February 28, 2010

ASIC issues responsible lending guidance

ASIC has released Regulatory Guide 209 Credit licensing: Responsible lending conduct obligations (RG 209) to provide regulatory guidance for credit licensees about the responsible lending obligations in the National Consumer Credit Protection Act (National Credit Act).

The responsible lending conduct obligations will apply to non-ADIs and non-RFCs (and their credit representatives) from 1 July 2010.

They will apply to ADIs and RFCs (and their credit representatives) from 1 January 2011.

Other responsible lending obligations (including disclosure requirements, such as upfront disclosure of broker fees and charges) will apply to all licensees and credit representatives from 1 January 2011.

RG 209 is designed to help credit licensees and credit licence applicants to:

  • develop arrangements and systems to meet their responsible lending obligations; and
  • understand what ASIC expects when assessing whether licensees are complying with their responsible lending obligations.

The key responsible lending obligation is that credit licensees must not suggest, assist with or provide a credit product that is unsuitable for a consumer.

Before a credit licensee suggests, assists with, or provides a new credit contract or lease to a consumer, the credit licensee must:

  • make reasonable inquiries of the consumer about their requirements and objectives in relation to the credit contract;
  • take reasonable steps to verify the consumer’s financial situation;
  • based upon these inquiries, assess whether the credit product is unsuitable for the consumer and only proceed if the credit product is not unsuitable; and
  • give the consumer a copy of the assessment if requested.

A contract will be unsuitable if the consumer would be unable to repay it without substantial hardship or it will not meet the consumer’s requirements or objectives. The requirements also apply where the credit limit on an existing contract is being increased.

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Posted 28th February 2010 by David Jacobson in legislation, licensing

February 26, 2010

National Consumer Credit Protection Amendment Bill 2010 passed

The National Consumer Credit Protection Amendment Bill 2010 was passed by the Australian Parliament on 25 February 2010.

UPDATE: Assented to on 3 March 2010. Download here.

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Posted 26th February 2010 by David Jacobson in legislation

February 23, 2010

Business and investment loans – regulated or not?

What types of business and investment lending will be regulated under the national credit laws?

Residential investment property

Example
Anthony is planning to buy an apartment as an investment this year. He is going to borrow part of the purchase price, so he can get the benefits of negative gearing.

If the loan contract is made by 30 June 2010, his loan will not be regulated under the Uniform Consumer Credit Code (UCCC). But if he enters into the loan contract after that date, his loan will be regulated under the National Credit Code (NCC), which commences on 1 July.

Unlike the UCCC, the NCC will regulate loans for residential investment properties. This includes the following types of residential investment lending:

  • loans to purchase residential property for investment purposes;
  • loans to renovate or improve residential property for investment purposes; and
  • loans to refinance credit provided to purchase, renovate or improve residential property for investment purposes.

What is ‘residential property’?
There is a definition in the NCC. It includes land on which a dwelling is affixed predominantly for residential purposes. It also includes land on which such a dwelling will be affixed in the future (i.e., vacant land for residential development). Property in this context also includes crown leases and equivalent, company title shares, and a right to occupy a dwelling in an aged care facility or retirement village.

Look at purpose not security type
It is the purpose of the loan and not the security type that determines if a loan will be regulated by the National Credit Code.

Example
In October 2010, Anthony finances the purchase of his apartment as an investment as planned, then heads off to work overseas. When he returns from overseas, he moves into the apartment. He then arranges a line of credit secured against the apartment to finance his new online business. Unlike his loan to buy the apartment, the line of credit will not be regulated, because it is for a business purpose.

Compare this with Beatrice, who has a commercial property in her own name for her business. She buys a holiday house for herself, and borrows the entire purchase price, using the commercial property as security. The loan will be regulated by the National Credit Code, as the credit is for personal, domestic or household purposes.
(more…)

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Posted 23rd February 2010 by Patrick Dwyer in legislation

February 13, 2010

Consumer credit reform amendments to State referrals

The Government has introduced the National Consumer Credit Protection Amendment Bill into Parliament.

The Bill is in response to state concerns raised in December last year in relation to the terms of the amendment power in the Referral Bills (the Bills to be enacted by the States to refer power to the Commonwealth) to allow certain subject matters (such as State taxation) to be excluded from the scope of the amendment power.

To give effect to that agreement this Bill amends the National Consumer Credit Protection Act 2009 to enable an effective reference of State power to be made either with or without exclusions to that power.

The amendments in this Bill will also allow the States to refer their regulatory powers in relation to consumer credit by ‘adopting’ the Commonwealth’s legislation and referring an amendment power.  This will ensure the constitutional soundness of the referral of consumer credit powers.

Following the Commonwealth’s enactment of this Bill, the States wishing to refer powers excluding certain subject matters or using the adoption approach will be able to do so.

Following enactment of the Referral Bills, the States will be able to repeal their state laws in time for the commencement of the National Credit legislation on 1 July 2010. 

The State powers specifically excluded from referral to the Commonwealth are:

 • the matter of making provision with respect to the imposition or payment of State taxes, duties, charges or other imposts,
however described; or
• the matter of making provision with respect to the general system for the recording of estates or interests in land and
related information; or
• the matter of providing for the priority of interests in real property; or
• the matter of making a law that excludes or limits the operation of a State law, to the extent that the State law makes provision with respect to the creation, holding, transfer, assignment, disposal or forfeiture of a State statutory right.

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Posted 13th February 2010 by David Jacobson in legislation