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September 30, 2010

Credit reform Phase 2 commitments

Whilst the Phase 2 reform consultation process started in the Green Paper continues, the Government has already committed itself to reform in two areas:

  • credit cards: the Government has committed to credit card reforms in its Fairer, Simpler Banking policy which includes proposals that consumers are not charged over-limit fees unless they specifically agree that their account can go over the limit, credit card providers must allocate repayments to higher interest debts first and interest charges are applied consistently under an industry-agreed standard, including when interest starts to accrue and on what balances.
  • reverse mortgages: there will be legislation by mid 2012 to give statutory protection against negative equity and require greater disclosure of features and fees (see Delivering for Seniors policy).

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Posted 30th September 2010 by David Jacobson in Phase 2

September 26, 2010

ASIC credit surveillance commences

ASIC has announced that it has begun its first nationwide surveillance activity to detect businesses or people engaging in credit activities who are not registered with ASIC.

Since 1 July 2010, it has been an offence to engage in credit activities (e.g. acting as a lender, or as a credit broker) if not registered with ASIC.

The maximum criminal penalties for operating without registration or a licence are $22,000 for individuals and $110,000 for corporations, or two years imprisonment, or both; or civil penalties of up to $220,000 for individuals and $1.1 million for corporations, partnerships or multiple trustees.

ASIC has also announced it has cancelled 2 credit registrations in which the applicants either failed to make a relevant disclosure or made a false statement.

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Posted 26th September 2010 by David Jacobson in licensing

Is your hardship response up to date?

The Consumer Law Action Centre says it has made a formal complaint to the Australian Securities and Investments Commission about Westpac’s debt collection procedures for customers in financial hardship.

Whilst not disagreeing with a decision by Westpac to reject a request for temporary relief from a borrower in longer-term hardship it has raised the following concerns with Westpac's response:

  • Westpac threatened enforcement action, despite acknowledging that the borrower is in no position to do so, either now or in the foreseeable future;
  • the bank’s letter appeared to be based on a template that Westpac used for all its customers yet contained outdated and incorrect information about the options available to the client since the National Credit Act came into effect on 1 July;
  • The letter is signed off by Westpac’s hardship team but it actually came from its Collections Department.

[See Section 72 National Credit Code and Form 12 Regulations].

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Posted 26th September 2010 by David Jacobson in Uncategorized

September 21, 2010

Consumer credit update

Our COAG update here gives details on the current status of proposals for parts one and two of consumer credit reform.

LAST REMINDER: Online registrations for our responsible lending webinar tomorrow close at 4pm Tuesday 21 September.

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Posted 21st September 2010 by David Jacobson in legislation

September 15, 2010

Avoiding duplication for dual licensees

If you are both a credit licensee under the National Credit Act and an Australian financial services (AFS) licensee under the Corporations Act 2001 then it may be possible for you to avoid duplicating processes when complying with both laws.

If you are both a credit licensee and an AFS licensee (a "dual licensee"), you are subject to conduct obligations under both licences.

For example, you must comply with the general conduct obligations in both s47 of the National Credit Act and s912A of the Corporations Act.

You do not need to have separate compliance plans. You can develop a single plan that covers your compliance obligations under both laws including conflict management, training and supervising representatives, dispute resolution and compensation.

But where there are differences (eg the obligations relating to conflicts of interest) you need to provide for both.

In respect of specific conduct obligations, you need to deal with the separate laws relating to preparing advice and suggestions.

A dual licensee is also subject to disclosure obligations.

A dual licensee may provide a single document covering all of the information relating to your financial and credit services: reg 7.7.08B of the Corporations Regulations 2010 (No 4) (from 1 January 2011).

If the same information is required in both the FSG and the credit guide, you only need to include it once in the single document.

If you wish to combine other documents or disclosures in a single document, you should ensure that the document contains all of the required content, and that each component is easily distinguishable from the other.

Langes can check these for you or help you draft them.

ASIC's Information Sheet 134 provides more information.

As of Monday, 13 September, 200 licences have been issued by ASIC. It has received 703 applications.

If you registered with ASIC before 30 June, you have until 31 December 2010 to apply for a licence.

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Posted 15th September 2010 by David Jacobson in licensing

Consumer action campaign to retain interest rate cap

Consumer Action Law Centre has published a report on Payday Loans in support of its campaign to retain the 48% per annum interest rate cap on consumer credit.

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Posted 15th September 2010 by David Jacobson in legislation

September 13, 2010

Clubs promoting credit products

Many credit providers have arrangements with social and community clubs where credit products are offered to members, sometimes on concessional terms and conditions. There is an exemption in the National Consumer Credit Protection Regulations (reg. 20(11)) that clubs or associations may be able to rely so that they are not required to hold an Australian Credit Licence (or be the appointed credit representative of a licensee).

The organisation must meet the following conditions for the exemption:

  1. The organisation provides services and makes benefits available to members of the organisation, or a program or facility operated or conducted by or within the organisation.
  2. An incidental benefit of membership of the organisation, program or facility is that members can apply for a particular credit contract or consumer lease offered by a licensee or a registered person, or to obtain services or benefits under a particular credit contract or consumer lease offered by a licensee or a registered person.
  3. The organisation provides credit services in relation to the particular credit contract or consumer lease to members or persons likely to become members under a contract or agreement with the licensee or registered person.
  4. It would not ordinarily be the case that the credit to be provided under the credit contract is provided predominantly for the payment for services, goods or benefits provided by the organisation or an associate of the organisation, or that the goods to be hired under the consumer lease are supplied by the organisation or an associate of the organisation.

Some important things to note:

  • the credit or lease must be an incidental benefit of membership (therefore not the main benefit of membership).
  • the benefit doesn't have to be something exclusively offered to members of the organistion by the credit provider.
  • there must be an agreement between the organisation and the credit provider under which the credit services of the organisation are provided.
  • ordinarily the credit must not be provided mainly for payment of services, goods or benefits provided by the organisation (or in the case of a lease, the hired goods must not be ordinarily supplied by the organisation).

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Posted 13th September 2010 by Patrick Dwyer in legislation, licensing

September 12, 2010

ASIC update on credit regulation

The ASIC Chair's speech on 3 September contained an important update on ASIC's regulation of credit and its future plans.

Over the next 12 months ASIC will be:

  • "policing the boundary to ensure people aren’t operating outside the licensing system, either intentionally or inadvertently;
  • undertaking verification surveillances to make sure the information in licence applications is accurate;
  • reviewing practices at the fringe of the market to ensure compliance with the new responsible lending obligations when they come into force;
  • working with industry on the application of responsible lending obligations to credit card applications and credit card limit increases;
  • undertaking risk-based compliance reviews of credit businesses; and
  • finalising guidance on mortgage early exit fees and working with industry to ensure compliance."

Over 14,700 credit businesses have registered with ASIC and it has already issued 132 licences, with over 400 credit licence applications received.

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Posted 12th September 2010 by David Jacobson in Uncategorized

September 5, 2010

Impact of Personal Property Securities Act on consumer credit

From May 2011 the Personal Property Securities Act will regulate the registration of non-land consumer credit securities, such as chattel mortgages over motor vehicles.

But the PPS Act does not affect rights and obligations arising under the National Credit Code, where the NCC applies.

Where both the PPS Act and the NCC apply concurrently, many of the provisions of the PPS Act will be taken to have been complied with if the corresponding provisions of the NCC have been complied with .

For example, when a secured party who takes possession of what the NCC calls ‘mortgaged goods’ complies with the NCC obligation to give ‘the debtor’ notice under section 102 of the NCC within 14 days, they will be taken to have complied with the obligation they have under section 130 of the PPS Act to give ‘the grantor’ notice at least 10 business days before what the Act calls ‘the collateral’ is disposed of.

Future notes on our Personal Property Securities site will discuss special registration requirements, priority rules and enforcement procedures relating to security interests in motor vehicles and goods used predominantly for personal, domestic or household purposes.

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Posted 5th September 2010 by David Jacobson in legislation