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March 6, 2013

ASIC’s reverse mortgage calculator

From 1 March 2013, before a licensee can assess a consumer’s suitability for a reverse mortgage loan, it must show or give the consumer projections of the value of their property that may become reverse mortgaged property and the consumer’s indebtedness over time if the consumer were to enter into a contract for a reverse mortgage (section 133DB, NCCP Act).

The licensee must give the consumer a printed copy of the projections.

These equity projections must be generated using the reverse mortgage calculator on the ASIC MoneySmart website.

Licensees must also make reverse mortgage information statements available on their websites and on request.

The National Information Centre on Retirement Investments is a government funded organisation which offers a free independent telephone service to help consumers understand reverse mortgage products.

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Posted 6th March 2013 by David Jacobson in legislation, responsible lending

February 28, 2013

ASIC updates RG209 on responsible lending

ASIC has amended Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) to include guidance on the new responsible lending provisions under the Consumer Credit Legislation Amendment (Enhancements) Act 2012.

RG 209 now includes guidance:

  • for small amount lenders when considering the presumption of substantial hardship and protected earning amount requirements
  • in relation to obtaining and considering account statements when undertaking an assessment for a small amount loan
  • on the responsible lending obligations for lessors
  • on the responsible lending obligations for lenders offering reverse mortgages
  • about the new obligation on credit providers and lessors to assess whether a credit contract or consumer lease is unsuitable for a consumer before making an unconditional representation about whether the consumer can enter a credit contract or lease, or increase the credit limit on an existing credit contract.

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Posted 28th February 2013 by David Jacobson in responsible lending

What is the effect of the credit enhancements?

The first round of "enhancements" start on 1 March 2013.

Judging from comments at our recent seminars and from client feedback, the changes to hardship procedures will affect all credit licensees whether they are ADI's or not.

A major issue is the training of non-collections staff to recognise the hardship implications of calls or visits from customers seeking even short-term relief from repayments.

When discussing collections issues, there is a general concern about the delay and cost of EDR and in some cases the increasing incidence of EDR when the customer has had no prior contact with the lender. Enforcement action is suspended whilst the matter is at EDR.

In the marketing sessions there was an increasing understanding of the benefits of close co-operation between Marketing and Compliance and the value that Compliance brings to marketing campaigns beyond checking for restricted terms and disclaimers.

For non-ADIs small amount lenders the enhancements have already had a significant impact on their business models, resulting in changes to their products and costs and in some cases, ceasing to operate.

Providers of consumer leases are waiting for details of further regulation.

We will discuss particular issues in detail over coming months.

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Posted 28th February 2013 by David Jacobson in legislation, responsible lending

Consumer debt collection issues

The changes to hardship procedures have prompted a review of collections processes generally, including the ASIC/ACCC debt collection guidelines in RG96.

The guidelines take into account the privacy rights of debtors and the law against undue harassment and cover issues including:

  • how you make contact with a debtor
  • the time of day you can make contact with a debtor
  • how often you can make contact with a debtor
  • where you can make contact with a debtor (including guidelines for contacting debtors at their home or workplace)
  • contacting third parties and family members to obtain information about a debtor
  • the role of debt collectors, and
  • record keeping.

Early intervention and good skills, systems and forms are increasingly important in enforcement.

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Posted 28th February 2013 by David Jacobson in legislation

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 31, 2013

New hardship and enforcement processes commence 1 March

With less than 30 days until new consumer credit hardship and enforcement provisions commence on 1 March (see here), if you have not yet reviewed your hardship and enforcement processes now is the time to do so.

New regulations are imminent: they will most likely clarify the effect of the new provisions on pre-1 March 2013 contracts and the notice requirements when the lender responds to a hardship request by agreeing to defer or reduce the debtor's obligations for 90 days or less.

Procedures will also need to take into account notices to any guarantors and any changes to the Form 12 Default Notice.

Contact your local Langes representative to discuss a review of your existing documents and the new requirements.

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Posted 31st January 2013 by David Jacobson in legislation, responsible lending

January 29, 2013

An online database for small amount loans?

ASIC has released Consultation Paper 198 Review of the effectiveness of an online database for small amount lenders (CP 198) which seeks comment on whether an online database or similar system would be of assistance in determining whether consumers applying for a small amount loan have outstanding small amount debts and whether the contracts offered by the credit licensee are unsuitable.

The Consultation Paper seeks feedback on:

  • whether it should be mandatory for credit licensees to register all small amount loans in a database and to make an inquiry from the database before entering into a new small amount loan;
  • if a database of small amount loans is in place in Australia, what information should be recorded in it and made available to a small amount lender on enquiry; and
  • whether there are other regulatory requirements that the database could be usefully and practically used to test proposed loan contracts against.

More on small amount credit contracts

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Posted 29th January 2013 by David Jacobson in legislation, responsible lending

January 21, 2013

SMSF Loans and the Credit Code

APRA has written to ADI's advising that for the purposes of APS 112 (Capital Adequacy), loans to SMSFs are to be treated as ‘non-standard’ eligible mortgages because SMSF loans may have a different and potentially higher loss profile in comparison to standard loans.

APRA's letter emphasises that "where an ADI is extending credit to SMSFs, it is the ADI’s responsibility to ensure that it has given detailed consideration to the particular risks of lending to a superannuation fund, and that its application process verifies all relevant compliance matters that might impact on the ability of an SMSF to service the loan."

What are the risks for lenders?

APRA identifies 3 risks: the security asset is held on trust for the borrower which has only a beneficial interest in the security asset, the lender's rights are limited to the asset purchased with the loan and the lender is reliant on a guarantee by the owner of the asset.

The loan structure is dictated in part by the Supervision Industry (Supervision) Act 1993 (Cth) which provides amongst other things that SMSFs are legally permitted to borrow money only in limited circumstances (s67 SIS Act), the asset acquired is held on trust so that the fund trustee only acquires a beneficial interest in the asset and the rights of a lender are limited to the assets being acquired (s67A SIS Act).

The ATO has issued rulings on compliance with these provisions.

Separately, if the loan is to purchase or refinance a residential investment property and the SMSF Trustee is an individual, the loan will be regulated by the National Credit Code.

What are the NCC risks in respect of the guarantee?

If the borrower SMSF does not own the security asset the NCC provisions about third party mortgages and guarantees are relevant including:

1. Section 48 of the NCC prohibits a credit provider from taking third party mortgages if the mortgagor is an individual who is not a borrower or a guarantor.

2. Under section 60(5) of the NCC a guarantee by an individual is void to the extent it limits the guarantor’s right to indemnity from the borrower (but the SIS Act limits recourse to the security asset).

If the guarantor for a SMSF Loan and the mortgagor is a corporation (not a strata corporation) the NCC restrictions do not apply.

But the ATO requirements must be satisfied.

Langes can advise lenders on structuring loans to SMSFs.

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Posted 21st January 2013 by David Jacobson in legislation

Reminder: February Financial Services CPD Seminars

Our next Financial Services CPD Seminars will be held in February.

The seminars will discuss the Privacy Act amendments relating to direct marketing and credit reporting, with separate Credit Act update sessions for marketers and collections managers.

There will also be a "core" breakfast session specifically for Responsible Managers.

Key Information
* Cost: $550 (incl GST) per person for the whole program ($495 if you register by 31 January)
* All sessions bookable separately
* CPD points: 6 points
* Time: 8am – 3pm
* Location: Brisbane, Sydney, Melbourne, Adelaide
* Designed for: Financial Services Managers who wish to stay up to date with all the relevant credit industry regulatory changes

When and where
Brisbane: Tuesday 19 February 2013
Sydney: Wednesday 20 February 2013
Melbourne: Tuesday 26 February 2013
Adelaide: Wednesday 27 February 2013

More information and registration

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Posted 21st January 2013 by David Jacobson in seminar

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
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