ASIC Credit Reform Update -issue 35
11 February 2013
New credit obligations to commence from 1 March 2013A message from ASIC Commissioner, Peter Kell
From 1 March 2013 a range of new credit obligations under the National Consumer Credit Protection Amendment (Enhancements) Act 2012 (Enhancements Act) take effect. The Enhancements Act introduces a number of key reforms including:
- Changes to procedures for hardship applications under the National Credit Code.
- Restrictions on the use of certain words, including 'independent' and 'financial counsellor'.
- Remedies for unfair or dishonest conduct by credit service providers.
- Specific protections for reverse mortgages – such as the requirement to provide consumers with projections of the debtor’s equity in the property under a reverse mortgage and a reverse mortgage information statement.
- Additional obligations, including new disclosure requirements, on consumer leases to provide greater regulatory consistency between leases and other functionally similar forms of credit.
- The introduction of disclosure requirements in relation to the use of employer payment authorisations.
- A ban on short-term credit contracts (that is not a continuing credit contract; where the credit provider is not an authorised deposit-taking institution (ADI); the credit limit of the contract is $2,000 or less; and the credit contract is for a maximum term of 15 days or less).
- New obligations for small amount credit contracts (that is not a continuing credit contract; where the credit provider is not an ADI; the credit limit of the contract is $2,000 or less; and the credit contract is for a maximum term of 1 year) including:
- introducing presumptions of unsuitability where a consumer is in default of an existing small amount credit contract; or in the preceding 90 days, a consumer has been a debtor under two or more other small amount credit contracts
- disclosure requirements for licensees’ premises and websites; and
- a ‘Protected Income Amount’ where the borrower is Centrelink-dependent.
Compliance and enforcement approach: Immediately following the 1 March 2013 commencement date, ASIC will adopt a balanced approach to administering the new requirements when industry makes genuine efforts to comply. ASIC will generally be tolerant of those genuinely trying to achieve compliance and will work with industry participants to address and rectify any problems.
However, ASIC will certainly take a tougher approach where it encounters deliberate breaches, serious misconduct or significant risk of consumer detriment.
ASIC will review its approach and compliance expectations after the first few months after which industry should have fully adapted to the new obligations.
Consumers who consider that a lender or broker has not complied with the new obligations can make a complaint to the lender or broker directly. If the problem cannot be resolved - the consumer can proceed to an external dispute resolution scheme (EDRS). Consumers can also make a complaint to ASIC to consider whether there has been a breach of the legislation. Further information for consumers will be available from 1 March 2013 on ASIC's website www.moneysmart.gov.au.
Peter Kell, ASIC Commissioner
ASIC consults on database for small amount loans
On 25 January 2013 ASIC released Consultation Paper 198 Review of the effectiveness of an online database for small amount loans to assist it report to Government on whether any amendments to the Enhancements Act are necessary.
The paper 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 consistent with regulations.
The submission period closes on 21 February 2013.
Additional policy on credit advertising
In November 2012, ASIC updated its guidance on advertising to expand coverage for credit products and services. The updated guidance includes new information on advertising credit products and services covering items such as comparison rates, fees and costs and restricted terminology. It is intended to help industry participants avoid making false or misleading statements or engaging in misleading or deceptive conduct, and ultimately lead to improved standards more generally.
ASIC will continue to regularly review ads and take action on advertising that does not give balanced information and may create unrealistic expectations about a financial product or service, including credit.
Recent enforcement actions highlight ASIC's vigilance in addressing misconduct on credit matters.
First conviction under National Credit Act: Former NSW-based mortgage broker Daniel Nugyen was on 24 January 2013 convicted of 10 offences under the National Consumer Credit Protection Act 2009 (National Credit Act) for providing false information to banks to secure approvals for home loans of more than $3 million.
He is the first person convicted under the National Credit Act.
See ASIC Media Release 13-008MR for further information.
Credit licensees banned: ASIC has also banned a number of former mortgage brokers from engaging in credit activities.
Mr Driss Doukari was permanently banned for engaging in false and misleading conduct (See ASIC Media Release 12-321MR). Mr Mark Booty was permanently banned for engaging in fraud (See ASIC Media Release 12-299MR) and Mr Athol Halvorsen was banned for six years for providing false income and employment details on a number of his clients’ loan applications (See ASIC Media Release 12-249MR).
Remember to lodge your annual compliance certificate
Australian Credit Licensees are currently required to lodge their annual compliance certificates with ASIC.
The annual compliance certificate must be lodged within 45 days of the anniversary of the day on which the credit licence was issued or a new date approved by ASIC. The annual compliance certificate is not lodged until the fee is paid.
For more guidance, including information on the fee that is payable, see www.asic.gov.au/credit-compliance-certificate
Training requirements for representatives providing home loan credit assistance
Australian credit licensees are reminded that their representatives providing home loan credit assistance must be adequately trained and competent to engage in the credit activities authorised by their licence.
We refer to this obligation as the ‘representative training’ obligation. These obligations vary if you are a third party representative or a representative who only provides home loan credit assistance in relation to credit products offered by their own credit licensee (mono-line).
Detailed guidance on the training obligations and transitional arrangements can be found in Regulatory Guide 206 Credit licensing: Competence and training (RG 206) .
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