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June 25, 2009

National Consumer Credit Protection Reform Package introduced

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, has introduced the Government's national consumer credit laws into Parliament.

The regime will establish a single, standard, national law for the regulation of consumer credit.

 The new national regime includes:

  • a national licensing regime regulating credit providers and providers of credit related services enforced by the Australian Securities Commission (ASIC) as the sole regulator (from 1 January 2010);
  • responsible lending requirements (from 1 January 2011);
  • compulsory dispute resolution mechanisms for credit providers;
  • extension of consumer credit laws to residential investment property loans;
  • an increase to the threshold for hardship claims to $500,000.

The Reform Package comprises three Bills:

Subject to the passage of the Reform Package and reference legislation in each state, the Reform package will commence on 1 November 2009:

  • Lenders and credit-service providers (such as brokers) will be required to register with ASIC between 1 November 2009 and 31 December 2009, and will have to apply for a licence by 30 June 2010 in order to continue to engage in credit activities.
  • The responsible lending conduct obligations will commence on 1 January 2011 to provide industry time to put in place the systems, arrangements and training needed to comply with these obligations.

Langes is currently reviewing the draft bills in detail.

We will be discussing the legislation at our seminars in Brisbane, Sydney, Melbourne and Adelaide in August.(More information here).

The Minister announced that modifications to the Exposure Draft Bills include:

  • Exemption from licensing for state-licensed debt collectors (12 months only) and for point of sale credit assistants for example, car dealerships or retail outlets ;
  • The responsible lending conduct obligations will commence on 1 January 2011 to provide industry time to put in place the systems, arrangements and training needed to comply with these obligations;
  • The requirement for credit providers to perform the credit assistance obligations when providing credit assistance in relation to their own proprietary credit products has been removed;
  • Breach reporting by holders of an Australian Credit Licence has been removed;
  •  An express provision has been included to allow some flexibility to the application of the obligations of a licence holder according to the nature, scale and complexity of the credit activities engaged in by the licensee;
  •  Licence requirements only apply to legal assignees of debts and rights under credit contracts;
  •  Responsible lending conduct requirements have been applied to consumer leases;
  •  Inclusion of a provision in the law that presumes that if a consumer will only be able to comply with the consumer's financial obligations under the contract by selling the consumer's principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is established;
  •  A prohibition on a credit assistant from securing their fees for providing credit assistance by taking a caveat has been included;
  •  The timeframe within which a written assessment requested by the consumer must be provided has been extended to seven business days, if the request is made within two years of the quote or contract date or 21 business days if the request is made thereafter. A consumer's right to request a copy of the assessment is limited to seven years after the date of the quote or contract;
  •  A lender will be required to give the debtor (and any guarantor) a notice within 10 business days of the first direct debit payment failing in relation to a direct debit instruction;
  •  The civil penalty infringement notice amount is reduced from 1/20th to 1/40th;
  •  The criminal penalty is reduced to two years jail term and 100 penalty units. This reflects the different economic risks in credit matters compared to other financial products;
  •  The small claims procedure has been significantly expanded to include actions for loss or damages of up to $40,000 or to obtain certain orders under the Code where the contract is valued at less than $40 000;
  •  The court jurisdiction and framework has been established and confers civil jurisdiction to Federal and State and Territory courts, including local and magistrates courts, and confers criminal jurisdiction to State courts;
  •  A provision is included to permit the jurisdiction of where legal proceedings can commence to be determined by regulations.

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Posted 25th June 2009 by David Jacobson in legislation

June 6, 2009

Langes services and seminars

Langes has set up a National Credit Code project team.

We will be developing resources to help implementation planning and registration and licensing.

We expect that by August the legislation should be in close to its final form.

We will be holding a series of half day seminars as follows (venues to be advised):

Brisbane: Tuesday 11 August
Sydney: Wednesday 12 August (Grace Hotel)
Melbourne: Thursday 13 August
Adelaide: Friday 14 August.

The seminars will discuss:

  • licensing
  • training requirements
  • changes to the Credit Code
  •  unfair contracts
  • disclosure requirements
  • the effect on existing contracts
  • the effect on business lending
  • external dispute resolution
  • compensation requirements

Contact Levina Chim on 02 8234 4777 for a registration form.

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Posted 6th June 2009 by David Jacobson in seminar

Proposed changes to existing Consumer Credit Code

Besides introducing credit licensing, the draft National Consumer Credit Protection Bill 2009 introduces a number of new concepts and procedures into the consumer credit regime including the following:

  • the "capacity to pay" test for credit assessment will be expanded by a test of whether the credit contract will be unsuitable for the borrower before entering the contract or increasing a loan;
  • "unsuitability" means if it will be likely, at the time the loan is made, the borrower could not comply (and repay) without hardship or the credit doesn’t meet the borrower’s objectives;
  • the Bill specifies what is reasonable for a credit provider to do in making the unsuitability assessment ;
  • the credit provider must give the borrower a copy of the assessment if requested within two business days if requested any time up to 12 months after the contract expires. There is no obligation to provide a copy of the assessment if the credit contract is not entered into or the credit limit is not increased;
  • credit providers must give a person a credit guide , as soon as practicable after it becomes apparent that the credit provider is likely to enter a credit contract with a person who will be the borrower under the contract;
  • the credit provider must give written notice of the outcome of an application for a hardship change within 21 days after receiving the application. If the application is refused, the notice must state the credit provider’s EDR and the applicant's rights under that scheme;
  • The first time a default occurs in payment pursuant to a direct debit authority, the credit provider must give a notice in the prescribed form to the borrower and any guarantor within 10 days of the default occurring;
  • new default notice requirements before a credit provider can enforce a credit contract or a mortgage against a defaulting debtor or mortgagor.

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Posted 6th June 2009 by David Jacobson in legislation

Draft National Consumer Credit Reform package released

Senator Nick Sherry, Minister for Superannuation and Corporate Law, has released the draft National Consumer Credit Reform package for comment on 27 April 2009.

The package consists of drafts of the following: 

  • National Consumer Credit Protection Bill 2009 (the National Credit Code is a Schedule to this Bill)
  • National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009
  • National Consumer Credit (National Credit Code) Regulations 2009
  • National Consumer Credit Protection (Transitional and Consequential Provisions) Regulations 2009
  • National Consumer Credit (Infringement Notices) Regulations 2009 and
  • draft explanatory material. 

The Bill creates a new national regime for consumer credit including:

  • a new national licensing regime, requiring an Australian Credit Licence
  • a responsible lending obligation
  • a new dispute resolution mechanism for lenders
  • extending protections to investment loans for the first time;
  • amendments to the existing credit code, and
  • an increase of the threshold for mortgage hardship claims to $500,000

Australian Credit License
The Bill creates the Australian Credit License (ACL). After a registration phase commencing on 1 November 2009, coverage of the ACL regime will commence on 1 January, 2010, will be Australia-wide and will include all parts of the credit industry.

The ACL regime will be supervised by the Australian Securities and Investment Commission (ASIC) and will replace existing state regulation.

ASIC will be given the power to cancel or suspend a licence or ban people from engaging in credit activities

ACL holders will all be required to meet minimum entry standards before they can offer products and services to consumers.

All banks, credit unions, finance companies and other lenders, known in the Bill as credit providers, and all credit advisers and mortgage and credit brokers, known as credit service providers will be required to hold an ACL.

A person or entity will need an ACL where they engage in any of the following credit activities:

  • lending money or collecting money due under a credit contract,
  • acting as a broker or intermediary (such as an aggregator or mortgage manager),
  • providing assistance to a consumer about a specific credit product.

All holders of an ACL will be required to meet new obligations immediately on becoming licensed. For example, they will be required to be properly trained and ensure representatives are adequately supervised. They must also deal with conflicts of interest so clients are not disadvantaged where such conflict exists.

Licensing will be implemented in two phases. Anyone who currently engages in credit activities will need to register online with ASIC between 1 November 2009 and 31 December 2009. "Fast-tracking" will not be offered to all existing lenders. Streamlining will be available to ADI's.

On becoming registered, a person must meet a range of obligations – they will be required to act efficiently, honestly and fairly, to comply with the law, including responsible lending conduct obligations and to become a member of an ASIC-approved External Dispute Resolution (or EDR) Scheme.

In phase 2, lenders will have six months to apply for an Australian Credit Licence, between 1 January 2010 and 30 June 2010. To qualify for an Australian Credit Licence, applicants must demonstrate to ASIC that they have the necessary organisational capacity, competencies and skills.

All persons who engage in credit activities for the first time on or after 1 January 2010 must apply for and receive an Australian Credit Licence before commencing business.

Responsible Lending
Responsible lending has two core elements:
1. if a loan is considered to be ––unsuitable for a consumer; and
2. if they do not have the ––capacity to repay the loan, they will not be provided with the loan.

ASIC Enforcement powers
The national credit laws will also include enhanced ASIC enforcement powers including:

  • criminal penalties for licensee misconduct with possible imprisonment for up to 5 years for those who lend contrary to the responsible lending requirements,
  • civil penalties for licensee misconduct to enable ASIC to impose heavy fines of up to $220,000 for an individual and $1.1 million for a corporation,
  • infringement notices (or fines) to enable ASIC to quickly act to penalise certain breaches of the law; and
  • consumer remedies, which will enable consumers to seek redress for their loss and damage as a result of misconduct by a licensee, or when their credit is provided unlawfully.

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Posted 6th June 2009 by David Jacobson in legislation