The National Consumer Credit Protection reform package

Update

The National Consumer Credit Protection Bill 2009 (Bill), National Consumer Credit Protection (Transitional and Consequential) Provisions Bill 2009 and the National Consumer Credit Protection (Fees) Bill 2009 passed through the Senate on 26 October 2009 and are currently awaiting assent.

In anticipation of the Bills receiving assent, this article gives you a timely snapshot of key features and dates under the National Consumer Credit Protection reform package.  Over the coming months, we will issue a series of articles providing a comprehensive guide on major aspects of the proposed legislation, such as the requirements with respect to the new licensing and responsible lending regimes.

Overview

The Government’s proposed reform package will establish a single national regime for the regulation of consumer credit in Australia.  The reforms introduce significant new obligations on participants in the consumer credit industry and widens the concept of consumer credit to include residential investment loans. 

Commencement of the consumer credit reforms has been deferred by 6 months to 1 July 2010 (previously 1 January 2010).  This follows a recommendation by the Senate Economics Committee to give the credit industry more time to make the necessary changes to transition to the new regime and, in particular, to amend applicable documents and provide training.

Who will the Bill affect?

Generally, the Bill will apply to all persons involved in the origination, provision, management and enforcement of consumer credit including:

  • businesses which provide credit to consumers (eg. banks, credit unions and finance companies); and

  • businesses which are involved in assisting consumers obtain credit (eg. brokers and financial planners).

Key features

Some of the key features of the Government’s two phase action plan for consumer credit reform are set out below.

Phase 1

  • State-based Uniform Consumer Credit Codes to be replaced with the National Consumer Credit Code (NCC); 

  • A national regime for consumer credit where ASIC is the sole regulator of the consumer credit framework in Australia with enhanced enforcement powers;

  • Establishing a national licensing regime to require providers of consumer credit and credit related brokering services and advice to obtain an Australian Credit Licence (ACL) from ASIC;

  • Requiring mandatory membership of an external dispute resolution (EDR) body or scheme by providers of consumer credit and credit related brokering services and advice;

  • The NCC will cover credit provided to purchase, renovate or improve residential investment property (including credit provided to refinance credit provided for such purpose);

  • Regulation of trustee corporations;

  • Extend the operation of the Corporations Act 2001 (Cth) to regulate margin lending;

  • Increase the hardship threshold allowing consumers to request changes to terms of their credit contract (for contracts up to $500,000); and

  • Providers of consumer credit and credit related brokering services and advice to be required to meet and observe general conduct requirements including responsible lending standards.

Phase 2

  • Enhancements to specific conduct obligations to stem unfavourable lending practices with respect to certain credit products; examination of the State’s approaches to interest rate caps and other fringe lending issues;

  • Regulation of the provision of credit to small businesses;

  • Regulation of investment loans other than margin loans and mortgages for residential investment properties;

  • Reform of mandatory comparison rates and default notices; and

  • Enhancements to the regulation and disclosure of reverse mortgages.

Key dates

Some of the key dates are set out below:

  • providers of consumer credit and credit related brokering services and advice must register with ASIC between 1 April 2010 and 30 June 2010;

  • once registered, providers of consumer credit and credit related brokering services and advice must then apply for an ACL between 1 July 2010 and 31 December 2010;

  • all persons registered with ASIC must have applied for an ACL by 31 December 2010.  An entity that engages in credit activities after 31 December 2010 without an ACL will be committing an offence; 

  • new entrants to the consumer credit market will have to apply for an ACL from 1 July 2010;

  • providers of consumer credit and credit related brokering services and advice that are not authorised deposit-taking institutions (ADIs) or registered finance companies (RFCs) must not provide credit that is unsuitable from 1 July 2010;  

  • ADIs and RFCs must not provide credit that is unsuitable from 1 January 2011; and 

  • other responsible lending obligations (such as upfront disclosure of fees and commissions, provision of quotes, credit guides and assessments) will commence on 1 January 2011. 

Other effects of the Bill

Lenders, in particular, will need to review their documents and procedures and make changes to comply with the proposed legislation, including with respect to:

  • loans to individuals to purchase, renovate or improve residential investment property (or refinance credit provided for such purpose);

  • amendments to business purpose declarations and enquiries to be made in connection with the purpose of the proposed credit;

  • amendments to default notices and other standard form notices including prescribed information of the EDR scheme of which the credit provider is a member;

  • new notices in response to applications for hardship variations and postponement of enforcement proceedings; and

  • obligations of providers of consumer credit and credit related brokering services and advice to assess the suitability of a credit contract or credit limit increase for the relevant consumer. 

Next steps

All persons and businesses who will engage in credit activities or brokering to be covered by the proposed legislation must consider the extent to which they need to comply with the proposed legislation, and be ready to implement the required changes and make the necessary applications for registration and an ACL within the prescribed time.

As mentioned above, our forthcoming series of articles will provide a comprehensive guide on major aspects under the proposed legislation to assist you in getting prepared.

For further information please contact Kylie O’Keeffe on 9288 6852 or kylie.okeeffe@lavanlegal.com.au