ASIC has clarified the impact of the recent changes on the implementation timetable.

The key change is the commencement of the Consumer Credit Reforms on 1 July 2010 (instead of 1 January 2010).

Anyone who engages in certain credit activities will need to register with ASIC between 1 April and 30 June 2010 (inclusive).

Registered credit participants will then have six months to apply for an Australian credit licence, between 1 July 2010 and 31 December 2010.

New entrants to the credit market will have to apply for an ACL from 1 July 2010.

UPDATE 23 September: Deferral timetable (Treasury)

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP has announced changes to the consumer credit reform package in response to the Senate Economic Committee’s report.

The changes are:

• the commencement of the consumer credit reforms will be deferred by six months to 1 July 2010;
• the removal of subsection 130(3) from the Credit Bill so that credit providers will have to verify information provided in a preliminary assessment;
• to clarify that consumers have access to remedies without having a formal finding by a court in relation to civil penalty;
• to require lenders to provide consumers with reasons for rejecting applications for hardship variations and stays of enforcement;
• modifying the definition of residential property so that it excludes properties which are not predominantly used for residential purposes;
• clarifying that certain ASIC decisions, particularly regarding enforcement action, are excluded from Administrative Appeals Tribunal review;
• enabling ASIC to issue certain documents in a form prescribed by regulations;
• clarifying that ASIC may exempt a person and all their credit representatives in a single determination;
• increasing flexibility for ASIC to grant exemptions to some parts of the National Credit Code or subject to conditions;
• allowing for the transfer of information documents, assets or liabilities from a State or Territory to ASIC prior to the commencement of the National Credit Code.

The start date for the new responsible lending obligations on Authorised Deposit-taking Institutions (ADIs) and Registered Financial Corporations (RFCs) will remain 1 January 2011

The responsible lending condition that will be imposed as a part of the Australian credit licence (see here) will principally affect the credit assessment process, which until now has been mainly unregulated.

We have prepared a flow chart to show some of the changes (download here or see link below).

Langes Credit Assessment MM

The Senate Standing Committee on Economics has released its report on the National Consumer Credit Protection Bill 2009 and the 2 associated bills.

The Committee expressed concern about the timetable but accepted that the timetable was devised to allow transition from state regulation. The committee made a total of only 11 recommendations with general support for the package.

The report also includes comments on the Corporations Legislation Amendment (Financial Services Modernisation) Bill
2009 in relation to margin lending, promissory notes and trustee corporations and its interaction with consumer credit.

The Committee has released a separate report on the Australian Consumer Law.

ASIC has released Consultation Paper 115 Responsible lending (CP 115) explaining how ASIC proposes to implement the responsible lending obligations as they apply to credit licensees.

Under the responsible lending obligations, licensees will have to conduct reasonable inquiries about a consumer and assess that a credit product is not unsuitable for the consumer before offering or providing the credit product.

The Consultation Paper gives guidance on its expectations how those obligations will be performed.

It also contains guidance about ASIC’s expectations for the form and content of both the preliminary and final written assessment that a credit contract is not unsuitable.

Not all changes to the existing Credit Code will be deferred from 1 January 2010 to 1 July 2010.

On 14 August 2009 Minister Bowen issued a press release stating that “selected enhancements” to the National Credit Code (NCC) would be deferred from 1 January 2010 to 1 July 2010. The table at the end of the press release lists those specific changes from the UCCC that would apply from the later date – see the final row of the table.

The only obligations being deferred are:

• Application to credit for residential investment properties;
• Introduction of debit default notices;
• Amendments to business purpose declarations;
• Amendments to default notices; and
• New notices in response to application for hardship variations and postponements.

Our understanding, which we have confirmed with a telephone call to Treasury, is that all other changes from the UCCC to the NCC will commence from 1 January 2010 (subject to the passing of the Bill).

The changes that commence on 1 January 2010 are therefore as follows:

• the prohibition on mortgages of essential household property and property used to generate an income by personal exertion;
• the new higher limit ($500,000) for hardship and enforcement relief;
• expansion of documents in which comparison rate information and warning need to be included and deletion of the comparison rates schedule.