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August 31, 2009

Langes Compliance Assurance meeting 1 September

LCAP members can download information here (password protected).

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Posted 31st August 2009 by David Jacobson in legislation

August 28, 2009

What is responsible lending?

Both the National Consumer Credit Protection Bill and the Corporations Act (Financial Services Modernisation) Bill require that licensees (for consumer credit and margin lending respectively) comply with responsible lending conduct obligations.

Responsible lending will apply to brokers and previously unregulated lenders from 1 January 2010. It will apply to ADI's and registered finance companies from 1 January 2011.

These obligations require licensees to make disclosure to consumers about the application and assessment process and prohibit credit providers from making loans which are unsuitable for borrowers.

And for the first time laws will regulate the credit assessment process by requiring lenders and brokers to make reasonable inquiries about a borrower's financial situation and to verify information they receive.

The laws fall short of telling lenders how to assess and price risk but do set a minimum standard for credit assessment.

The UK Financial Services Authority conducted a Responsible Lending research project in 2007-8.

Its key conclusions were:

  • lenders could have been more cautious in their approach to lending
  • more stringent checks could have been applied to ensure customers had the ability to pay over the life of the term
  • in determining affordability, more emphasis could have been put on checking customers' general expenditure as well as expenditure on credit.

Whilst the reasons for the provisions (eg better identification of consumers in financial difficulty, reduction of high-risk lending) are well-known, what does this mean in practice?

For all regulated loans, lenders must be able to show they have taken into account a customer's ability to repay. For a broker-introduced loan, both lenders and brokers have their own responsibility to consider whether the borrower can afford to repay the loan. Neither can pass on their responsibility to the other. Each must come up with their own judgment as to whether the loan is affordable: the lender cannot use the broker's judgment as their own and vice versa. However, where it is reasonable to do so, each can rely on information passed to them to help them arrive at their own judgment.

Low-doc loans or loans reliant on borrower self-certification may not be able to be made unless a lender can independently verify the financial information provided. If tax returns are not available for self-employed applicants, can they provide BAS statements?

There will also be an impact on the term of loans if a loan ends post-retirement and there is no evidence of post-retirement capacity to pay.

For interest-only loans, what evidence is there that the borrower can repay the capital?

For low-start loans, what evidence is there that the borrower can afford the repayments after the honeymoon period ends?

Lenders will need to review their loan application forms and product terms to ensure the necessary information is collected.

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Posted 28th August 2009 by David Jacobson in legislation

August 18, 2009

Credit licensing fees

The draft National Consumer Credit Protection (Fees) Regulations 2009 contain the proposed new fee regime:

For credit licence applications there is a sliding scale depending on the number of representatives (including employees) involved in credit activities: the fee for online applications will go from $450 (for 1 representative in a credit activity) to a maximum fee of $21,000 (if more than 100 representatives involved in credit activities) with the same fees applying for lodgment of each annual compliance certificate. A higher fee applies for non-electronic lodgment ($565 up to $26,250).

There will be no fee for lodgment of an application to be registered under the transitional provisions.

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Posted 18th August 2009 by David Jacobson in legislation

August 15, 2009

Credit reform implementation timetable changes

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, has announced changes to the implementation of the National Consumer Credit Protection Reform Package.

The main change is to bring forward the responsible lending conduct requirements for brokers and other currently unregulated lenders who are not either Authorised Deposit-taking Institutions (ADIs) or Registered Finance Companies (RFCs) , which will now apply from 1 January 2010 instead of 1 January 2011, as previously proposed.

In addition, the commencement of changes to the existing Credit Code for all credit providers will be deferred from 1 January 2010 to 1 July 2010.

There is no change to the registration and licensing timetable.

The responsible lending conduct requirements will commence for Authorised Deposit-taking Institutions (ADIs) and Registered Finance Companies (RFCs) from 1 January 2011. This will allow these credit providers sufficient time to prepare for compliance with the new regime and ensure a smooth transition for the industry.

All remaining responsible lending requirements (such as disclosure of fees and commissions) will commence on 1 January 2011 as previously proposed.

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Posted 15th August 2009 by David Jacobson in legislation

Draft Consumer Credit Regulations released

The Minister for Financial Services, Superannuation and Corporate Law, the Hon Chris Bowen MP, has released draft Regulations and explanatory material for the National Consumer Credit Protection Package for public comment.

These regulations support the National Consumer Credit Protection Bill 2009, the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009, and the National Consumer Credit Protection (Fees) Bill 2009 which were introduced into Parliament on 25 June 2009. Regulations to amend the Electronic Transactions Regulations 2000 (ET Regulations) to exempt a number of transactions under the introduced bills from provisions of the ET Regulations are also included.

Key features of these regulations are:

•Exemptions from licensing for a 12 month period for debt collectors, where they hold a licence under a law of a State or Territory.
•Exemptions from licensing for point of sale retailers such as car dealerships, stores or retail outlets, where they engage in credit activities by arranging credit or acting as an intermediary through an arrangement with a lender.
•Situations where the exemption for point of sale retailers may not be applicable (for example, door to door sales) to minimise the risk of abuse by persons who would otherwise not be regulated by the National Consumer Credit Protection Bill 2009.
•The National Credit Code regulations replicate the State based regulations and include exemptions and prescribing disclosure requirements, for example in relation to business purpose declarations, interest rates, information to be included in notices.

Additional regulations include:
◦establishing the arrangements for where legal proceedings must be commenced;
◦supporting the infringement notice scheme to be administered by the Australian Securities and Investments Commission (ASIC);
◦prescribing the details which ASIC must include in the credit registers;
◦prescribing the forms to be used by ASIC when issuing a written notice or summons to a person;
◦specifying to whom ASIC may provide a report of an investigation;
◦evidencing of authority for ASIC staff and ASIC members; and
◦prescribing allowances and expenses that can be paid to a person who appears at an ASIC hearing.

National Consumer Credit Protection (Transitional and Consequential Provisions) Regulations 2009
Key features of these regulations are to:
◦provide for more detailed regulation of persons registered to engage in credit activities (consistently with regulations made in respect of holders of an Australian credit licence);
◦provide that provisions about the sale of land or goods by instalments do not apply to the provision of credit made before 29 May 2009 (to maintain consistency with recent amendments by the States);
◦enable a state or territory "Government Consumer Agency" as a party to an existing court proceeding, to act as an agent of ASIC;
◦enable ASIC to undertake extensive industry consultation, and working closely and cooperatively with stakeholders to develop guidance material; and
◦provide for a transfer agreement (about the transfer of assets or liabilities) may be entered into between ASIC and a State or Territory.

National Consumer Credit Protection (Fees) Regulations 2009
•These regulations prescribe fees for certain matters under the Credit Package. These fees will help offset the cost of implementing the new regime. Items prescribed by these regulations include:
◦licensing and annual compliance fees based on the size of the applicant or Australian credit license holder;
◦no fees for a range of basic matters that assist ASIC to maintain the integrity of their systems; and
◦additional charges for late lodgment and non-electronic lodgment.
•This fee structure has been designed to promote fairness, certainty and simplicity, whilst also supporting compliance with the Credit Bill.

Electronic Transactions Amendment Regulations 2009
These draft regulations will serve to maintain the exemptions from electronic transactions legislation under the credit regulation scheme administered by the States and Territories.

Remaining Regulations

Additional regulations are currently being drafted and it is intended to release them by 31 August 2009 for public consultation.

These regulations will cover the application of the Credit Bill to lenders under credit contracts or consumer leases in force as at the date the Commonwealth law commences and calculation and payment of interest for residential for residential investment properties.

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Posted 15th August 2009 by David Jacobson in legislation

August 10, 2009

Seminar notes and resources

Seminar registrants can download information here (password protected).

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Posted 10th August 2009 by David Jacobson in seminar

August 7, 2009

Bills timetable

The draft legislation program for the House of Representatives shows that on 13 August the following Bills will be debated:

National Consumer Credit Protection
National Consumer Credit Protection (Transitional and Consequential Provisions)
National Consumer Credit Protection (Fees)
Corporations Legislation Amendment (Financial Services Modernisation)

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Posted 7th August 2009 by David Jacobson in legislation

August 3, 2009

National Credit Code key requirement breaches

The new penalties in the National Consumer Credit Protection Bill (discussed here) are in addition to the existing civil penalties in the Uniform Consumer Credit Code for breach of a key requirement.

The existing key requirement regime will be replicated in the National Credit Code including the ability of the credit provider to make their own civil penalty application seeking a declaration as to whether or not their conduct has in fact breached a key requirement (as defined in section 111 of the proposed new Code and section 100 of the UCCC).

Both the UCCC and National Code impose different maximum limits on the amounts that may be ordered as a civil penalty depending on who makes the application.

Where the debtor or guarantor makes the application, the maximum civil penalty is generally the interest payable under the contract, or the interest payable for the relevant billing cycle if the contravention was in respect of a statement of account. The Court may impose a greater civil penalty that is not less than the amount of the loss suffered where it is satisfied that the debtor has suffered loss. The Code enables any order to pay a debtor or guarantor a civil penalty may be set off against any amount that is due or becomes due under the credit contract. The amount of the civil penalty is a debt due by the credit provider to the debtor or guarantor.

Under the National Code, if the credit provider or ASIC makes the application, the Code caps the maximum penalty at $500,000 for all contraventions of the same key requirement in Australia. Payment of a civil penalty, where the credit provider or ASIC makes the application, is to be paid to ASIC.

Notwithstanding an application being made by the credit provider or ASIC, the debtor or guarantor may make a separate application for compensation for loss arising from convention of a key requirement. The amount of compensation cannot exceed the loss suffered.

The Code imposes a time limit of six years (from the date of the breach) in which a person may bring an application relating to a contravention of a key requirement.

An order for a credit provider to pay a civil penalty under the Code does not affect their criminal liability for any other offences against the Code or the regulations.

Section 183 of the UCCC (Section 201 of the National Code).provides for liability of officers of corporations which commit breaches.

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Posted 3rd August 2009 by David Jacobson in legislation