National Consumer Credit Protection Bill introduced into Federal Parliament
The new Minister for Financial Services, Corporate Law and Superannuation, the Hon Chris Bowen introduced the National Consumer Credit Protection Bill into Federal Parliament on Thursday 25 June the last day of the Parliamentary winter session.
It will be debated in the next session of Parliament commencing in August and is expected to be passed in September.
Members will be aware from previous communications and presentations from MFAA of the broad detail of a draft bill which was released for public consultation on 27 April.
A number of submissions were received by the Government, including a detailed submission from MFAA, on the contents of the draft bill and the new final bill, according to the Government’s media release, has taken into account those submissions.
The key changes from the 27 April draft bill are:
- An express provision has been included to allow some flexibility to the application of the obligations of a license holder according to the nature, scale and complexity of the credit activities engaged in by the licensee. This is in direct response to the MFAA lobbying that we did not want an industry, which is characterised by thousands of very small (in many cases, one-person) businesses, to be subject to the onerous and over-complex licensing procedures experienced in the Financial Services Reform Act regime.
- Although the dates for the commencement of the Act and registration (1 November 2009) and licensing (1 January 2010) remain, the Government has been persuaded by lobbying from lender institutions to delay the operation of the ‘responsible lending’ aspects of the legislation until 1 January 2011. These are the provisions which require credit providers and intermediaries to adopt responsible lending practices, provide credit guides with disclosures etc, and carry out assessments as to whether a product is ‘not unsuitable’ for the borrower. However as these practices are already generally consistent with the MFAA Code of Practice, this delay will have little impact of the operations of MFAA members.
- A prohibition has been placed on brokers securing fees by taking a caveat on borrower’s property. Although not in the original draft this is consistent with MFAA policy.
- Penalties have been halved but MFAA is still of the view that it is ‘over-the-top’ to impose criminal penalties for errors of judgement. The Government however argues that the penalties are designed to come down strongly on predatory lenders and brokers and the courts and ASIC will have flexibility in determining penalties according to each individual circumstance.
- Point of sale retailers, eg car dealers and retail outlets will be exemptbut the Government will examine the issue of their regulatory oversight within the next 12 months
- Influenced by submissions from lenders, the requirement for lenders’ employees’ commissions to be disclosed has been deleted.
- NB MFAA has argued for the taking up of the exemption (currently operating in the NSW legislation) for mortgage managers having to disclose their margins. While this is not specifically included in the Bill, we have been advised that it is being considered in the upcoming regulations. MFAA will continue to press this.
The Next Steps
Once the legislation is passed, ASIC will release more details of the registration and licensing process and MFAA will provide more detailed advice and templates to assist members. Additionally more regulations providing better details will be released by the Government.
Subject to these details being released and the passage of the legislation, this is the process that will commence from 1 November 2009: (NB The upgraded UCCC provisions will apply from this date, eg including ‘mum and dad’ investment finance and no longer requiring comparison rate schedules)
1 November – 31 December 2009: All persons/businesses in the credit industry will be required to register. NB This does not apply to employees or directors, or authorised ‘credit representatives’. The Transitional provisions of the legislation enable the authorisation of a credit representative by a registered person/business as if they were a licensee. The registered or licensed entity must authorise the ‘credit representative’ in writing and they are then generally responsible for their conduct.
It is anticipated that ASIC will provide a simple online registration process.
It is expected this process will involve each applicant making the following statements:
- They are a member of an ASIC approved EDR scheme eg COSL (NB this means an individual member, not a member under another business’s membership as is the case currently with some operators in the industry)
They (or any directors or partners):
- Are not subject to a banning order or banned under any state credit legislation
- Have not been suspended or had AFS license cancelled in past 7 years
- Are not insolvent
- Have not been disqualified from managing corporations
- Have not been convicted within 10 years of serious fraud
All registrations will be cancelled as of 30 June 2011, so you will need to be either licensed, or a credit representative of a licensee, by then.
1 January – 30 June 2010: Requirement to apply for an Australian Credit Licence (ACL) in order to continue to operate in credit activities.
Persons/businesses wishing to have an ACL must apply to ASIC in a form yet to be determined on or after 1 January 2010.
[NB ADI’s (banks, building societies and credit unions) will be streamlined into an ACL and the explanatory notes indicate that it is expected that this (‘streamlining’) power will be used to streamline holders of A or B class licences under the Finance Brokers Control Act,1975 (WA) into an ACL]
ASIC must grant the licence if it has no reason to believe
- the applicant will contravene the provisions of the Act, and
- the applicant is not a fit and proper person
In coming to its belief, ASIC must have regard as to whether [which is more robust than the criteria for registration (above)], the applicant
- Has been subject to a banning order or banned under any state credit legislation
- Has had their Registration an AFS license suspended or cancelled
- Has ever been insolvent
- Has ever been disqualified from managing corporations
- Has had within 10 years any criminal conviction
And any other matters ASIC considers relevant.(this includes action taken against the applicant by a relevant industry body)
The extent to which the conduct or characteristics of the applicant (or directors, senior managers or partners) will mean they will not meet the fit and proper requirement will depend on factors such as the background of the individual and the level of day-to-day control and power they exert over the credit activities engaged in.
Where present, the matters above will not necessarily be grounds for refusing a licence but will be matters always to be considered by ASIC. Eg where a person who has been convicted of serious fraud, the circumstances may show a disregard for the interests of other persons so that ASIC can conclude they are not a fit and proper person.
The purpose of this communication is to advise members of the requirements likely to be in place over the initial registration and licensing process.
We will be providing much more detail as to the Responsible Lending requirements (which will not come into force until 1 January 2011) later.
If you have any concerns about the immediate process (or the Bill in general) please contact Phil Naylor at email@example.com
Full detail of all the Bills and explanatory memorandum can be found as follows: (beware they are very large documents of several hundred pages.
- National Consumer Credit Protection Bill 2009
- National Consumer Credit Protection (Fees) Bill 2009
- National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009