Guidance for financial counsellors

This is Information Sheet 112 (INFO 112). It explains the effect of the credit licensing regime on businesses and services that provide assistance to consumers in financial difficulty.

This information sheet covers:

• services that provide assistance to consumers in financial difficulty
• credit licensing requirements
• the regulation of financial counsellors and debt advice businesses

For detailed guidance on this issue see Where can I get more information?

Services that provide assistance to consumers in debt

Financial counsellors

These are agencies that provide free and independent financial counselling and advocacy services to people in financial difficulty. They're generally community-based non-government organisations funded by government or industry.

Debt advice businesses

These are also known as 'debt management services'. There are two types of business that fall into this category:

1. Businesses that establish and/or administer repayment arrangements between debtors and creditors including Part IX debt agreements under the Bankruptcy Act 1966 (Bankruptcy Act). These businesses may charge a set-up fee and an ongoing percentage-based fee to administer the agreement.
2. Businesses that assist consumers with budgeting, negotiation with creditors, and organising informal repayment arrangements outside the bankruptcy framework. This may include preparing hardship applications or assisting debtors to refinance loans. These businesses may charge a direct fee or a commission from the balance of the debt a consumer repays. They may also refer a consumer to a registered Part IX debt agreement administrator.

Note: These services are distinct from licensed financial institutions such as banks or credit unions that may offer repayment arrangements to their indebted customers. In some cases, financial institutions may refer indebted customers to a financial counselling service for independent assistance. Financial institutions may also fund or operate financial literacy programs to perform community outreach and education activities which may include working with financial counsellors.

Credit licensing requirements

If you are providing assistance to consumers in financial difficulty you may be engaging in 'credit activities' and may need a credit licence. See Regulatory Guide 203 Do I need a credit licence? (RG 203).

The regulation of financial counsellors and debt advice businesses

Depending on the nature of the service you provide to indebted consumers, different laws apply. For example, you may be:

• regulated by Australian Financial Security Authority (AFSA) (formerly ITSA) under the Bankruptcy Act
• regulated as a provider of credit assistance under the National Consumer Credit Protection Act 2009 (National Credit Act) requiring a credit licence
• regulated under the Corporations Act 2001 (Corporations Act) requiring an Australian financial services (AFS) licence
• an exempt service operating under an exemption from the licensing requirements of the National Credit Act
• an exempt service operating under an exemption from the licensing requirements of the Corporations Act.

Obligations under the National Credit Act

A business, regardless of the kind of service it provides, must be aware of all of the legal requirements – including those outlined in the National Credit Act – that protect consumers that use its services.

Exemptions from the credit licensing requirements

Financial counselling agencies that engage in credit activity as part of a financial counselling service are exempt from the requirement to hold a credit licence.

Note: The National Consumer Credit Protection Regulations 2010 (National Credit Regulations) also set out a range of exemptions applying to other providers, including registered Part IX debt agreement administrators, public trustees, receivers and liquidators.

Conditions

The conditions applicable to financial counselling services that rely on this exemption are set out in the National Credit Regulations. 

Key conditions The key conditions applying to financial counselling services relate to remuneration and training, including requirements that: no fees or charges (however described) are payable by or on behalf of the client in relation to the credit activity (or financial service) or any other aspect of the financial counselling service, other than any fees or charges payable on behalf of the client by the Commonwealth, a state or territory no remuneration (whether by way of commission or otherwise) is payable to, or for the benefit of, the financial counselling agency, their representatives or associates by any person in relation to any action by, or on behalf of, the client arising from: (i) engaging in the credit activity (or financial service), or (ii) any other aspect of the provision of the financial counselling service, and an agency ensures that each person who provides the credit activity (or financial service) has undertaken appropriate training and has adequate skills and knowledge to provide the service.

Note on the conditions

These same conditions also apply to financial counselling agencies that are exempt from the requirement to hold an AFS licence: see the Corporations Regulations 2001. This exemption allows the financial counselling agency to provide financial advice in relation to a limited range of financial products such as deposits, general insurance and superannuation.

It is up to all businesses to ensure they comply with the terms of a licence or any exemption from the requirement to hold a licence.

Where can I get more information?

• Read Regulatory Guide 203 Do I need a credit licence? (RG 203)
• See our Credit webpages for the latest information on credit and to download copies of the relevant regulatory guides
• Visit Federal Register of Legislation - National Consumer Credit Protection Act 2009 for the National Credit Act
• Visit Federal Register of Legislation - National Consumer Credit Protection Regulations 2010 for the National Credit Regulations

Important notice

Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. We encourage you to seek your own professional advice to find out how the applicable laws apply to you, as it is your responsibility to determine your obligations.

You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases, your particular circumstances must be taken into account when determining how the law applies to you.