credit provider can enforce a credit contract or a mortgage against a defaulting debtor or mortgagor it is required to deliver a default notice to the consumer which must contain a prominent heading stating it is a default notice and specify a time for remedying the default and the date after which enforcement proceedings may begin. Furthermore the default notice has to contain any information prescribed by regulations about the credit provider’s approved external resolution scheme or the debtor’s rights under the scheme. The debtor has to be informed about his rights to make an application to the credit provider or Court on grounds of hardship. At last the default notice must specify that the debtor’s debt may be included in a credit reporting agency’s credit information file if the debt remains overdue for more than sixty (60) days or more.

The new Code gives the mortgagor additional rights against a credit provider who is seeking to recover enforcement expenses when in breach of requirements that must be met before a credit contract or mortgage can be enforced. A mortgagor will be able to apply to the Court to regain possession of the goods, apply to the Court for an order for possession for the mortgagor and apply to the Court for other ancillary or consequential orders. The requirement for a comparison rate schedule to be prepared and made available to consumers is removed.

8. Penalties/Sanctions

The National Credit Act imposes both civil penalties and criminal sanctions for breach of or failure to comply with its requirements including the various licensing, general conduct and responsible lending conduct obligations outlined in this presentation. Civil penalties are imposed on a $110 per unit basis and range from 25 to 2,000 penalty units (the maximum penalty for an individual will be $250,000 and $1,100,000 for a corporation) plus up to $500,000 for breach of a Code key disclosure requirement.

Criminal sanctions include imposition of penalty units and imprisonment for periods of between six months and two years. Other sanctions include suspension of licence, banning orders and court imposed disqualification and for strict liability offences and certain (yet to be prescribed) civil penalties the issuing of infringement notices by ASIC. Consumers will also have rights to claim compensation for loss or damage suffered eg: as a consequence of a breach of a Code key disclosure requirement.

9. Appendix – credit guides and quotes

9.1 Credit Guide of Credit Providers - Requirements

A Licensee who considers it likely that they will be entering into a credit contract with a consumer will be required to provide a consumer with the licensee’s credit guide. The credit guide is required to be provided to the consumer as soon as practical after it becomes apparent to the credit provider that the consumer is likely to enter into a credit contract with them.

The Licensee’s credit guide must:

(a)    be in writing;  and
(b)    be in a form, (if any) prescribed by the Regulations;  and
(c)    specify the licensee’s name and contact details;  and
(d)    specify the licensee’s Australian credit licence number;  and
(e)    give information about the licensee’s procedure for resolving disputes with the consumer, including contact details for a consumer to access:

(i)    the licensee’s internal dispute resolution procedure;  and
(ii)    the approved external dispute resolution scheme of which the licensee is a member;  and

(f)    give information about the licensee’s key obligations relating to:

(i)    the requirement not to provide consumers with an unsuitable loan/lease;  and
(ii)    the consumer’s right to request a copy of the credit providers assessment that the loan/lease is not unsuitable for the consumer;  and

(g)    comply with any other requirements prescribed by the Regulations.

9.2 Credit Guide or Credit Providers who are Assignees - Requirements

A licensee must, as soon as practicable after it has been assigned any rights or obligations of a credit provider under a credit contract, give to the debtor of the contract the licensee’s credit guide. The credit guide must contain the requirements set out in (a) to (e) and (g) of the requirements for credit providers.

9.3 Credit Guide of Credit Assistance Providers - Requirements

A licensee must, as soon as practicable after it becomes apparent to the licensee that it is likely to provide credit assistance to a consumer in relation to a credit contract, give the consumer the licensee’s credit guide.

The licensee’s credit guide must:

(a)    be in writing;  and
(b)    be in the form (if any) prescribed by the Regulations;  and
(c)    specify the licensee’s name and contact details;  and
(d)    specify the licensee’s Australian credit licence number;  and
(e)    give information about:

(i)    any fees that are payable by a consumer to the licensee for matters associated with providing the credit assistance;  and
(ii)    any charges that are payable by a consumer to the licensee for matters associated with providing the credit assistance;  and
(iii)    the method for working out the amount of the fees and charges;  and

(f)    give information about:

(i)    if there are 6 or fewer credit providers that the licensee conducts business with when providing credit assistance in relation to credit contracts – the names of those credit providers;  and
(ii)    if there are more than 6 credit providers that the licensee conducts business with when providing credit assistance in relation to credit contracts – the names of the 6 credit providers with whom the licensee reasonably believes it conducts the most business;  and

(g)    give information about:

(i)    any commissions that the licensee, or an employee, director or credit representative of the licensee, is likely to receive, directly or indirectly, from credit providers in relation to credit contracts for which the licensee has provided credit assistance;  and
(ii)    a reasonable estimate of the amounts of those commissions or the range of those amounts;  and
(iii)    the method for working our those amounts;  and

(h)    give information about the licensee’s procedure for resolving disputes with a consumer, including contact details for a consumer to access:

(i)    the licensee’s internal dispute resolution procedure;  and
(ii)    the approved external dispute resolution scheme of which the licensee is a member;  and

(i)    give information explaining the licensee’s obligations to provide a copy of the preliminary credit assessment and not to suggest that a consumer apply, or assist a consumer to apply for a particular credit contract with a particular credit provider or for an increase in credit limit if the contract will be unsuitable for the consumer.
(j)    comply with any other requirements prescribed by the Regulations.

9.4 Credit Guide of Credit Representatives – Requirements

If a credit representative of a licensee gives a consumer the licensee’s credit guide when acting on behalf of the licensee, the credit representative must at the same time give the consumer the credit representative’s credit guide.

The credit representative’s credit guide must:

(a)    be in writing; and
(b)    be in the form (if any) prescribed by the Regulations; and
(c)    specify the credit representative’s name and contact details; and
(d)    specify the credit representative’s credit representative number; and
(e)    give information about:

(i)    any fees that are payable by a consumer to the credit representative for acting as a credit representative; and
(ii)    any charges that are payable by a consumer to the credit representative for matters associated with acting as a credit representative; and
(iii)    the method for working out the amount of the fees and charges; and

(f)    give information about:

(i)    if there are 6 or fewer licensees for whom the credit representative is a credit representative – the names of those licensees; and
(ii)    if there are more than 6 licensees for whom the credit representative is a credit representative – the names of the 6 licensees for whom the credit representative reasonably believes it conducts the most business; and
(iii)    the credit activities the credit representative is authorised to engage in on behalf of the licensees referred to in subparagraph (i) or (ii); and

(g)    give information about:

(i)    any commissions the credit representative is likely to receive, directly or indirectly, from those licensees; and
(ii)    a reasonable estimate of the amounts of those commissions or the range of those amounts; and

(h)    give information about the credit representative’s procedure for resolving disputes with a consumer, including contact details for a consumer to access the approved external dispute resolution scheme of which the credit representative’s is a member; and
(i)    comply with any other requirements prescribed by the Regulations.

9.5 Credit Guide of Debt Collectors – Requirements

A person who is a licensee or credit representative must, as soon as practicable after it becomes authorised by a credit provider (including a lessor) to collect, on the credit provider’s behalf, repayments made by a debtor under a credit contract (including payments made by a lessee under a consumer lease) give the debtor (or lessee) the person’s credit card.

The person’s credit guide must:

(a)    be in writing; and
(b)    be in the form (if any) prescribed by the Regulations; and
(c)    specify the person’s name and contact details; and
(d)    if the person is a licensee – specify the person’s Australian credit licence number; and
(e)    if the person is a credit representative – specify the person’s credit representative number; and
(f)    give information about the person’s procedure for resolving disputes with a consumer, including contact details for a consumer to access:

(i)    if the person is a licensee – the person’s internal dispute resolution procedure; and
(ii)    in all cases – the approved external dispute resolution scheme of which the person is a member; and

(g)    comply with any other requirements prescribed by the Regulations.

9.6 Quote for providing credit assistance

A licensee must not provide credit assistance to a consumer by:

(a)    suggesting that the consumer apply, or assisting the consumer to apply, for a particular credit contract with a particular credit provider;  of
(b)    suggesting that the consumer apply, or assisting the consumer to apply, for an increase to the credit limit of a particular credit contract with a particular credit provider;  or
(c)    suggesting that the consumer remain in a particular credit contract with a particular credit provider;
unless:
(d)    the licensee has given the consumer a quote in accordance with subsection (2);  and
(e)    the consumer has signed and date that quote or otherwise indicated the consumer’s acceptance of it (and the day that happens) in the manner (if any) prescribed by the regulations;  and
(f)    the licensee has given the consumer a copy of the accepted quote.

The quote must:

(a)    be in writing;  and
(b)    give information about the credit assistance and other services that the quote covers;  and
(c)    specify the maximum amount that will be payable by the consumer to the licensee in relation to the licensee’s credit assistance and other services;  and
(d)    give information about what that amount relates to, including;

(i)    the maximum amount of the licensee’s fee for providing the credit assistance and other services;  and
(ii)    the maximum amount of charges that will be incurred by the licensee for matters associated with providing the credit assistance and other services;  and
(iii)    the maximum amount of fees or charges that will be payable by the licensee to another person on the consumer’s behalf;  and

(e)    state whether the maximum amount or any other amount will be payable by the consumer to the licensee if a credit contract is not entered or a credit limit is not increased;  and
(f)    comply with any other requirements prescribed by the Regulations.

9.7 Manner of giving Credit Guides/Quotes

Whilst the Regulations are yet to be formulated they will prescribe the manner in which the credit guide or quote is to be given to the consumer. Subject to the Regulations it is considered that the credit guide or quote may be provided in the most suitable manner for the circumstance; eg: either in person, in writing (by post or email) or as a notice appearing on the credit provider’s internet website which is accepted by the consumer. It is also possible that the Regulations may prescribe the giving of credit guides or quotes over the telephone.

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