We will take you step-by-step through the legal requirements, so you can learn about your obligations and plan your compliance.

This easy to follow but comprehensive briefing will use practical examples and discuss the latest insights and guidance on responsible lending.

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We thought it would be helpful to summarise the position of referrers with all the amendments in place.

There are now 4 referrer exemptions, and they can be found in regulation 25 of NCCPR. Exemptions 1 and 2 are ongoing. Exemption 3 only operates until 30 September 2010, after which exemption 4 effectively replaces it.

Exemption 1 - The Original Exemption (Reg. 25(2))

Terms of the exemption

1. The referrer informs the consumer that a licensee or registered person, or a representative of the licensee or registered person (the provider) is able to provide a particular credit activity or a class of credit activities.
2. The referrer gives the consumer information about how the consumer may contact the provider.
3. At the same at the time, the referrer discloses to the consumer any benefits, including commission, that the referrer (or an associate of the referrer) may receive in respect of the activity, or that is attributable to the activity.
4. The benefits disclosure is in the same form as the information given by the referrer about the provider. For example, if the referrer gives the information about the provider in writing, the benefits disclosure will also have to be in writing.

Comments on this exemption

• If the referrer does any other type of credit activity, such as suggesting that the consumer apply for a particular credit contract with the provider, the referral would fall outside the exemption. Any type of endorsement of the provider or its products may put the referral activity at risk of being regulated. The referrer must avoid providing credit assistance or acting as an intermediary if it wants to rely on this exemption.
• This exemption does not allow the referrer to give the consumer’s contact details to the provider, or to facilitate the consumer contacting the provider (such as via a website).

Exemption 2 - The Website Exemption (Reg. 25(2A))

Terms of the exemption

1. The referrer informs a consumer that the provider is able to provide a particular credit activity or a class of credit activities.
2. The referrer gives the consumer information about how the consumer may contact the provider, and makes arrangements enabling the consumer to contact the provider by means of a link that can be accessed from a website provided by or for the referrer or an associate of the referrer.
3. At the same at the time, the referrer discloses to the consumer any benefits, including commission that the referrer (or an associate of the referrer) may receive in respect of the activity, or that is attributable to the activity.
4. The benefits disclosure is in the same form as the information given by the referrer about the provider.

Comments on this exemption

• This exemption was introduced in regulations made on 29 June 2010 and applies from 1 July 2010.
• The only difference from exemption 1 is in the second condition (see additional words in italics): the exemption allows the referrer to make arrangements for the consumer to contact the provider via a website link.
• This is not a “technology neutral” regulation - contact via a website is treated differently from other ways to facilitate contact.

Exemption 3 - Until 30 September 2010 (Reg. 25(4))

Terms of the exemption

1. The activity occurs before 1 October 2010.
2. The referrer informs the consumer that the provider is able to provide a particular credit activity or a class of credit activities.
3. The referrer gives the provider the consumer’s name and contact details.
4. The referrer gives the provider a short description of the purpose of the credit or consumer lease (if the referrer knows the purpose).
5. At the same at the time, the referrer discloses to the consumer any benefits, including commission, that the referrer (or an associate of the referrer) may receive in respect of the activity, or that is attributable to the activity.
6. The referrer is not banned from engaging in the credit activity.
7. The referrer does not require the consumer to pay a fee to anyone in relation to the referral.
8. The consumer has consented to the referrer giving the consumer’s name to the provider.
9. The referrer engages in the activity as a matter incidental to the carrying on of a business that is not principally making contact with persons to give their names or other details to another person.

Comments on this exemption

• This exemption was introduced in regulations made on 19 July 2010 and only applies from 21 July until 30 September 2010. After that, exemption 4 (see below) will apply instead, so this is a transitional regulation.
• The consent of the consumer required (condition 8) is only for the passing on of the consumer’s name. There does not seem to be a requirement that the consumer also consent to the purpose of the credit being passed on, or to the provider contacting the consumer, but referrers may want to do this in any case.
• This exemption cannot be used by a business that does referrals as its principal business - it only applies if the referral activity is incidental to another business (see condition 9). The reason for this distinction is not clear, if the activity is the same whoever does it.

Exemption 4 - From 1 October 2010 (Reg. 25(5) and reg. 9AB)

Terms of the exemption

1. The referrer engages in the credit activity on or after 1 October 2010.
2. The activity is engaged in under an agreement with the provider which specifies the conduct that the referrer can engage in (namely, conduct to which this exemption applies). The agreement can either be in writing or based on an offer made in writing by the provider and accepted by the referrer.
3. The referrer informs the consumer that the provider is able to provide a particular credit activity or a class of credit activities.
4. The referrer gives the provider the consumer’s name and contact details within 5 business days after informing the consumer.
5. The referrer gives the provider a short description of the purpose of the credit or consumer lease (if the referrer knows the purpose).
6. At the same at the time, the referrer discloses to the consumer any benefits, including commission, that the referrer (or an associate of the referrer) may receive in respect of the activity, or that is attributable to the activity.
7. The referrer is not banned from engaging in the credit activity.
8. The referrer does not require the consumer to pay a fee to anyone in relation to the referral.
9. The consumer has consented to the referrer giving the consumer’s name to the provider.
10. The referrer engages in the activity as a matter incidental to the carrying on of a business that is not principally making contact with persons to give their names or other details to another person.
11. The referrer does not conduct a business as part of which the referrer contacts persons face-to-face from “non standard business premises.”
12. A licensee who engages in a credit activity because of a referral under this exemption must comply with the following (from 1 October 2010):
    1. The licensee must keep, or have access to, a register of its referrers (the referrers register).
    2. The referrers register must include the referrer’s name and contact details, the date and means by which the referrer was advised in writing of the way in which the referrer may engage in credit activities under the agreement (a written agreement between the parties, or an offer in writing accepted by the referrer), and the day on which the referrer first engaged in the referral activity.
    3. The licensee must make the register available to ASIC on request.
    4. The licensee may only contact the consumer within 10 business days after receiving the referral.
    5. If the licensee contacts the consumer in person, the licensee must begin the discussion with the consumer (after the licensee has identified itself) by statements to the following effect:
       • ‘I am contacting you because we have been provided with your contact details by [name of referrer]. Can you confirm that you agreed with [name of referrer] to have us contact you?’
       • if a payment of commission or a financial benefit may be given to the referrer - ‘before we continue, I would like to let you know that if you take up any of our products or services, [name of referrer] may receive the following financial benefits [brief description]
       • ‘are you happy to continue this discussion?’.
    6. If the licensee contacts the consumer by letter or email, the licensee must include, at the start of the letter or email,  statements to the  effect that the licensee is contacting the consumer as a result of being provided with their contact details by the referrer (identifying the referrer by name), and that the referrer may receive a financial benefit or payment.

Comments on this exemption

• If you are a licensee or registrant using referrers, and you want to rely on this exemption, by 1 October 2010 you will need to document your relationship with your referrers by a referrer agreement or an instrument of appointment. You will also need to set up your referrers register, and make sure that your processes include contacting the consumer within the 10 day timeframe and using the appropriate wording when the initial contact is made.
• This exemption, like exemption 3, does not apply to businesses whose principal business is referrals (see condition 10). But an additional restriction in exemption 4 is that the referrer does not conduct a business where the referrer contacts persons face-to-face from “non standard business premises.” These are business premises that are “not physically separate from premises regularly used by consumers for purposes other than being contacted in relation to the supply of goods or services.” The explanatory statement for the amending regulations gives “a stall in shopping centres” as an example of non-standard business premises.

The Regulations:
• insert an exemption from licensing for upstream referrers;
• insert an exemption from licensing for locums and employment agencies, and exemptions from certain obligations for temporary employees appointed as credit representatives;
• remove the 12-month sunset clause from the exemption from licensing for state licensed debt collectors (so that the exemption from licensing for state licensed debt collectors will not expire after 12 months, as the states have not yet reached agreement on the regulation of debt collectors);
• insert an exemption from certain licensing obligations for authorised deposit-taking institutions (ADIs) who provide credit assistance under “white labelling” arrangements;
• amend the existing exemption from licensing for providers of incidental membership benefits;
• amend the definition of unsolicited contact (these amendments take effect on 1 October 2010);
• replace references to licensee with references to unlicensed carried over instrument lender (UCOIL) in the Principal Credit Regulations;
• expand the exemption from having to make external dispute resolution (EDR) related disclosures to additional persons and provisions of the Credit Code;
• correct a reference to a prescribed UCOIL; and
• include orders under the Criminal Organisation Act 2009 (Queensland) in the list of prescribed orders relevant to licensing.

These changes have important structuring implications for credit providers and intermediaries.

• Form CL30 Appoint a credit representative
• Form CL31 Cease a credit representative
• Form CL32 Vary the details of a credit representative

Notification must be given to ASIC by credit licensees within:

• 15 business days after appointing a credit representative
• 14 business days after a change to the residential address of a representative if an alternative address is recorded for them
• 10 business days after a change to any other details of a representative
• 10 business days after revoking the authorisation of a credit representative

You can download a copy of the National Consumer Credit Protection Regulations 2010 consolidated up to 1 July 2010 here. But the National Consumer Credit Protection Legislation Amendment Regulations 2010 (No. 2) (here) are not yet consolidated.

ASIC has helpfully made the individual forms available here.

• enters into a servicing agreement with a special purpose funding entity (notification of agreement); or
• ceases a servicing agreement with a special purpose funding entity (notification of cessation); or
• is given certain directions by a person who is a position to control or influence the special purpose funding entity (notification of action).

Notice of a servicing agreement entered before 1 July 2010 must be given within 30 business days after 1 July 2010 (ie 11 August 2010).

Notice of a servicing agreement entered into on or after 1 July 2010 must be given within 20 business days after entry into the agreement.

The Green Paper contains reform proposals that are being considered as part of Phase Two of the Council of Australian Governments’ (COAG) Credit Reform agenda.

Legislation implementing the changes is proposed to be in place for some projects (listed in Part One below) by mid‑2011, and those requiring more consultation (listed in Part Two) to be in place by mid‑2012.

Part One

The Government will consider:

• enhancements to the regulation and tailored disclosure for reverse mortgages;
• extension of the National Credit Code to include disclosure requirements for consumer leases and linked credit providers;
• regulation of credit for personal use and peer to peer lending;
• regulation of various aspects of credit card lending;
• possible extension of unjust conduct provisions to credit service providers; and
• further enhancements to the National Credit Code.

Part Two

The Government will consider projects requiring more in-depth industry consultation, including:

• regulation of the provision of credit to small business;
• regulation of credit for investment loans other than margin loans;
• examination of mechanisms, including state approaches to interest rate caps, to address predatory or fringe lending;
• an examination of the need for any enhancements to responsible lending provisions for post-entry conduct;
• a review of the regulation of credit advertising directed at vulnerable consumers;
• reform of mandatory comparison rates; and
• a possible review of credit licensing requirements for debt collectors.

When a complaint is received, unlicensed COI lenders must be responsive to the complaint and their IDR system must handle it within the maximum timeframes and according to other requirements set out in RG 165.

While not compelled to do so, ASIC encourages all unlicensed COI lenders to join an external dispute resolution scheme – either the Financial Ombudsman Service Limited (FOS) or the Credit Ombudsman Service Limited (COSL).

UPDATE: see ASIC’s information page on pre-existing credit contracts and carried over lenders

You can download a copy of the National Consumer Credit Protection Regulations 2010 consolidated to include these and all other regulations up to 1 July 2010 here.

The new Regulations cover transitional issues as follows:

• Residential investment property: exempt credit, which is intended predominantly for residential investment property, from the pre-contractual requirements (principally disclosure and responsible lending) under the Credit Act, where the offer of credit is made before 1 July 2010 and is accepted on or after that date. The regulation would cease to have effect from 1 October 2010. Any credit contracts formed after this date would not be exempt from the pre-contractual requirements under the Act and the Code.
• Referrers: modify the existing exemption for persons who pass on the contact details of a licensee or registered person to a consumer (referrers) to ensure that the exemption covers referrers who facilitate contact via a website link between a consumer and a licensee, registered person or representative;
• Carried over instruments: provide that the commencement of the responsible lending conduct obligations in relation to COIs coincides with the staggered timeframe set for new contracts.

The new arrangements will allow credit businesses to continue to operate without the need to meet additional licensing obligations when they engage individuals to ‘fill in’ for regular employees or they engage employees through an employment or on-hire agency. The arrangements clarify that additional obligations are not required in particular circumstances of engagement where the person is subject to the same level of control and supervision as an employee.

Locums
Locums will be treated in the same way as employees of a licensee where they

• replace a person who is absent from work as an employee who is reasonably expected to return;
• be substantially performing the same duties of that employee; and
• be subject to similar control or direction as that employee.

Temporary and on-hired staff
Temporary and on-hired staff will be treated as credit representatives but excused from the requirement to be a member of an ASIC approved dispute resolution scheme and have the licensee notify ASIC of their authorisation subject to the conditions that they:

• be only engaged on a temporary basis;
• be engaged in similar duties and be under a similar level of control, management and supervision as other employees of the licensee;
• not be engaged because they possess particular skills that would prevent the licensee or registered person exercising the level of control that the person can exercise over its actual employees;
• be predominantly remunerated other than by way of commission; and
• be perceived by a reasonable consumer that they are an employee of the licensee.

Employment agencies
Employment agencies that only engages in credit activities by providing temporary or on-hired staff will be exempt from licensing requirements where they:

• only engage in credit activities by providing individuals to a licensee, registered person or their representative who engage in credit activities on behalf of the licensee or registered person; and
• these individuals are locums, or temporary or on-hired staff who meet the criteria above.
• These arrangements do not extend to independent contractors engaged to complete a defined scope of work; they will still need to be authorised as a credit representative.