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March 31, 2011

ASIC revises responsible lending guide

ASIC has revised Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) relating to the obligations on lenders in assessing borrowers' capacity to repay under the responsible lending requirements of the National Consumer Credit Protection Act 2009 (National Credit Act).

The changes that ASIC has made include:

  • clarifying that a conclusion of substantial hardship (where a borrower appears to have no obvious continued income stream for the full life of the credit contract) can often be rebutted with reasonable enquiries about the borrower's financial situation, requirements, and objectives, such as an older person with retirement plans in place. Further guidance and examples: see RG 209.27(g) and (h), RG 209.69-RG 209.71 and new examples 6 (repayment from superannuation) and 7 (downsizing);
  • providing further guidance on issues a lender should consider when assessing the relevance of income from a person - other than the borrower - in assessing the borrower's capacity to repay. See RG 209.27(j) and the related footnote and RG 209. 89;
  • clarifying that the use of sophisticated automated systems and tools for testing the reliability of information about income provided by an intending borrower may play a role in satisfying the requirements to take reasonable steps to verify such information, subject to some constraints: see RG 209.41.

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Posted 31st March 2011 by admin in licensing, responsible lending

Consolidated NCCP Act and Regs published

There was a flurry of amendments in December 2010 so it's helpful to now be able to download a consolidated National Consumer Credit Protection Act 2009 (incorporating amendments up to 29 March 2011) and National Consumer Credit Protection Regulations 2010 (incorporating amendments up to 25 March 2011 including National Consumer Credit Protection Amendment Regulations 2011 (No.1)).

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Posted 31st March 2011 by admin in legislation

March 30, 2011

Credit disclosure documents exemption extended

National Consumer Credit Protection Amendment Regulations 2011 (No. 1) has extended the exemption from the obligation by a credit licensee or a credit representative to provide credit disclosure documents in Regulation 28N (5) (contained in National Consumer Credit Protection Amendment Regulations 2010 (No. 4)) from 1 April 2011 to 1 August 2011.

A summary of the effect of the delay is set out in ASIC Information Sheet INFO 137.

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Posted 30th March 2011 by admin in responsible lending

March 24, 2011

Home Loans and Credit Cards Bill introduced

The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 has been introduced into Parliament (see background here).

It is intended that the provisions will come into effect as follows:

1 September 2011: the home loan provisions (Schedule 1, part 1) .
1 July 2012: the credit card provisions (Schedule 1, part 2).

The Bill confirms that the prohibition on offering to increase the credit limit of a credit card contract will apply to credit card contracts whether entered into before, on or after 1 July 2012 and the provisions relating to use of a credit card in excess of credit limit and the order of application of payments made under credit card contracts will apply to credit card contracts entered into after 1 July 2012.

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Posted 24th March 2011 by admin in legislation, Phase 2

Final exit fee regulations published

The National Consumer Credit Protection Amendment Regulations 2011 (No. 2) were made and published on 23 March 2011.

The Regulations prohibit a credit fee or charge if:
• it is provided for in a credit contract entered into on or after 1 July 2011;
• it is to be paid on or in relation to the termination of the credit contact, whether the liability to make the payment is incurred at that time or at an earlier time; and
• any of the amount of credit provided under the credit contract is secured over residential property.

The prohibition does not apply to "break fees", discharge fees, and credit fees or charges incurred before the termination of a credit contract that is terminated before any credit has been provided under the contract.

The prohibition would apply to deferred administration and establishment fees, fees for terminating a variable rate loan early, unreasonable discharge fees and permitted fees that do not reflect costs incurred by a credit provider.

The regulation will prohibit exit fees which are charged when a contract secured over residential property ends regardless of whether it is on an early termination or on maturity. (more...)

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Posted 24th March 2011 by admin in legislation

March 21, 2011

Key Fact Sheets and disclosure documents for Credit Cards and Home Loans

As part of consultation on the National Consumer Credit Protection Amendment (Credit Card and Home Loans) Bill Treasury has released the following draft documents for consultation:

  • a Key Fact Sheet for home loans – to be provided on lenders' websites or if a consumer makes an inquiry or makes an application.
  • a Key Fact Sheet for credit cards – to be included in credit card application forms.
  • a pre-contractual home loan disclosure document – to be provided before the consumer enters into the contract, and summarising key features in respect of the terms on which the lender is offering credit.
  • a pre-contractual credit cards disclosure document – to be provided before the consumer enters into the contract.

The home loan disclosure document requires disclosure of the total amount to be paid back (including the loan amount and fees) based on minimum monthly payments over the full term of the loan at the current interest rate and current fees and charges.

The credit card disclosure document requires disclosure of the amount of minimum repayments (based on the fully drawn credit limit) and a warning which sets out the number of payments and term, the amount of fees and estimated interest at the Purchases interest rate and at the Cash Advances interest rate, if the borrower reaches the credit limit on the credit card and chooses to pay only the minimum monthly payment.

Submissions close on 28 March 2011.

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Posted 21st March 2011 by admin in responsible lending

March 16, 2011

Are the proposed Credit Act and Regulations changes retrospective?

The Government's ongoing banking and credit reforms are causing confusion in respect of implementation timing.

The exposure draft National Consumer Credit Protection Amendment (Credit Card and Home Loans) Bill contains 2 specific provisions in relation to transitional application of the new requirements (if passed):

1. Division 4 of Part 3-2A of the amended Act (Credit provider not to offer to increase the credit limit of a credit card contract) will apply to credit card contracts whether entered into before, on or after commencement;
2. Divisions 5 (Division 5—Use of credit card in excess of credit limit) and 6 of Part 3-2A of the amended Act (Order of application of payments made under credit card contracts) will apply to credit card contracts entered into after commencement.

The draft Bill does not specfically require Fact Sheets for credit card contracts and home loans be given to existing borrowers.

The draft National Consumer Credit Protection Amendment Regulations 2011 set out the proposed scope of exit fees to be banned for new home loan contracts from 1 July 2011.

The Regulations will not affect fees in existing home loan contracts but ASIC's guidelines in RG 220 and the National Credit Code's unconscionability test will continue to apply to these.

However if existing home loans are refinanced by way of a new contract after 1 July 2011 the new Regulations will apply.

The Government has not yet responded to submissions in respect of these proposals.

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Posted 16th March 2011 by David Jacobson in legislation, Phase 2

March 7, 2011

Exposure draft Credit Card and Home Loans Bill

Treasury released an exposure draft National Consumer Credit Protection Amendment (Credit Card and Home Loans) Bill on 4 March for consultation until 8 March 2011.

It is intended that the Bill be introduced in Parliament in the week beginning 21 March 2011.

If passed, it will amend the National Credit Act to give effect to the Government's announced credit card reforms and introduce a requirement for lenders to give borrowers a Key Facts Sheet for home loans.

The changes will be made by making additional rules that apply to credit licensees that are credit providers under credit card contracts and standard home loans.

Other reforms announced as part of the Government's Fairer, Simpler Banking policy (such as requiring lenders to inform consumers about the implications of only paying minimum repayment amounts on their statements) are intended to be introduced through regulations to the National Consumer Credit Protection Act 2009, and will be the subject of further consultation in the near future.

Credit card changes

The changes will:

  • insert new restrictions on a licensee approving the use of a credit card in excess of the credit limit for the credit card contract. The Bill provides for a default buffer above the credit limit, and restricts the charging of fees or a higher rate of interest when a borrower goes over their specified limit. The default buffer for a credit card contract is the lesser of $500 and 10% of the credit limit of the contract. The default buffer applies to a credit card contract unless the consumer who is the debtor under the contract has elected not to have the default buffer apply to the contract and the election has not been withdrawn.
  • require credit card providers to allocate repayments to higher interest debts first.
  • prohibit a licensee making a credit limit increase invitation unless expressly consented to by the consumer.
  • require a consumer is provided with, or given access to, a Key Facts Sheet before entering into a credit card contract. If a consumer applies to a licensee for a credit card contract under which the licensee would be the credit provider, the licensee must not enter into, or offer to enter into, the contract unless the application is made using an application form that includes a Key Facts Sheet for the contract that contains up-to-date information.

Standard Home Loans

A standard home loan of a licensee is a standard form of credit contract under which the licensee provides credit to purchase residential property or to refinance credit that has been provided wholly or predominantly to purchase residential property.

It will be mandatory for standard home loan borrowers to be provided with, or given access to, a Key Facts Sheet whether the application is made on a website or otherwise.

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Posted 7th March 2011 by David Jacobson in legislation, responsible lending