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Client Update: National Consumer Credit Reform package

28 April 2009

In brief: Yesterday the Federal Government released its National Consumer Credit Reform package, including the National Consumer Credit Protection Bill 2009. The proposed reforms will have significant consequences for credit providers and other participants in the credit industry. Partner Catherine Parr (view CV), and Senior Associate Cameron Ball report.

Standardised consumer credit code

Yesterday the Federal Government released its National Consumer Credit Reform regime, including an exposure draft of the National Consumer Credit Protection Bill 2009 (the Bill). The key objective of the proposed reforms is to replace the current state-based Uniform Consumer Credit Code (the UCCC) with standard national consumer credit regulation. The package is the result of consultation with states and territories, and industry and consumer representatives over the past six months.

The draft legislation is proposed to be introduced into Parliament before the middle of 2009 and expected to come into effect on 1 November 2009 (although there will be a transitional period for certain parts of the legislation, such as the new licensing regime).

The Bill will largely replicate the content of the existing UCCC but there will be a number of important changes:

  • There will be a new national licensing regime under which persons engaging in a 'credit activity' will be required to hold an Australian Credit Licence. This will capture a wide range of participants in the credit industry, including credit providers, finance brokers, mortgage managers and assignees of the rights of credit providers. Licensees must, among other things:
    • ensure the credit activities authorised by their licence are carried out efficiently, honestly and fairly;
    • ensure their representatives are adequately trained and competent to engage in the credit activities authorised by their licence; and
    • be members of an approved external dispute resolution scheme.
  • The Australian Securities and Investments Commission will have power to:
    • enforce specific provisions of the law; and
    • take action against licensees (for example, by cancelling a licence or banning a person from taking part in credit activities).
  • Significant criminal (imprisonment up to 5 years) and civil penalties (fines of up to $220,000 for an individual and $1.1 million for a corporation) may be imposed for licensee misconduct.
  • Specific new responsible lending requirements will be introduced. A key part of these requirements is that lenders and brokers must not provide or arrange a loan:
    • that is unsuitable for the consumer's needs; or
    • that the consumer does not have capacity to repay.

There will be obligations on credit providers and licensees providing credit assistance to make reasonable enquiries about a consumer's financial situation and to take reasonable steps to verify the consumer's financial situation. The responsible lending requirements will also require the lender or other licensee to make certain disclosures, including in relation to commissions.

  • Credit provided to individuals or strata corporations to purchase, renovate or improve residential property for investment purposes will be regulated by the new legislation.
  • Credit providers will need to make reasonable enquiries as to the purpose for which credit is to be used. A credit provider will not be able to rely on a purpose declaration if it, or a relevant person, would have known or would have had reason to believe the declaration was not true if they had made reasonable enquiries as to the loan's purpose. Further, even if neither the credit provider nor any relevant person would have known or had reason to believe, on the basis of reasonable enquiries, that a purpose declaration was incorrect, the UCCC can still apply if the debtor establishes that the relevant credit was in fact for a regulated purpose.
  • The monetary thresholds for making a hardship application will be increased.

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Submissions

Submissions on the draft legislation are due by 22 May 2009.

Over the next few weeks, Allens Arthur Robinson will bring you more detailed analysis of the draft legislation and its implications. In the meantime, if you have any queries about the draft legislation, or would like assistance with preparing a submission, please contact our experts below.

Published 28 April 2009

For further information, please contact:

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