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August 29, 2011

A national consumer credit interest rate cap

The draft National Consumer Credit Protection Amendment (Enhancements) Bill 2011 proposes that from 1 July 2012 a credit provider must not enter into a credit contract, including continuing credit contracts but excluding small amount credit contracts, if the annual cost rate of the contract exceeds 48%.

Currently, New South Wales, Victoria, Queensland and the ACT impose an interest rate cap on regulated consumer credit but Victoria calculates its cap differently. There are no caps in Western Australia, Tamania and South Australia.

The prohibition on exceeding the annual cost rate is proposed to apply throughout the life of the contract and the rate of a contract will therefore change as, for example, fees are levied or payments are made.

The formula for calculating whether or not the 48% annual cost rate has been exceeded is based on the model currently in force in NSW.

The formula allows for amounts to be prescribed by regulation that would be taken into account in calculating the annual cost rate .

A contravention of the annual cost rate requirement will be a breach of the current prohibition in section 23 of the National Credit Code on charging amounts in excess of those allowed under the Code, and will also be a breach of a key requirement under section 111 of the Code, enabling a consumer to seek a penalty up to a maximum of all credit charges, and enabling ASIC, in respect of systemic non-compliance, to seek a penalty of up to $500,000.

Stakeholders have raised concerns about the risk of some bridging finance contracts being inadvertently caught by the 48% cap.

The current cap on costs in the Credit (Commonwealth Powers) Act (NSW) 2010 includes an exemption for temporary credit facilities provided by Authorised Deposit-taking Institutions and the continuation of this exemption will be considered in consultations.

Stakeholders have been asked to consider whether there should be a similar exemption for temporary credit facilities, and, if so, the circumstances in which it should apply.

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Posted 29th August 2011 by admin in legislation, Phase 2

Preparing for your first annual credit licence compliance certificate

Credit licensees are required to lodge with ASIC a compliance certificate (and pay the required fee) no later than 45 days after the licensee’s licensing anniversary in each year: section 53 National Credit Act.

ASIC has issued Information Sheet IS 135 Annual Compliance Certificates for Credit Licensees, a list of questions asked and information required and Information Sheet IS 138 Credit Annual Compliance Certificate: Statement of Personal Information Template.

The questions include: As at the annual compliance date, did the licensee have adequate arrangements and systems in place to ensure that it complied with the conditions of its licence?

The certificate concludes with a declaration that "to the best of its knowledge, the information supplied in this certificate is complete and accurate (it is an offence to provide false or misleading information to ASIC)".

ASIC prefers that the certificate be completed online at the Australian Credit Register Portal where the annual compliance certificate becomes available on the licensee's annual compliance date.

Langes can assist with advice on your compliance obligations and systems and review your compliance implementation.

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Posted 29th August 2011 by David Jacobson in licensing

August 26, 2011

Draft Credit Bill: small amount credit contracts

The Assistant Treasurer and Minister for Financial Services and Superannuation, Bill Shorten, has released 2 more draft Parts of the proposed National Consumer Credit Protection Amendment (Enhancements) Bill 2011, relating to small amount credit contracts for comment.

The reforms will introduce Australia's first national cap on costs for 'small amount' contracts: defined as contracts with a credit limit of $2,000 for a term of less than two years. From 1 July 2012, small amount credit lenders (often called payday lenders or micro lenders) will be limited to charging a maximum establishment fee of 10 per cent of the total amount borrowed and a maximum monthly fee of two per cent of the total amount borrowed each month for the life of the loan.

Other key measures in the draft legislation are:

  • A prohibition on refinancing or increasing the credit limit of small amount contracts;
  • Requirements for short term lenders to disclose the availability of other options, with internet based lenders required to have a link to the ASIC website at
  • A credit provider must not enter into a credit contract (other than a small amount credit contract) if the annual cost rate of the contract exceeds 48%.
  • A licensee must not provide credit assistance to a consumer by suggesting that the consumer apply, or assisting the consumer to apply, for a small amount credit contract with a particular credit provider if the licensee knows, or is reckless as to whether, the consumer is a debtor under another small amount credit contract.

The Government will also release a discussion paper with more detailed proposals to improve access to alternatives to payday loans.

Consultation on the draft legislation closes on 5 September 2011.

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Posted 26th August 2011 by David Jacobson in legislation

August 22, 2011

Lenders’ Mortgage Insurance One-Page Fact Sheet

The Treasurer has announced the introduction of a mandatory one-page fact sheet to help consumers understand the costs and benefits of lenders' mortgage insurance when they take out a home loan.

The aim is to allow consumers to compare quotes side-by-side, including the difference in premiums and rebate schedules.

Treasury has advised against the introduction of a scheme to allow the transfer of lenders' mortgage insurance between lenders because it would be expensive, extremely complex to implement and administer, and would likely benefit less than 1 per cent of all borrowers.

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Posted 22nd August 2011 by David Jacobson in responsible lending

August 18, 2011

Misleading use of ASIC name and logo by credit licensees

ASIC has warned businesses and companies licensed by ASIC to not use the ASIC name or logo when promoting their businesses or the fact that they hold a licence with ASIC.

The warning follows a credit provider voluntarily agreeing to stop using ASIC’s name and logo on its website after ASIC found the use of the name and logo breached its intellectual property and was potentially misleading.

ASIC has reminded licensees that the correct way to inform the public that they hold a credit licence is to display the Australian credit licence number. Credit licensees must include their credit licence number in certain prescribed documents, including advertisements, from 1 April 2012.

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Posted 18th August 2011 by admin in licensing

August 16, 2011

Langes CPD online: a complete CPD solution for credit and financial services licensee responsible managers

It is a condition of Australian Financial Services licences and Australian Credit licences that a licensee’s responsible managers keep up-to-date with credit industry and regulatory developments by undertaking continuing professional development (CPD).

Langes has developed a complete web-based CPD solution for credit and financial services licensee responsible managers by providing activities that can be used flexibly, anytime, anywhere.

You can use all or part of our resources to make up your 20 CPD hours a calendar year for your credit licence requirement and, if you are a dual licensee, at the same time get credit towards your AFS licence CPD.

If your organisation is also APRA-regulated your senior managers need to satisfy the fit and proper requirements of APRA under prudential standard APS 520. Our tools can help you do this.

And as you do not need to leave your office, you can focus on your business when you are needed.

We provide you with a draft CPD policy telling you what you have to do to satisfy the CPD requirement and helping you plan how you will do this, give you a spreadsheet to record your CPD activity and then provide you with the CPD tasks to complete when it is convenient for you.

As soon as you subscribe, you'll have access to:

  • New legislation and case alerts accessible online or delivered by email;
  • Responsible Managers' Manual (download sample);
  • Videos, podcasts, quizzes and other training material we develop;
  • Information on product and industry developments related to credit and financial services;
  • Face to face compliance training, both structured and unstructured.

The quizzes are flash based with feedback and scores to help you learn.

The videos are brief and practical.

The audio podcasts can be downloaded and replayed on your smartphone or other mobile device.

The benefit is that each of these components have their own CPD values and can be completed at your own pace.

We back them up with specialised advice when you need it, compliance reviews and regular face to face seminars.

By having a selection of CPD rated tasks and a set policy, you do not have to find seminars that may not suit your needs at times you can least afford to be out of your office.

Through maintaining your knowledge and skills you maintain the organisation’s competency as a licensee.

Join Langes CPD online by filling in this form. A company subscription allows unlimited access by all your responsible managers for the first year, including quarterly updates.

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Posted 16th August 2011 by admin in licensing

Responsible Managers’ Manual

If you are a responsible manager of a credit licensee or financial services licensee you need to understand your role, responsibilities and potential legal liabilities and maintain your knowledge and skills.

Langes+ have written a comprehensive Manual which looks at financial services regulation and credit regulation from the point of view of a responsible manager. In 130 pages its contents range from licence conditions, setting up a compliance framework and dealing with regulators to offences and insurance.

You can download an extract here.

It is directed at senior managers (whether you are a CEO, Chief Risk Officer or chief Operations Officer) who have the day to day decision making responsibility for financial services and credit in your organisation.

It covers dual licensees and APRA regulated entities.

As well as being a significant ongoing resource, the Manual forms a key part of Langes online CPD program and reading it can be used for CPD points. You can buy the Manual on its own or as part of our online CPD package (with videos, audio and quizzes).

To buy the Manual complete the order form here : you can either buy a single user licence or a company (unlimited use by all your responsible managers) licence.

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Posted 16th August 2011 by David Jacobson in licensing

August 8, 2011

Phase 2 draft Credit Bill parts released

The Assistant Treasurer has released for public consultation the Exposure Draft of three parts of the National Consumer Credit Protection Amendment (Enhancements) Bill 2011 and draft regulations.

The drafts contain refinements to existing provisions of the National Credit Code as well as two elements of Phase Two of the National Credit Reforms: loans to persons over 55 (whether by reverse mortgage or otherwise) and consumer leases.

The draft includes:

  • broadening of the grounds of variations that can be requested by consumers on the basis of financial hardship and changes to procedures in respect of borrowers applying for hardship variations;
  • introducing a remedy for unfair or dishonest conduct by providers of credit services;
  • restricting the use of specified terms and regulating representations;
  • extending the prohibition on unsolicited canvassing (door-to-door selling);
  • providing ASIC with power to appear on credit applications in its own right as well as on behalf of consumers;
  • technical drafting corrections (correcting headings and cross-references).

Reverse mortgages and Seniors protection
The draft Bill defines a reverse mortgage as one only entered into with persons aged at least 55 years old where full repayment of the debt is not required until:
• each borrower dies;
• the dwelling or land is sold;
• each borrower permanently vacates the home;
• the credit provider (or associated person) exercises their legal rights under the contract to take possession of the home;
• a term in the contract ends (such as a fixed term loan); or
• the borrower reaches a certain age (such as 85 years old).

The provisions in the draft bill include:

  • Reverse mortgage specific responsible lending conduct obligations
  • Non-title holding resident arrangements (to be a key requirement)
  • providing an Information Statement
  • Excluded default clauses
  • Requirement for independent legal advice
  • Mandatory default procedure
  • Statutory negative equity protection (both before and after sale)

The draft Regulations provide that it will be presumed that a credit contract will be unsuitable for a borrower under the following circumstances:
• that the credit contract is not a reverse mortgage;
• the borrower is at least 55 year of age and is not in full-time employment when the credit contract will be entered into ;
• the amount owing under the contract can only be repaid by selling the borrower’s principal place of residence; and
• if reasonable inquiries about the consumer’s requirements and objectives establish that the consumer would use the credit provided under the contract predominantly to pay for regular or recurring household expenses, or to pay for expenses relating to the health of the consumer, or another resident of the property aged over 55 years old. This would not include the consumer’s use of the credit provided under the credit limit in the contract as part of discharging the consumer’s obligations under another credit contract that is secured by a mortgage over the consumer’s principal place of residence.

Consumer leases
The draft Bill contains changes designed to achieve regulatory consistency between leases and credit contracts in respect of the form of leases, alterations, fees and charges, statements of account, variations, reopening and enforcement procedures.

A new section will impose an obligation on the lessor to provide a statement to the lessee at the end of a lease. The end of lease statement would notify the lessee that their lease was coming to an end. Further details about the sort of information that must be disclosed in the statement will be prescribed in subsequent regulations.

Submissions close on 17 August 2011. Legislation is expected to be introduced in to Parliament later this year with commencement scheduled for 1 July 2012.

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Posted 8th August 2011 by David Jacobson in legislation, Phase 2, responsible lending

Credit assistance training requirements reviewed

ASIC has released Consultation Paper 165 Credit assistance for home loans: Competence and training requirements (CP 165) which proposes changing RG 206 to modify the minimum training requirements for representatives who provide ‘mortgage broking services’ (whether mortgage brokers or those who work for credit providers).

CP 165 proposes two possible modifications to RG 206:

  • refining the definition of ‘mortgage broking’ in RG 206, so that it is limited to providing credit assistance in the form of ‘suggesting’, where credit is secured by real property; and/or
  • allowing those falling within the definition of mortgage broking who provide services on behalf of a particular credit provider to undertake a proportion of the Certificate IV in Finance and Mortgage Broking.

Depending on the feedback received, ASIC proposes to implement one or both of these approaches.

Currently representatives who provide mortgage broking services have until 30 June 2014 to obtain a Certificate IV in Finance and Mortgage Broking.

Submissions to CP 165 close on Friday, 16 September 2011.

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Posted 8th August 2011 by David Jacobson in licensing

August 3, 2011

National Consumer Credit Protection Amendment Regulations 2011 (No. 4)

The National Consumer Credit Protection Amendment Regulations 2011 (No. 4) were registered on 2 August 2011.

Extension of disclosure exemption
The Regulations extend the exemption from the obligation by a credit licensee or a credit representative who provide credit assistance to provide credit disclosure documents (credit guide, credit proposal disclosure document and quote for providing credit assistance) in Regulation 28N (5) from 1 August 2011 to 1 October 2011 provided they disclose details of their EDR scheme and enter a written contract with the consumer specifying any fees payable by the consumer to the credit assistant.

See also ASIC Class Order CO 11/760 and ASIC Information Sheet 137.

Content of credit guides
The Regulations make a number of changes, effective 1 October 2011, including:

  • providing further details about what must be included in credit guides of credit assistance providers, mortgage managers and product designers and credit representatives in relation to credit contracts and consumer leases;
  • exempting certain information about fees, charges and commissions from being disclosed in the credit assistance provider and credit representative’s credit guide;
  • outlining how information about fees, charges and commissions must be set out in the credit assistance provider’s quote and proposal disclosure document;
  • outline how information about commissions must be set out in the credit assistance provider’s proposal disclosure document;
  • modifying in limited circumstances the disclosure obligations in relation to trail commissions and some commissions in a credit assistance provider’s proposal disclosure document.

Amongst other things:

  • Regulation 26B will require credit providers and lessors to include information about their relationship with a mortgage manager or product designer in their credit guides.
  • regulation 26 will contain a definition for ‘managed contract’, ‘mortgage manager’ and ‘product designer’. These two additional definitions for managers are necessary to address, first, intermediaries who manage contracts on behalf of the lender and, second, intermediaries who, while not the lender, largely control the terms on which products are designed and altered.
  • regulation 26 will also contain a definition of ‘trail commission’ and ‘volume bonus arrangement’. A trail commission is commission contingent on a consumer’s conduct after the consumer has entered into a credit contract or lease. Volume bonus arrangements cover arrangements where commission payable increases as the total volume of business increases.

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Posted 3rd August 2011 by David Jacobson in legislation, responsible lending
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