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November 30, 2010

NCCP transitional regulations registered

The National Consumer Credit Protection Legislation Amendment Regulations 2010 (No.3) have been registered.

Amongst other things, the Regulations:

  • modify the limited exemption for authorised deposit-taking institutions (ADIs) who provide credit assistance for a credit card product of another ADI (otherwise known as a ‘white label’ arrangement);
  • provide temporary transitional relief from some responsible lending obligations for loan applications that have been submitted and loan offers made before 1 January 2011: the exemption ceases on 1 April 2011. This amendment allows ADIs and RFCs to complete loan
    applications which have commenced before responsible lending obligations applied;
  • exclude from the definition of credit activity, residential investment property loans of more than $5 million where the loan is for more than one residential property.

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Posted 30th November 2010 by David Jacobson in legislation, licensing, responsible lending

November 19, 2010

Responsible lending relief

The latest ASIC report on relief decisions gives one example (section G) of ASIC's approach to giving relief from the responsible lending obligations and, at the same time, the scope of the National Credit Act.

The particular example concerned a life insurer’s credit contracts known as ‘Loans on Policy’, whereby ‘Whole of Life’ and ‘Endowment Life Insurance’ policy holders are entitled to borrow against the accrued policy surrender value from time to time.

In this case conditional relief allowing the insurer to comply with the obligations from 1 January 2011 (rather than from 1 July 2010) was granted on the basis that:

  • it was merely delaying the commencement of the obligations, consistent with the commencement date of the obligations for some other bodies regulated by the Australian Prudential Regulation Authority (APRA); and
  • it would give the life insurer and ASIC more time to consider the substantive issue of whether relief should be granted from the obligations on an industry-wide basis.

Relief was granted on the condition that the Loans on Policy are administered by the life insurer as limited recourse loans.

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Posted 19th November 2010 by David Jacobson in responsible lending

November 10, 2010

ASIC Guide on mortgage early termination (exit) fees

ASIC has released Regulatory Guide 220 Early termination fees for residential loans: unconscionable fees and unfair contract terms (RG220) to give guidance for mortgage lenders on how the unconscionable fee provisions in the National Credit Code and the ASIC Act unfair contract terms provisions apply to mortgage early termination fees (exit fees).

RG220 sets out ASIC’s views on:

  • what costs and types of loss can be included in exit fees
  • types of loss that should not be recovered through exit fees
  • the limited circumstances in which a lender may vary exit fees during the life of a mortgage.

ASIC regards any fee payable on early termination of a residential loan (eg in the first three to five years of the loan), including deferred establishment fees and break costs on a fixed rate loan, as an early exit fee.

An early termination fee does not include any fee or charge that is payable regardless of whether the loan is repaid early or not (e.g. standard discharge fees and charges).

In respect of deferred establishment fees in particular ASIC states it will:

  • administer the law on the basis that terms imposing deferred establishment fees are not setting an upfront price and are covered by the unfair contract terms provisions.
  • administer the law on the basis that generally a deferred establishment fee is a ‘fee payable on early termination’, to which the test in s78(4) applies.
  • consider that for the purposes of the test in s78(4), a loss arises from the early termination of a loan only if it is caused by the early termination: examples are given in RG 220.30 and include unrecovered establishment costs arising from a lender’s inability to recover establishment costs during the shortened period the loan was on foot. Examples of unrecovered establishment costs that, if not recovered from other parties or the customer, could be a loss caused by the early termination of a loan are listed in RG 220.33.

ASIC states that it is more likely to take action if a fee payable on early termination includes a component covering the following types of loss:
(a) loss of profits that would have been received if the loan proceeded to the expected term or if the loan had lasted beyond the time at which the customer terminated the loan;
(b) marketing costs and other costs associated with obtaining new customers; and
(c) costs associated with developing new products and product features.

ASIC also thinks that a term in a loan agreement that permits the lender to vary an early termination fee is more likely to be unfair if the fee is a deferred establishment fee or includes a component which is a deferred establishment fee, and there is an increase to this fee or the component dealing with unrecovered establishment costs. This is because a lender should know what the costs of establishment are at the start of the loan.

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Posted 10th November 2010 by David Jacobson in legislation

ASIC explains its administrative powers under National Credit Act

ASIC has released Regulatory Guide 218 Licensing: Administrative action against persons engaging in credit activities (RG 218) to help the credit industry better understand ASIC’s administrative powers to enforce the National Consumer Credit Protection Act.

Such powers include, for example, suspending or cancelling a credit licence, banning a person from engaging in credit activities, or varying or imposing conditions on a licence.

RG 218 outlines the matters ASIC takes into account in determining whether administrative action is the most appropriate response in a particular case (relevant matters could include, for example, the nature and seriousness of suspected misconduct; the previous regulatory record of the licensee).

RG 218 also provides some indicative guidance on the kinds of factors ASIC will consider when determining the length of a banning order, including providing examples of relevant misconduct for illustration.

While ASIC assesses each matter on a case-by-case basis, the non-prescriptive factors - and the examples - set out in RG 218, are intended to provide transparency as to how ASIC determines the most appropriate regulatory response in a case.

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Posted 10th November 2010 by David Jacobson in legislation, licensing

November 8, 2010

Managing referrers

Managing referrers has become important to credit providers (discussed here and here).

It's worth keeping the following points in mind:

1. The exemptions from licensing for referrers in Regs25(5) and 9AB (and the conditions you must comply with) only deal with "upstream" referrers (where referrers provide a credit provider with a potential customer's details and the credit provider then contacts the potential customer). "Downstream" referrals (where a referrer gives a lender's details to a potential borrower) are covered by Regulations 25(2)and (2A).

2. Licensees should be particularly careful with advertising by a referrer. If a referrer advertises the availability of credit the advertisement could be both a 'credit advertisement' for NCC purposes and a referral for NCCPA purposes, depending upon its content. These are not covered by Regulation 25(5)

3. Nothing in Reg 25 (which is limited to licensing issues) changes the linked credit provider/supplier relationship provisions. If a linked supplier advertises the availability of credit it can lead to linking under Part 7 of the NCC and section 73 of theTPA.

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Posted 8th November 2010 by David Jacobson in legislation, licensing