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.

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.

ASIC is toughening its National Credit Act enforcement by issuing infringement notices and requiring enforceable undertakings rather than an informal resolution.

ASIC has accepted an enforceable undertaking (EU) from Mr Graham Rendell, the owner and operator of Perth based lender, Key Credit, following concerns there may have been underlying weaknesses in Key Credit’s compliance processes regarding implementation of legislative changes, and borrowers may have been misled in relation to Key Credit’s ability to repossess essential household property listed as security for their loans.

Key Credit has also paid a penalty of $5,500 after ASIC issued five infringement notices under the National Consumer Credit Protection Regulations 2010 (Cth).

Under the EU, Key Credit has agreed to contact each affected borrower informing them that the mortgages over their essential household property are void and not enforceable, and that if borrowers default in their loan repayments, Key Credit will not and cannot take possession of that essential household property.

Key Credit will also engage an independent compliance consultant to review and report to ASIC on Key Credit’s compliance with the credit legislation.

Key Credit paid five penalties of $1,100 each in compliance with the infringement notices.

Compliance with the notices is not an admission of guilt and Key Credit is not taken to have been convicted of the offence specified in the notices.

The Consumer Credit Legislation Amendment (Enhancements) Act 2012 prohibits the use of the following words when providing credit services from 1 March 2013:

• “independent”;
• “impartial”;
• “unbiased”;
• “financial counsellor”;
• “financial counselling”;
• “reverse mortgage”.

The prohibition is technology neutral and therefore applies equally to websites and print and other media.

You will need to implement procedures to ensure these terms are not used unless the defences apply.

Restricted terms
Section 160B will prohibit a licensee, when providing credit services, from using the following terms (either alone or in combination with other words or letters) in a representation to the consumer about the licensee, the service, or the licensee’s actions in providing the assistance:
• ‘independent’;
• ‘impartial’;
• ‘unbiased’; and
• any other term (in English or any other language) of similar meaning to those words.

However, it is a defence to using those terms if all of the following requirements are satisfied:
• the licensee does not receive any commissions (apart from commissions that are rebated in full to the person’s clients) or any other gifts or benefits from a credit provider or lessor that may reasonably be expected to influence the licensee; and
• the licensee’s employer (if any) or any other person (or class of person) that may be identified in the regulations does not receive any of the commissions, gifts or benefits described above;
• in providing a credit service, the licensee does not operate under any direct or indirect restrictions, other than restrictions imposed by the NCCP Act or by an Australian credit licence; and
• in providing a credit service, the licensee does not operate under any conflicts of interest that might arise from the person’s associations or relationships with credit providers and lessors, that may reasonably be expected to influence the person in providing the services.

Section 160C will prohibit a licensee, when providing credit services, from using the following terms (either alone or in combination with other words or letters) in a representation to the consumer about the licensee, the service, or the licensee’s actions in providing the assistance:
• ‘financial counsellor’;
• ‘financial counselling’; and
• any other term prescribed by the regulations that is of similar import to these phrases (whether in English or any other language).

However, it is a defence to using those terms if :
• they are providing, or offering to provide, the credit service on behalf of another person (the principal);
• they are a representative (as defined in section 5 of the NCCP Act) of the principal;
• regulations exempt the principal from this prohibition in relation to a credit activity because the principal engages in the activity as part of a financial counselling service; and
• the person’s actions in providing or offering to provide the credit service are within the authority of the principal.

The effect of the defence is to allow these terms to only be used by Government funded or not for profit financial counsellors.

Section 133DEwill prohibit a licensee, in providing or offering to provide a credit service to a consumer, from using the phrase “reverse mortgage” (either alone or in combination with other words or letters) in a representation to the consumer about an actual or proposed credit contract or mortgage.

It is a defence if:
(a) the representation truly represents that a credit contract:
(i) is or will be a credit contract for a reverse mortgage; or
(ii) is not or will not be a credit contract for a reverse mortgage; or
(b) the representation truly represents that a mortgage:
(i) is or will be part of a reverse mortgage; or
(ii) is not or will not be part of a reverse mortgage.

“Reverse mortgage” is defined in new section 13A of the National Credit Code.