National Consumer Credit Protection Package - Regulations And Explanatory Materials

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP has welcomed the release of the Regulations and explanatory material to the National Consumer Credit Protection Legislation.

The Regulations, which deal with matters of detail within the framework established by the National Consumer Credit Protection Legislation, consists of the National Consumer Credit Protection Regulations 2010 (the Credit Regulations), the National Consumer Credit Protection (Transitional and Consequential) Regulations 2010 (the Transitional Regulations), and the National Consumer Credit Protection (Fees) Regulations 2010 (the Fees Regulations).

The release of these Regulations follows from the third and final round of public consultation on the regulations and represents the culmination of a thorough consultation process that received submissions from various stakeholders, including industry, consumer groups and individuals.

Changes and enhancements have been made to the regulations in response to the last round of consultation to improve their workability and clarify the operation and intent of the regulations.

Details of the key changes are attached.

• The Credit Regulations include arrangements for licensing of persons who engage in credit activities (including exemptions and streamlining procedures), and regulations that would impose standard conditions that would apply to all holders of an Australian credit licence.
• The Transitional Regulations deal with transitional matters including registration of persons who engage in credit activities with the Australian Securities and Investments Commission (ASIC) and the treatment of court proceedings.
• The Fees Regulations include details of the fee structure that will promote certainty and simplicity for industry.

In addition, further regulations will be issued in March and April covering the following matters to allow for the benefit of further consultation with key stakeholders. They include:

• allowing registered persons to be appointed as credit representatives during the transitional period;
• allowing an exemption from the Credit Code subject to certain conditions, for Indigenous Business Australia, a body established by, and in accordance with the Aboriginal and Torres Strait Islanders Act 2005;
• amending the regulations to ensure that the prohibition against engaging in credit activities unless registered or licensed will commence from 1 July 2010;
• proposed modifications to the securitisation entity exemption;
• a proposed regulatory framework with respect to carried over instruments (pre‑existing credit contracts) and;
• clarification around the exemption for point-of-sale retailers.

The Government appreciates the valuable input and contribution from industry and consumer groups in the consultation and development of the credit regulation package.

"The Government and ASIC will continue to work closely to assist industry and consumers, where possible, with the transition to the new credit regime in the coming months' Minister Bowen said.

The package of regulations and related explanatory material can be found and downloaded at www.treasury.gov.au/consumercredit.

15 March 2010

Attachment

Summary of Key Changes to the Consumer Credit Protection Regulation Package

National Consumer Credit Protection Regulations 2010

The following key changes have been made to clarify the operation of the Regulations:

Regulation 8 – How to get an Australian credit licence – Streamlined process for particular classes of applicants

• A change is made to allow life insurers, who only provide credit where the credit is made available under a life insurance contract and is secured against the surrender value of that product, to be streamlined to a licence.
• A change is made to ensure that lenders' mortgage insurers (LMIs) can be streamlined to an Australian Credit Licence (ACL).

Regulation 12 – Obligations of licensees – requirement for compensation arrangements

• A technical change is made to ensure that lenders do not need to hold professional indemnity cover.

Regulation 13 – Obligations of licensees – offence in relation to failure to cite licence number in documents

• A technical change is made to clarify that, where an advertisement identifies more than one licensee, only one ACL is required to be nominated on behalf of the other licensees.

Regulation 20 – Persons exempt from requiring a licence – general

Regulation 20 provides exemptions from licensing obligations for certain persons or classes of persons.

1. A change is made to put beyond doubt that a person can rely on several exemptions where they engage in credit activities that can only be exempt under more than one exemption.
2. A change is made to ensure that persons cannot rely on existing licences under State and Territory credit provider or broker licensing schemes to be exempt.
3. A change is made to exempt from licensing persons who engage in credit activities where they are obligated to do so under the Privacy Act 1988 and Anti‑Money Laundering and Counter-Terrorism Financing Act 2006.

Subregulation 20(11) – Persons exempt from requiring a licence – membership benefits

Subregulation 20(11) provides an exemption from licensing for organisations that provide services and make benefits available to its members, of which an incidental benefit is that members are eligible to apply to enter into a particular credit contract or consumer lease (for example, becoming a member of a loyalty program through taking out a particular credit card).

• Some changes are made to the exemption following concerns raised to clarify the scope of the exemption, and ensure that the circumstances in which it applies can be identified with greater certainty.
• The following changes are made to improve the workability of this subregulation and:
• To specify that a person may be a member of a program or facility run by the organisation and not the organisation itself;
• To make clear that the test is objective (that is, the exemption can be relied upon even if the consumer's primary purpose is to obtain the benefit as long as the benefit is incidental from the point of view of the organisation);
• The requirement that the organisation not arrange or assist in relation to credit contracts where it is on notice that the credit is unsuitable has been replaced with a requirement that the organisation only arrange credit with third parties who are either licensed or registered; and
• The requirement that the exemption not apply where the organisation arranges credit that will be predominantly used for the purchase of goods or services from the organisation has been replaced with a less strict requirement. The exemption can now be relied upon even though in some individual cases the credit is used for goods and services supplied by the organisation (provided this is not the usual practice).

Regulation 20(12) – Persons exempt from requiring a licence – community microfinance providers

• The exemption for community microfinance credit services providers has been extended to include entities that may not be charities (such as credit unions) as long as their services are performed in partnership with an ADI that is an ACL holder.
• A change is made to enable the organisation seeking the exemption, to receive payment for the credit service as long as it is not charged to the debtor or anyone related to the debtor.

Regulations 20, 21, 22, 25 and 26 – Exemptions in relation to a registered person

• A technical change is made to exemptions provided under 20, 21, 22, 25 and 26 to ensure that exemptions that operate in relation to a third party that is licensed, are effective during the transitional period when that person may only be registered.

Regulation 21 – Persons exempt from requiring a licence – debt collectors

• A change is made to make clear that Victorian debt collectors qualify for the exemption unless they have been prohibited from engaging in debt collection activities under a State law.

Regulation 22 – Exemptions – third parties

• A change is made to allow this exemption to fully cover third parties acting on behalf of a licensee or registered person by extending it to also cover the storage of property, and conduct on behalf of lessors.

Regulation 23 – Exemptions – point of sale

• A change is made to make the operation of this exemption clearer, including specific definitions of when contact will be unsolicited, and therefore when the exemption cannot be relied upon.

Regulation 25(7) – Exemptions – Passing on some types of factual information

• A change is made to clarify the circumstances under which a person can rely on an exemption where they allow another person to use their business name, logo or trademark.

Regulation 28 – Credit registers

• A change is made to clarify that an alternative address must be a physical location and must have some connection with the credit activities engaged in by the licensee.

Regulation 41 – Extension of time to pay penalty

Regulation 42 – Payment of penalty by instalments

• A change is made to clarify that if ASIC fails to respond to a request for an extension of time to pay, or permission to pay by instalments, a penalty within the 14 day time limit, they are taken to have refused the request.

Regulation 78 – Charging Interest in Advance

• The November exposure draft allowed lenders to charge interest in advance where the predominant purpose of the credit was to purchase or renovate a residential investment property. This ensured current industry practices could continue so that interest could be charged as a lump sum (for example, annually) in order to allow the consumer to maximise taxation benefits.
• Industry raised concerns that this variation needed to be extended to refinances of these credit contracts. This has been accepted, except where the consumer will no longer obtain taxation advantages (for example, they have moved into the residential property). In these circumstances it is appropriate that the calculation and charging of interest is treated consistently with other personal loans, rather than investment loans.

Forms

• A change is made to the forms to incorporate the disclosure of an ACL number to enable consumers to more easily obtain the credit provider's accreditation.
• A regulation is made to eliminate the need for a credit provider to send a direct debit default notice if the direct debit has been rectified within 10 days as the notice would no longer serve any purpose. There is little need to send this notice if the consumer is already aware of the default and has taken steps to rectify it.

Streamlining

• Technical changes have been made to the Credit Regulations allowing some entities to be streamlined to a licence, without needing to provide evidence in support of their application. The changes reflect existing Government policy, and ensure that lenders licensed in Western Australia are required to undertake the full licensing process, and cannot take advantage of streamlining.

National Consumer Credit Protection (Transitional and Consequential Provisions) Regulations 2010

Transitional

Changes proposed to the Credit Regulations 20, 21, 22, 23, 24, 25, 26, 41 and 42 are also required to be reflected in corresponding regulations within the Transitional Regulations.

Part 3 of Schedule 1 to the Transitional Act states that the registration, licensing and responsible lending conduct provisions do not apply to contracts and other instruments. It has been excised from the Transitional Regulations pending further clarification of the scope of its operation.

National Consumer Credit Protection (Fees) Regulations 2010

Regulation 4 – Fees for chargeable matters – Fees worked out using method

• A change is made to count loans that are made rather than all loans submitted for the purposes of calculating the licensing and annual compliance fees payable.
• A change is made to include loans made to intermediaries, in addition to loans made to credit providers, for the purposes of calculating licensing and annual compliance fees payable.
• A change is made to include total value of new credit assigned to the applicant in the preceding financial year, for the purposes of calculating licensing and annual compliance fees payable, to take into account assignees of loans.
• A clarification is made to provide a definition of credit for the purposes for calculation of the licensing fees to be credit as defined by section 5 of the National Credit Code (the Code) and includes such credit even if that credit was written before commencement of the Code and not covered by the Uniform Consumer Credit Code (UCCC).

Comparison Table

Below is a table which compares the key regulations from the package of Regulations released during the public consultation in November 2009 with the final package of Regulations.