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January 16, 2014

Purchase of loan book: licensing requirement

ASIC has accepted an enforceable undertaking (EU) from Tru Blu Collections Services Pty Ltd (Tru Blu) for purchasing credit contracts without a credit licence.

An ASIC investigation found that on 23 October 2012 Tru Blu purchased a loan book consisting of 3,200 credit contracts from the Amazing Loans Group which provided short-term loans to borrowers. Tru Blu then collected money payable. It held a debt collection licence but did not hold an Australian credit licence at the time.

As the purchaser of the loan book, the rights and obligations of the credit contracts were assigned to Tru Blu as a credit provider. This required Tru Blu to hold a credit licence under the National Consumer Credit Protection Act 2009 (Cth).

The EU requires Tru Blu to:
•cease any credit activity other than the continued receipt of established periodic payments by way of direct transfers;
•require that its directors and staff complete training to ensure future compliance with the NCCP Act ;
•when seeking to recover a fee or charge payable on early termination or repayment of a credit contract, the amount must not exceed the amount of Tru Blu's loss arising from the early termination or repayment; and
•engage an independent consultant to review Tru Blu's compliance with the credit legislation and any credit licence conditions. The independent consultant is to report the outcome of its reviews regularly to ASIC for the next two years.

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Posted 16th January 2014 by David Jacobson in licensing

November 1, 2013

Retaining credit representatives records

ASIC Report 330 (at paragraphs 78 to 87) noted that credit licensees must keep a record of all material that forms the basis of an assessment of whether a credit contract will be unsuitable for a consumer, and provide a consumer with a copy of the preliminary assessment if requested to do so. This includes assessments by its authorised credit representatives.

The report recommends that:

  • Credit licensees should have appropriate practices and procedures in place to be able to directly provide consumers with a copy of the preliminary assessment, if requested to do so, within the timeframe prescribed by legislation.
  • Licensees can reduce the risk of not being able to provide a preliminary assessment in the required timeframe by having direct access to the preliminary assessment and all documents that form the basis of that assessment from the date the credit assistance is provided.

COSL has now reminded its members that under COSL's Rules, a person can make a complaint to it about a FSP up to six years from the day they first became aware (or should reasonably have become aware) of their loss. The six years does not start from the date the FSP provided the service or product to the person, it may start much later.

Once a person ceases to be a licensee's credit representative, it may be very difficult to recover assessment documents and file notes from them. COSL says that" if the documents or file notes are required by COSL to refute an allegation made by a complainant against the representative , the inability of the licensee to produce the documents or file notes may result in COSL having to draw an adverse inference against the licensee: that is, that the documents or file notes do not exist or if they do, do not refute the allegation".

COSL suggests that licensees should consider storing documents and file notes in a central repository that is accessible by the licensee.

For geographic diverse groups a cloud based system would be appropriate.

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Posted 1st November 2013 by David Jacobson in EDR, licensing

August 1, 2013

Deciding on your credit licensing structure

Credit startups and licensees dealing with them need to deal with a complex consumer credit licensing regime.

Should brokers have their own licence or be authorised as credit representatives by a licensee?

Whether a person (whether an individual or company) needs to be appointed as a credit representative depends on whether they are engaging in a “credit activity”. The National Credit Act defines "credit activity" widely in section 6: it includes providing a “credit service”. A person provides a credit service if the person provides credit assistance to a consumer or acts as an intermediary: section 7.

ASIC recently announced that Yellow Brick Road Finance Pty Ltd (YBR) has changed the way it authorises companies and individuals to offer loan advice through branches operated under its Australian credit licence.

YBR had directly authorised over 100 individuals working in YBR branches as credit representatives. ASIC considered that the national credit licensing framework also required YBR to authorise the companies which operate the branches. This was because the companies also act as intermediaries between the licensee and the consumer.

Yellow Brick Road is now in the process of authorising the corporate entities directly under its licence, and those entities can sub-authorise employees or they can be directly appointed under YBR’s credit licence.

A body corporate can be appointed as a credit representative and sub-authorise credit representatives. But a partnership cannot be appointed as a credit representative and cannot sub-authorise credit representatives.

Directors and employees of body corporate credit representatives who engage in credit activities on behalf of a licensee must be authorised, either directly by the licensee or by the body corporate credit representative, as a credit representatives of the licensee.

If a director or employee of a body corporate credit representative is directly appointed as a credit representative by the licensee, the director or employee must individually be a member of an external dispute resolution (EDR) scheme. However, if a body corporate credit representative sub-authorises a director or employee of the body corporate credit representative as a credit representative of the licensee, then the director or employee is not required to maintain their own EDR membership (see section 65 and regulation 16 of the National Consumer Credit Protection Act 2009 (National Credit Act)).

ASIC expects that measures for monitoring and supervision of representatives will include carrying out appropriate background checks before new representatives are appointed.

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Posted 1st August 2013 by David Jacobson in licensing

June 19, 2013

Checking your “credit legislation” compliance

Before you sign your annual compliance certificate this year you need to check whether your supporting sign offs actually extend to all "the credit legislation" as defined in the National Credit Act.

Section 47(1)(d) of the National Credit Act requires credit licensees to "comply with the credit legislation".

Credit legislation is defined in section 5 as not only the Credit Act and Code but also Division 2 of Part 2 of the ASIC Act and "(d) any other Commonwealth, State or Territory legislation that covers conduct relating to credit activities (whether or not it also covers other conduct), but only in so far as it covers conduct relating to credit activities."

This includes for example the Privacy Act credit reporting provisions and the AML/CTF Act and the State Fair Trading Acts.

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 published a list of questions asked and information required

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?"

"As at the annual compliance date, did the licensee have adequate arrangements and systems in place to ensure that it complied with the credit legislation?"

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)".

Langes can assist with advice on your compliance obligations and systems and a review of your compliance implementation. Call your local office.

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Posted 19th June 2013 by David Jacobson in legislation, licensing

April 22, 2013

Compliance training made easy

ASIC's CPD requirements are all about awareness of important compliance information and being able to identify the important issues.

Langes has been working on a better way to deliver online training content to financial service providers to satisfy their CPD obligations.

As well, HR managers have asked us to add a learning management system (which will provide training records by tracking and recording use by individuals of content) to our CPD platform.

We have now developed a new platform that satisfies these requirements.

How do you access the new site?

Go to http://compliance.langes.com.au/

You can see the course catalogue and preview the content.

Langes new CPD compliance site makes it easy for responsible managers and representatives of financial service providers to meet their CPD requirements flexibly, anywhere, any time.

Our courses consist of “lessons” containing videos, audio, tests and other resources and training material we develop.

We have introduced a “pay as you go” system so you pay only for resources accessed by you.

Alternatively if your HR Manager wishes to co-ordinate training you can have an organisation package.

If you already have your own learning management system, talk to us about providing content.

Or if you’d like us to host your training on our platform, we can import it exclusively for your staff’s use.

To start all you need to do is look at our course catalogue, choose a course and register.

You can choose the course that suits your needs and complete it when it suits you.

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Posted 22nd April 2013 by David Jacobson in licensing, seminar

April 8, 2013

Operational risks in compliance: BOQ fixes IT error

In recent years IT "glitches" have resulted in customer account charging errors and consequent Credit Code breaches (eg The Rock Building Society in 2010).

With growing reliance on technology it is critical that product specifications are clear so that software programmers understand the requirements. The output must be checked against the product design to ensure they match.

ASIC has now announced that Bank of Queensland Ltd (BoQ) will refund customers after a system error resulted in a failure to link Mortgage Offset Accounts (MOA) to some eligible home loan accounts over a number of years.

UPDATE 16 August 2013:BOQ ASX Announcement

Current estimates are that the error affected approximately 6000 customers and total refunds will be in the order of $12 million.

BoQ discovered the problem and reported it to ASIC. BoQ has agreed to appoint an independent expert to review its remediation processes to ensure that:

  • all affected customers are identified and appropriately compensated, and
  • BoQ's compliance systems are adequate to prevent a similar error occurring in future.

BoQ has already compensated some customers and will ensure that the remaining affected customers are contacted and advised of their compensation.

Even well-run businesses which have training programs and compliance policies are at risk if compliance is not monitored and breaches fixed.

Monitoring requires staff with skills and resources to identify potential risks and "join the dots".

Sometimes breaches are only identified following customer complaints.

And if a breach is detected there must be a prompt appropriate response. Ignoring a breach or covering it up can lead to further breaches.

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Posted 8th April 2013 by David Jacobson in licensing

March 19, 2013

ASIC review of monitoring and supervision of brokers’ credit representatives

ASIC has released Report 330 Review of licensed credit assistance providers’ monitoring and supervision of credit representatives (REP 330) which looks at the processes of credit licensees for ensuring their representatives' compliance when providing credit assistance for home loans (i.e. mortgage broking).

ASIC reviewed 18 credit licensees who had a total of 9,869 credit representatives, approximately 40% of all credit representatives notified to ASIC as at 1 October 2011.

The review's 8 recommendations are:

  • Credit licensees’ compliance and training documents should be specifically tailored to reflect the nature, scale and complexity of a licensee’s particular business;
  • Credit licensees should have appropriate practices and procedures in place not only to ensure that their credit representatives are appropriately qualified, initially, to be appointed as a credit representative, but also to ensure that they remain appropriately qualified on an ongoing basis;
  • Credit licensees should have appropriate practices and procedures in place to be able to directly provide consumers with a copy of the preliminary assessment, if requested to do so, within the timeframe prescribed by legislation;
  • Credit licensees should be able to identify all instances of credit assistance provided by each of their credit representatives, including where credit is not ultimately provided, with best practice being able to also identify the volume of loans from each credit representative by other potential risk indicators (e.g. loan type or loan purpose);
  • Credit licensees should have appropriate practices and procedures in place to undertake compliance reviews of their credit representatives;
  • When reviewing credit representatives’ compliance with the responsible lending obligations, credit licensees should assess the credit assistance provided against their own responsible lending policies, rather than only checking whether an application meets the credit provider’s guidelines;
  • Credit licensees should have processes in place not only to address specific compliance issues with individual credit representatives, but also to identify and address potential systemic compliance issues through regular updates to their training material, compliance plans and risk management systems;
  • Credit licensees should have processes in place not only to address the causes of specific compliance issues with their credit representatives, but also to identify and rectify consumer detriment arising from those compliance issues.

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Posted 19th March 2013 by David Jacobson in licensing, responsible lending

February 13, 2013

Rental agreements and consumer leases

ASIC has announced that it has accepted an Enforceable Undertaking (EU) from Mr Rental Australia Pty Ltd, a household goods rental business, after an ASIC investigation into Mr Rental’s standard form rental agreement gave rise to concerns it contained an unfair contract term under the Australian Securities and Investments Commission Act 2001 (ASIC Act) and the Australian Consumer Law.

The agreement stated that it was for an indefinite period until terminated by either party but also included a term allowing Mr Rental to charge a ‘calculation period adjustment’ which was an additional fee charged to consumers who terminated their rental agreements early.

Mr Rental and its franchisees did not have an Australian Credit Licence.

ASIC's view was that the fee made the agreement a consumer lease for a fixed term which was regulated by the National Credit Code.

Mr Rental has agreed to provide refunds to approximately 1,560 consumers (anticipated to be in excess of $300,000), and amend the standard form rental contract used by the 52 franchisees operating under the Mr Rental banner.

It has also agreed that it or its franchisees will apply for Australian Credit Licences.

Part 11 of the National Credit Code regulates consumer leases which are a contract for the hire of goods by a natural person or strata corporation under which that person or corporation does not have a right or obligation to purchase the goods.

The Code does not apply to a consumer lease for a fixed period of 4 months or less or for an indefinite period or to a consumer lease under which goods are hired by an employee in connection with the employee’s remuneration or other employment benefits.

If an Agreement contains the right of the hirer to retain the hired goods and take title to the goods, it is a “rent to buy” or "hire purchase" arrangement which is a sale of goods by instalments under Section 9 of the National Credit Code.

If you need help with clarifying the application of the National Credit Code to a rental agreement, contact your local Langes representative.

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Posted 13th February 2013 by David Jacobson in legislation, licensing

January 18, 2013

Regulation of Point of Sale Vendor Credit Introducers

Regulation 23 of the National Consumer Credit Protection Regulations 2010 exempts vendor introducers from the Credit Act licensing and other requirements provided certain conditions are met.

Treasury has released a discussion paper reviewing the Regulation of Point of Sale Vendor Introducers which outlines a number of options for reform.

Who are vendor introducers?
According to the discussion paper, the two main categories of vendor introducers are persons located in vehicle dealerships and in retail outlets.

Vehicle dealerships encompass businesses that sell cars, bikes, boats and caravans.

Retail outlets that provide POS finance cover a diverse range of operations such as major stores, doctors, dentists, funeral homes, vets, travel agents, tyre fitters, garden shed installers, jewellers, swimming pool builders and sellers of gym equipment, computers, hi‐fi equipment and furniture.

It is estimated that currently in Australia the following numbers of vendor introducers are engaged in credit activities:
a) between 12,000 and 12,300 retailers (with approximately 75,000 staff); and
b) about 630 vehicle dealerships (with an estimated 30,000 persons engaging in credit activities).

Options for Reform
The Discussion Paper sets out three options in relation to regulating vendor introducers:
a) Option 1 — maintaining the status quo, by retaining the existing exemption in the Credit Regulations for vendor introducers;
b) Option 2—requiring vendor introducers to comply with the Credit Act; or
c) Option 3 — modifying the application of the obligations in the Credit Act to vendor introducers, according to the functions they are performing, so that vendor introducers who are more actively involved in product selection and delivery would be subject to a higher level of regulation.

Option 3 would result in vendor introducers operating under regulatory obligations as follows:
a) vendor introducers who act as a broker would be required to hold an ACL or be appointed as a credit representative by an ACL holder;
b) vendor introducers who act only on behalf of a single financier or under first or second choice arrangements would be subject to modified and limited regulation under the Credit Act; and
c) vendor introducers who have a role in product selection but have a limited role in arranging finance would be subject to different modified regulation under the Credit Act.

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Posted 18th January 2013 by David Jacobson in legislation, licensing

November 21, 2012

ASIC credit advertising guide updated

ASIC has released updated Regulatory Guide 234: Advertising financial products and services (including credit): Good practice guidance. (RG234)

Credit providers should review your marketing clearance procedures to ensure your advertising complies.

The Guide has been amended to cover advertising in all media including mobile phone messages (e.g. SMS, MMS, text messages) and online banners.

It does not specifically refer to QR Codes, mobile versions of websites or meta tags but the clear intent is to cover all forms of credit advertising.

The Guide includes new examples specifically relevant to credit.

It also includes new sections on interest rates, comparison rates, responsible lending, credit assistance and canvassing of credit at home.

Specific comments are made about credit contracts structured with an initial promotional period, where a discount interest rate applies and/or other fees are waived, before the interest rate and fees revert to a higher level on an ongoing basis.

  • If an advertisement includes details of this interest rate or fees, ASIC says it should state, with equal prominence, the period for which the discount applies.
  • "The advertisement should also describe what the interest rate or fees revert to (e.g. the standard variable rate), but this need not be stated with equal prominence to the discount rate or fees. The degree of prominence required depends on any unusual features of the discount rate or period. For example, we would expect the following reversion rates to be stated more prominently:
    (a) if the advertisement is for a honeymoon interest rate on a home loan and the reversion rate is something other than the lender’s standard variable rate; or
    (b) if the advertisement is for a discount interest rate for a balance transfer on a credit card and the reversion rate is the higher cash advance interest rate rather than the standard purchase interest rate".
  • "The advertisement also need not state the current amount of the discount rate or fees, unless the advertisement puts emphasis on savings that would be obtained during the discount period only, but without clarifying that these savings would not continue during the entire period of the loan".

Comparison rates
ASIC says that "ensuring that the comparison rate is no less prominent than the interest rate does not necessarily mean that they must be presented identically (e.g. both in the same colour and against an identical background). However, if the interest rate is bright and the comparison rate substantially less vivid by comparison, or blended into the background because of a lack of colour differentiation, then even if they are shown in the same font size, it is likely that the comparison rate would be considered less prominent...

Where the advertisement is in the form of an online banner advertisement, it may not always be possible to include the warning on the same page as the comparison rate. It will be sufficient that, at a minimum, the advertisement contains a clear link or reference to the warning, and the reference should be as near to the comparison rate as possible. The reference should use clear language to help make the consumer aware that this is important information that they should consider before making a decision about the product (e.g. ‘comparison rate warning’ or ‘important information about the comparison rate’)."

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Posted 21st November 2012 by David Jacobson in legislation, licensing, responsible lending
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