In April 2009, the Commonwealth Government released a draft of the National Consumer Credit Protection Bill 2009. The Bill is a proposed scheme for the national regulation of finance and mortgage brokers. If passed, it will come into effect on 1 November 2009, and will impose entry requirements, mandatory external dispute resolution, and enhanced consumer protection provisions.
Currently uniform credit protection legislation, mainly in the form of the Uniform Consumer Credit Code (UCCC), operates in the States and Territories to govern the credit industry. The objective of the proposed Bill is to replace the current UCCC and create uniformity of credit regulation throughout Australia.
Although the Bill will largely replicate the content of the existing UCCC, there will be a number of important changes to the major operational areas of the UCCC. These wide-ranging operational changes will affect all credit providers. However, it is brokers, credit intermediaries and smaller providers who are likely to find the affects of the changes most burdensome.
For many of the smaller businesses and intermediaries the changes may be difficult to comply with. Businesses engaged in the credit industry will likely need help understanding what they need to do in terms of complying with the legislation, changes required for existing documentation and processes, and how to apply for a licence.
The two major changes that the National Consumer Credit Protection Bill 2009 will introduce is: the establishment of a national Australian credit licensing system, and the establishment of responsible lending obligations.
National Australian Credit Licence:
A new national licensing regime will be introduced under the Bill. Under this new scheme an Australian Credit Licence will need to be held by a wide range of participants in the credit industry, including credit providers, finance brokers, mortgage managers, assignees of the rights of credit providers, and anyone else deemed to be providing ‘credit assistance’. Credit licensees will be required to ensure, among other things, that:
- Credit activities which are authorised by their licence are carried out efficiently, honestly, and fairly;
- Their representatives are adequately trained and competent to engage in the credit activities that are authorised by their licence; and,
- Be members of an approved external dispute resolution scheme.
Licensees will be monitored by the Australia Securities and Investments Commission (ASIC), which will have the responsibility of supervising credit licensees. ASIC will have enhanced enforcement capabilities against licensees and will have the ability to cancel a licence or ban a person from partaking in credit activities. Under the Bill significant criminal and civil penalties will also be imposed for licensee misconduct (including imprisonment of up to 5 years and fines amounting to $220,000 for individuals and $1.1 million for corporations).
Responsible Lending Obligations:
Specific new responsible lending requirements will be introduced creating obligations on credit providers and licensees providing credit assistance. Some of these obligations will include, among other things, the requirement to:
· Make reasonable enquiries about a consumer’s financial situation;
· Take reasonable steps to verify the consumer’s financial situations;
· Provide a guide containing information about the licensee and its obligations;
· Give a binding quote (if providing credit assistance);
· Make reasonable enquires as to the purpose for which credit is to be used; and,
· Not provide credit or arrange a loan that is unsuitable for the consumer’s needs, or that the consumer does not have capacity to repay.
If you would like more information about this topic you can contact our Commercial Team on (07) 3345 4388 or via the ‘Contact Us’ page on our Website.
