From 1 July 2010 ASIC will be responsible for the national administration of consumer credit legislation.

But the states will retain responsibility for the regulation and enforcement of maximum interest rates (the interest rate caps) for regulated consumer credit.

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

In New South Wales, Queensland, and the ACT, the annual cap of 48% is generally calculated inclusive of interest, fees and charges other than government fees, charges and duties (there are some variations between the states).

In Victoria, a cap of 48% is imposed on unsecured credit regulated by the UCCC, and a cap of 30% imposed on secured credit regulated by the UCCC. The caps are imposed on the interest component alone, and the cap is not inclusive of fees and charges.

Even though the current consumer credit laws will be repealed, the states will re-establish interest cap regulation under new laws (in Queensland, the Credit (Commonwealth Powers) Bill 2009 Queensland).

According to the Queensland Office of Fair Trading, most current breaches result from lack of understanding of the model and not including fees that should be included such as establishment fees and account keeping fees.

The National Consumer Credit Protection Amendment Bill 2010 was passed by the Australian Parliament on 25 February 2010.

UPDATE: Assented to on 3 March 2010. Download here.

What types of business and investment lending will be regulated under the national credit laws?

Residential investment property

Example
Anthony is planning to buy an apartment as an investment this year. He is going to borrow part of the purchase price, so he can get the benefits of negative gearing.

If the loan contract is made by 30 June 2010, his loan will not be regulated under the Uniform Consumer Credit Code (UCCC). But if he enters into the loan contract after that date, his loan will be regulated under the National Credit Code (NCC), which commences on 1 July.

Unlike the UCCC, the NCC will regulate loans for residential investment properties. This includes the following types of residential investment lending:

• loans to purchase residential property for investment purposes;
• loans to renovate or improve residential property for investment purposes; and
• loans to refinance credit provided to purchase, renovate or improve residential property for investment purposes.

What is ‘residential property’?
There is a definition in the NCC. It includes land on which a dwelling is affixed predominantly for residential purposes. It also includes land on which such a dwelling will be affixed in the future (i.e., vacant land for residential development). Property in this context also includes crown leases and equivalent, company title shares, and a right to occupy a dwelling in an aged care facility or retirement village.

Look at purpose not security type
It is the purpose of the loan and not the security type that determines if a loan will be regulated by the National Credit Code.

Example
In October 2010, Anthony finances the purchase of his apartment as an investment as planned, then heads off to work overseas. When he returns from overseas, he moves into the apartment. He then arranges a line of credit secured against the apartment to finance his new online business. Unlike his loan to buy the apartment, the line of credit will not be regulated, because it is for a business purpose.

Compare this with Beatrice, who has a commercial property in her own name for her business. She buys a holiday house for herself, and borrows the entire purchase price, using the commercial property as security. The loan will be regulated by the National Credit Code, as the credit is for personal, domestic or household purposes.
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The Government has introduced the National Consumer Credit Protection Amendment Bill into Parliament.

The Bill is in response to state concerns raised in December last year in relation to the terms of the amendment power in the Referral Bills (the Bills to be enacted by the States to refer power to the Commonwealth) to allow certain subject matters (such as State taxation) to be excluded from the scope of the amendment power.

To give effect to that agreement this Bill amends the National Consumer Credit Protection Act 2009 to enable an effective reference of State power to be made either with or without exclusions to that power.

The amendments in this Bill will also allow the States to refer their regulatory powers in relation to consumer credit by ‘adopting’ the Commonwealth’s legislation and referring an amendment power.  This will ensure the constitutional soundness of the referral of consumer credit powers.

Following the Commonwealth’s enactment of this Bill, the States wishing to refer powers excluding certain subject matters or using the adoption approach will be able to do so.

Following enactment of the Referral Bills, the States will be able to repeal their state laws in time for the commencement of the National Credit legislation on 1 July 2010. 

The State powers specifically excluded from referral to the Commonwealth are:

 • the matter of making provision with respect to the imposition or payment of State taxes, duties, charges or other imposts,
however described; or
• the matter of making provision with respect to the general system for the recording of estates or interests in land and
related information; or
• the matter of providing for the priority of interests in real property; or
• the matter of making a law that excludes or limits the operation of a State law, to the extent that the State law makes provision with respect to the creation, holding, transfer, assignment, disposal or forfeiture of a State statutory right.

The National Consumer Credit Protection Acts have received Royal Assent.

ComLaw has published the following Acts as passed:

• National Consumer Credit Protection Act 2009
• National Consumer Credit Protection (Fees) Act 2009
• National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009

At its meeting on 7 December 2009 the Council of Australian Governments signed the Intergovernmental Agreement for National Credit Law.

This agreement establishes the Ministerial Council for Corporations on the National Credit Law and sets out overview arrangements for the new legislative scheme and administration of the National Credit Law .

On 23 November the House of Representatives agreed to Senate amendments to, and passed, the National Consumer Credit Protection Bill 2009 and the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009.

The Bills are waiting assent.

ASIC has released a second consultation paper (Consultation Paper 125 Compensation requirements for credit licensees: Further consultation (CP 125)) on its proposals for compensation and professional indemnity (PI) insurance arrangements for credit licensees.

The new consultation paper seeks further specfic feedback on:

• the amount of PI insurance cover that licensees should hold (unless they are exempted from this requirement by the Act or Regulations made under it), and
• the availability of ‘run-off’ cover for credit licensees.

Further consultation was required on these issues due to amendments to the compensation requirements set out in the new exposure draft version of the National Credit Protection Regulations, released for consultation on 20 November 2009. The latest version of the regulations contains a new exemption for credit licensees whose sole business is lending. ASIC has amended its proposals relating to compensation requirements based on this change as well as feedback to the previous consultation paper.

ASIC proposes that:

• all licensees that are not exempt will need to hold PI insurance cover at a set minimum (either $2 million or another amount), depending on the nature of their business
• this cover should include ‘run-off’ cover, which refers to cover for claims made after the insurance policy has ended that have arisen from the acts or omissions of the insured during the period of insurance cover. ASIC is seeking the industry’s feedback on whether this is likely to be available to credit licensees in the current market.

Submissions close on 18 December 2009.