The National Consumer Credit Protection Act 2009 (Cth) introduced a comprehensive, nationally consistent credit licensing regime for banking institutions and other credit providers in Australia.
Any person who offers credit, or otherwise provides some form of credit assistance to a retail customer, must now either hold an Australian Credit Licence (“ACL”) or become a Credit Representative of an ACL holder.
The key pieces of legislation governing the conduct of ACL holders and Credit Representatives are:
- National Consumer Credit Protection Act 2009 (Cth) (“NCCPA”);
- National Consumer Credit Protection Regulations 2009 (Cth) (“NCR”);
- National Credit Code;
- Corporations Act 2001 (Cth);
- Australian Securities and Investments Commission Act 2001 (Cth).
The regulatory body responsible for administering and enforcing these laws is the Australian Securities and Investments Commission (“ASIC”).
What constitutes a “credit activity” anyway?
Credit activity is defined in section 6 of the NCCPA to include:
- Providing credit under a credit contract or consumer lease;
- Benefiting from mortgages or guarantees relating to a credit contract;
- Suggesting or assisting in relation to a particular credit contract or consumer lease;
- Acting as an intermediary between a lender and a consumer (for a credit contract);
- Acting as an intermediary between a lessor and a consumer (for a consumer lease); and
- Providing other prescribed credit activities.
Who is required to get an Australian Credit Licence?
The types of businesses that would be required to have an ACL include:
- Non-banks (eg. credit unions and building societies);
- Finance companies (eg. credit card companies, payday lenders, etc);
- Mortgage managers;
- Mortgage aggregator;
- Lenders mortgage insurer;
- Debt management service providers;
- Assignee debt collectors;
- Car loan financiers;
- Mortgage brokers;
- Finance brokers;
- Financial advisers who offer credit assistance;
- Comparison websites;
- Businesses offering hire-purchase arrangements; and
- Business selling goods or real property by instalments.
The NCR exempts certain categories of people from the licensing requirement:
- Corporate or personal insolvency practitioners;
- Registered tax agents;
- Point-of-sale retailer
- Financial counselling agency
- Third parties;
- Clerks or cashiers;
- State-licensed debt collector or repossession agent;
- Persons who merely pass on factual information in response to a request, or
- Persons who merely refer a consumer to a licensee.
The credit licensing process
ASIC encourages applicants to undertake the licensing process online via its website. There are different application “streams” available depending which of the following categories you fall into:
- “Standard” applicant;
- “Streamlined” applicant (such as banks, general insurers and life insurers);
- An Australian Financial Services Licence (“AFSL”) holder.
The vast majority of applicants are expected to fall into the first category.
In general terms, applicants will need to satisfy the regulator, amongst other things, that:
- The business will be viable and solvent;
- The business will be managed by “fit and proper” persons;
- The business will be able to manage its risks appropriately;
- The business will be able to comply with its legal and regulatory obligations;
- The business will be adequately resourced and have competent staff.
Obligations of licensees
The holder of an ACL will be required to strictly abide by a number of conditions in order to maintain their licence (and avoid legal and regulatory sanctions). These include:
- Must comply with the specific conditions set out in the ACL itself;
- Must comply with the credit legislation;
- Must provide its services efficiently, honestly and fairly;
- Must have sufficient financial, technological and other resources;
- Must have risk management and compliance procedures;
- Must have adequate staff monitoring and supervision procedures;
- Must provide adequate training for its staff to ensure competence;
- Must not engage in any misleading or deceptive conduct;
- Must comply with Responsible Lending Conduct provisions;
- Must avoid, or at least properly manage, conflicts of interest;
- Must have a proper internal and external dispute resolution procedure;
- Must maintain adequate professional indemnity insurance;
- Must lodge an Annual Compliance Certificate with ASIC.
Consequences of non-compliance
An ACL holder who fails to comply with its obligations may become subject to one or more of the following sanctions (going from the least serious to the most serious):
- Public sanction;
- Monetary penalty;
- Imposition of additional conditions on licence;
- Enforceable undertaking;
- Variation of licence;
- Suspension of licence;
- Cancellation of licence;
- Imprisonment of its directors and officers
For Credit Providers and other ACL holders: Winthrop Mason Lawyers can assist by:
- Applying for, or varying the terms of your Australian Credit Licence;
- Drafting, updating or reviewing disclosure documents, such as Credit Guides, Key Fact Sheets and Information Statements;
- Drafting, updating or reviewing internal policies and procedures (such as Conflicts of Policy, Compliance Manual, Training Policy, Dispute Resolution Policy, etc);
- Advising on a credit provider’s rights and obligations regarding their clients;
- Investigating, managing and negotiating the resolution of complaints and claims;
- Developing an enterprise-level risk management program and compliance program;
- Conducting compliance audits of credit providers’ client files;
- Preparing formal breach notifications for ASIC;
- Negotiating the terms of any proposed Enforceable Undertakings with ASIC;
- Liaising with ASIC and other regulators in relation to any potential compliance issues.
For retail customers: Winthrop Mason Lawyers can assist by:
- Reviewing the credit assistance and disclosures provided to you for compliance;
- Advising on your legal rights as against your Credit Representative or ACL holder;
- Considering strategies and options available in the event of a compensation claim ;
- Calculating the monetary value of your potential compensation claim;
- Investigating, managing and negotiating the resolution of client complaints;
- Negotiating compensation claims with your Credit Representative or ACL holder;
- Preparing submissions before the external dispute resolution service (eg. FOS);
- Commencing legal proceedings against the Credit Representative and/or ACL holder.
For a no-obligation initial consultation, go ahead and give us a call.