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June 27, 2012

Further amendments to Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011

The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 has been passed by the House of Representatives with amendments. (Background)

The amended Bill incorporates the new commencement dates as previously announced.

The amendments incorporate the government's response to industry submissions and Committee reports.

New tiered cap on costs regime
The Bill, as amended:

  • creates a new tiered cap on costs regime for for non-ADIs for short-term credit contracts, small amount credit contracts, medium amount credit contracts and all remaining credit contracts;
  • defines small amount credit contracts as 1 year or less, for an amount of $2000 or less;
  • caps costs for loans under $2000 so that the maximum any lender can charge for a small amount credit contract is 20 per cent of the amount of credit upfront and 4 per cent for each month of the loan;
  • prohibits credit providers entering into a small amount credit contract with a term of 15 days or less; and
  • introduces a cap of an interest rate of 48%, plus an additional $400 to cover establishment costs for mid-tier loans of amounts between $2000 and $5000 with a maximum term of 2 years.

Short-term credit contracts
The Bill inserts a definition of short-term credit contract as being a contract that is not a continuing credit contract, where the credit provider is not an ADI, the credit limit of the contract is $2,000 or less and the term of the contract is 15 days or less.

The Bill prohibits licensees from:
• entering into a short-term credit contract;
• increasing the credit limit of a short-term credit contract; and
• suggesting that a consumer apply, or assisting the consumer to apply, for a short-term credit contract or an increase to the credit limit of a short-term credit contract.

Small amount credit contracts
The Bill amends the definition of small amount credit contract from the original Enhancements Bill to exclude short-term credit contracts from the definition, to remove the requirement that the debtor’s obligation not be secured by a mortgage, and to reduce the maximum length of the contract from two years to one year.

Centrelink benefits
The Government has also announced it will introduce a ‘Protected Earnings Amount' for borrowers who are dependent on Centrelink benefits. Under this reform, the maximum repayments this class of borrowers would have to repay, on a short term small amount loan, cannot exceed 20% of their income.

The operation of provisions in the Credit Act and the Code in relation to small amount credit contracts, including the provisions imposing caps on costs will be reviewed after 2 years .

Responsible lending changes (for small amount credit contracts only)
The bill also introduces the following responsible lending obligations:

  • a rebuttable presumption that a refinance is unsuitable where the borrower is already in default;
  • a rebuttable presumption that a small amount credit contract is unsuitable where it would be the borrower's third such loan in the last 3 months;
  • where a consumer has an account with an ADI into which their income is paid, a requirement for credit providers to obtain and consider a copy of the borrower's bank statements for the last 90 days before making an assessment.

Other changes
The amendments also include:

  • a revised definition of "reverse mortgage" so that a credit contract will not be a reverse mortgage if the debtor’s total liability may exceed the maximum loan amount without the debtor being obliged to reduce their liability to the maximum amount or below the maximum amount (rather than just to an amount less than the maximum loan amount).
  • a revised definition of bridging finance contract to include a requirement that the contract must also be for a term of two years or less.

CORRECTION NOTE: The heading in respect of responsible lending changes was clarified to add "(for small amount credit contracts only)" at 5.15pm on 27 June.

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Posted 27th June 2012 by David Jacobson in legislation, responsible lending

No application refused: car finance advertising reviewed by ASIC

ASIC has announced that Money3 Corporation Limited (Money3) has agreed to change its car finance advertising following concerns raised by ASIC.

Money3, a lender which specialises in providing small amount loans as well as car finance and leasing, promised, 'When everyone else says no! We say yes!* No application refused'.

ASIC was concerned this claim was either:

  • misleading because the company did not in fact provide finance to all applicants who had been refused finance by other lenders regardless of their financial circumstances, or
  • if the company did provide finance to all applicants that had been refused finance elsewhere, it was in breach of the responsible lending obligations under the National Consumer Credit Protection (NCCP) Act.

Money3 argued that "No application refused" meant it would accept all applications for assessment (not necessarily that it would approve all applications) but it has removed from display all posters containing the ‘No application refused statement’, and withdrawn and destroyed all pamphlets from Money3 branches containing the statement.

ASIC is continuing its review of credit advertising.

Contact Langes if you would like assistance with your advertising compliance.

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Posted 27th June 2012 by David Jacobson in legislation, licensing, responsible lending

June 21, 2012

Financing of insurance premiums: BMW Australia Finance makes refunds

ASIC has announced that BMW Australia Finance Limited will refund 2,466 customers a total of $1,392,667 following its breach of the National Credit Code.

In 2011, BMW Finance notified ASIC that it had been extending credit to car buyers to pay for tyre and rim insurance premiums where the period of that insurance was for three years.

Section 144 of the National Credit Code prohibits lenders financing the premium on insurance taken out by the debtor over mortgaged property for a period of insurance exceeding 1 year, but may provide credit for or finance successive premiums for periods of 1 year or less.

As a result of this breach, ASIC is undertaking an industry-wide review of the financing of tyre and rim insurance premiums to ensure compliance with the National Credit Code and its predecessor the Uniform Consumer Credit Code. Tyre and rim insurance provides cover to car owners for damage to tyres, including punctures or blowouts. It also provides cover if a vehicle’s rims are damaged. This type of damage is not commonly included in standard comprehensive motor vehicle policies.

BMW Finance has implemented a process to refund the financed premiums for customers, whilst allowing the consumers to retain the benefit of the policy.

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Posted 21st June 2012 by David Jacobson in legislation

June 20, 2012

FOS acts to reduce dispute resolution delays

FOS has announced that it has adopted a new Workflow Assessment Process which will be used for disputes that remain unresolved after they have been through internal dispute resolution and after the financial services provider (FSP) has provided their initial response about the dispute to it.

The following types of disputes may now be referred directly for decision (or conciliation for financial difficulty disputes) without first trying to resolve these disputes using negotiation, conciliation or assessment:

  • EFT or unauthorised withdrawal disputes with claims greater than $10,000
  • Allegations of forgery with claims greater than $10,000
  • Disputed liability under a guarantee
  • Clearout listings on consumer credit files
  • Claims of maladministration in lending for secured debts relating to home loans, reverse mortgages and business lending (lodged by borrower or guarantor) where the Applicant claims they did not understand the agreement or were misled in relation to the lending, they could not afford the credit facility, they did not receive the benefit of the funds lent, or the credit facility was unsuitable at the time of lending (where the Responsible Lending provisions of the National Consumer Credit Protection Act apply)
  • Claims of misconduct by FSP as mortgagee in possession
  • Retrospective claims for financial difficulty in relation to secured loans where there are no current arrears
  • Disputes where the applicant is experiencing financial difficulty, accepts liability for the debt and there are significant arrears (over $100,000) on a secured facility, and the parties’ proposals for repayment are vastly different, cross-securitised multiple facilities with significant outstanding balances (over $1 million), or secured debts where there are also Family Court proceedings, bankruptcy or company liquidation.

Langes provides EDR services.

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Posted 20th June 2012 by David Jacobson in EDR

ASIC acts on comparison rate advertising

ASIC is continuing its program of monitoring credit advertisements and credit provider websites.

ASIC has announced that Resi Mortgage Corporation Pty Ltd (RESI) has agreed to change its online home loan advertising following ASIC concerns the ads failed to adequately disclose the comparison rate on its home loans.

ASIC was concerned that the ad’s comparison rate wasn’t prominent enough and although the required statutory warning about the accuracy of the comparison rate was given, there was no clear reference to that warning.

In a separate part of the website RESI included a table of other home loan products together with their interest rates but did not include any comparison rates.

Langes can advise on your advertising compliance obligations. Contact us

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Posted 20th June 2012 by David Jacobson in legislation

June 19, 2012

Credit card regulations issued

The National Consumer Credit Protection Amendment Regulation 2012 (No. 1) was registered on 18 June 2012.

Schedule 1 contains changes to the prescribed home loan key facts sheet form which must be implemented by 1 October 2012. [Background ]

Schedule 2 clarifies the new credit card rules including:

  • when the new credit card fact sheet requirements commence;
  • permitting alternative methods for providing customers with a credit card Key Facts Sheet when a customer applies for a credit card online;
  • how credit card providers may obtain the consent of a consumer to send credit limit increase invitations;
  • an exemption from the requirement to include a Minimum Repayment Warning when credit card balances are low; and
  • clarifying that the requirement to provide a Minimum Repayment Warning in a statement of account applies only to credit card contracts.

There is a transitional period until 1 October 2012.

Cards sent before 1 July
The requirement in section 133BD of the Credit Act which requires credit card providers to provide consumers with a credit card Key Facts Sheet before they enter (or offer to enter) into a contract does not apply if credit card providers provide the credit card to the consumer prior to 1 July 2012. For the purposes of regulation 25M and existing regulation 25K, ‘provides’ is taken to mean when a credit card or document is dispatched by lenders, as opposed to when it is received by consumers (for
example, the date the credit card was posted rather than when it was received by the consumer).

Electronic application forms
There is a new provision relating to application forms in electronic form (whether an online document, in an email, or as an attachment to an email) permitting, as part of the electronic form, a hyperlink to a Key Facts Sheet for the contract.

Obtaining the consent of a consumer to send credit limit increase invitations
Under section 133BF of the Credit Act, a credit card provider must gain the express consent of a consumer to be able to send them credit limit increase invitations. The request for consent from the credit provider must be by way of written communication. Paragraph 28LI(1)(a) of the Principal Regulations currently requires the written communication to only contain the request for consent in relation to whether or not to receive credit limitations. This limitation is removed so that the credit card provider can seek consent to other matters. However, each matter must be consented to separately.

Notifying excess of credit card limit
When a consumer has exceeded their credit card limit, the credit card provider must take reasonable steps to notify the consumer of that matter no later than two business days after becoming aware of the use of the card in excess of the limit. For the purposes of this regulation ‘notify’ is taken to mean that steps have been taken to notify the consumer, not necessarily that the consumer has received the notification within the time period.

Credit Card Minimum Repayment Warning
The Regulations exempt credit card providers from the requirement to provide a credit card Minimum Repayment Warning if the outstanding balance on the statement is $50 or less, there is no outstanding balance, or where account holder makes regular repayment under a special arrangement (such as under a hardship arrangement). It also clarifies that the requirement to provide the Minimum Repayment Warning applies only to a statement of account for a credit card contract (and therefore not to other statements of accounts such as debit card accounts). The wording in the Minimum Repayment Warning has also been modified.

Credit Card Key Facts Sheet
The text in the final panel of the box must now inform consumers that they can only be charged a fee for exceeding their credit limit if they separately agree to being charged that fee. The lender may elect to disclose a phone number.

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Posted 19th June 2012 by David Jacobson in legislation

Revised Home Loan Key Facts Sheet

The National Consumer Credit Protection Amendment Regulation 2012 (No. 1) have amended the Home Loan Key Facts Sheet (Background). Home loan providers have until 1 October 2012 to modify their systems to change the form.

The changes include:
1. there is a colour change to the boxes headed ‘Estimated cost of this home loan’ and the row "This means you will pay back" in a home loan Key Facts Sheet. This highlights to consumers the amount that they have to pay back on the home loan for every dollar borrowed.

2. the interest rate description in the box entitled "Description of this home loan" in a home loan Key Facts Sheet is amended to allow the producer of the home loan Key Facts Sheet to account for loans that may transition to a fixed, variable or a discount interest rate at the conclusion of the initial interest rate period. This means home loan providers will be required to describe future changes to the interest rate during the life of the contract more accurately.

3. note 16A for the term ‘valuation fees’ in the box located under the "Estimated cost of this home loan" table has been inserted. The note instructs the home loan provider to omit the phrase ‘valuation fees’ where it is not relevant to a particular home loan. These include circumstances where:
• a credit provider charges a valuation fee in all cases; and
• the amount of the valuation fee is included in the amount for establishment fees mentioned in the Key Facts Sheet.

4. a change has been made to the box entitled "What happens at the end of the fixed rate period?". It introduces an additional paragraph that informs the consumer that when the fixed rate period ends, the rate will convert to a variable interest rate and tells them how much their current monthly repayment would change if interest rates do not change.

5. a new note 18 has been inserted referring to a paragraph in the box entitled "What happens if interest rates increase?". The revised note allows the home loan provider to omit the paragraph if the information is not relevant or applicable to that type of loan, for example if the interest rate will be fixed for the entire term, or if the loan is a variable rate loan for which a fixed interest rate component is not available at the conclusion of the initial fixed rate period.

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Posted 19th June 2012 by David Jacobson in legislation

June 15, 2012

Toyota Finance overcharged CCI premiums refunded

ASIC has announced that more than 370 consumers have been refunded a total of $635,860 after they were overcharged premiums on their consumer credit insurance (CCI) when purchasing a car from several Toyota motor vehicle dealerships in Australia. The refunds were made jointly by Toyota Finance Australia Limited (Toyota Finance), Allianz Australia Insurance Limited (Allianz), Aioi Nissay Dowa Insurance Co., Ltd (Aioi) and MTA Insurance Limited (MTA).

ASIC reviewed CCI sales practices in a report in 2011: discussed here.

The overcharging occurred between 1 January 2006 and 26 September 2011 and involved customers at Maitland Toyota, Northpoint Toyota, Pacific Toyota, Grafton Toyota and Motorama Toyota. The policies were issued by Allianz, Aioi and MTA.

The overcharging arose because consumers were charged the premium applicable for commercial credit insurance cover, instead of the lower premium applicable to consumer policies. In each case the premium was financed, along with the purchase price of a car, by Toyota Finance.

Personnel at the Toyota dealerships concerned benefitted from selling consumers a commercial rather than a consumer policy, because they received a commission of up to 50% of the policy premium. Under the National Credit Code, which regulates consumer credit and associated insurance, car dealers are not allowed to receive, and insurers are not allowed to pay, more than 20% in commission on CCI policies.

Toyota Finance has also agreed to implement new compliance processes and tighter procedures to prevent the possibility of a recurrence of the problem.

All affected customers have now been compensated.

The problem was initially discovered by Aioi, who reported the matter to ASIC. Further review by Toyota Finance at ASIC’s request identified additional instances of overcharging on Aioi, MTA and Allianz policies.

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Posted 15th June 2012 by David Jacobson in legislation

June 8, 2012

Make sure your advertising is lawful

Recent announcements by ASIC relating to corrected credit advertising (eg here) highlight potential weaknesses in advertising compliance arrangements.

The Corporations Act, the ASIC Act and the National Credit Act and Code regulate financial services advertising to ensure that it is accurate and not misleading or deceptive and that relevant disclosures to consumers are made.

We regularly review advertisements for clients to ensure they are legally compliant and at the same time are not misleading or deceptive as a result of not clearly disclosing product terms or conditions.

The rules vary with the type of advertising: there are additional laws regulating television, radio, email spam, telemarketing, privacy, social media and websites as well as point of sale, outdoor signs, direct mail, door to door and print.

It is possible for ads for a business to have different requirements depending on the product and the method of advertising. There may also be different rules in different states (for example, in relation to competitions and promotions).

Langes+ can assist you with either developing an advertising compliance program (including timely sign off procedures), training your staff or acting as external reviewer. We can also advise you on dealing with ASIC if they raise concerns with you.

Contact Shannon Adams, Rob Surman, David Jacobson or Ronen Atzmon.

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Posted 8th June 2012 by David Jacobson in legislation

June 6, 2012

ASIC issues draft credit advertising guidelines

ASIC has released Consultation Paper 178 Advertising credit products and credit services: Additional good practice guidance (CP 178) to promote good practice and help industry comply with their legal obligations to not make false or misleading statements or engage in misleading or deceptive conduct when advertising credit products and services.

CP 178 relates specifically to credit facilities and proposes amendments to Regulatory Guide 234 Advertising financial products and advice services: Good practice guidance (RG 234) which was released earlier this year and applies to all types of financial products.

The additional good practice guidance focusses on concerns ASIC has identified in advertisements for a wide range of credit products and services, including:
(a) lending to consumers for personal, domestic or household purposes or for residential investment (this includes secured or unsecured loans, credit cards, payday lending, micro loans and reverse mortgages);
(b) small business lending;
(c) consumer leases;
(d) sale of goods by instalments and rent-to-buy arrangements; and
(e) assisting a consumer in relation to a credit product, including advertisements by mortgage or finance brokers and retailers advertising the availability of credit at point-of-sale.

The proposed additional guidance and examples cover these areas: providing a balanced message about the product or service; advertising of interest rates and comparison rates; the use of certain terms and phrases; advertising that implies product suitability; and advertising about the nature and scope of credit assistance.

The proposals do not deal with specific obligations required under the National Credit Act in relation to credit disclosure documents or specific requirements for credit advertisements (e.g. the information relating to interest rates and comparison rates that must be included in advertisements in certain circumstances).

Comments on the consultation paper and draft regulatory guide are due by 6 August 2012.

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Posted 6th June 2012 by David Jacobson in legislation, licensing
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