Debt management reforms: credit licensing
What is changing?
The Government is proposing that debt management services will become a new form of credit activity that is regulated by ASIC.
If you provide these services in relation to consumer credit contracts, you will likely need to obtain an Australian credit licence (credit licence) or vary your licence to obtain additional authorisations (if you are already a licensee) by 1 July 2021.
What has happened to date?
On 25 September 2020, the Treasurer announced a package of reforms to Australia’s consumer credit laws. This announcement included a statement that debt management firms will be required to hold a credit licence.
On 12 January 2021, Treasury published the draft regulations.
An accompanying draft explanatory statement was also published which provides further information about the changes.
How do I know if I will need to obtain a licence or apply to vary a licence?
Based on the draft regulations, a new type of ‘credit activity’ will be introduced into the National Consumer Credit Protection Act 2009 (Act) known as a ‘debt management service’. The draft regulations include further detail about the types of activities that will be a ‘debt management service’.
At this stage, it is proposed that the activities that will become regulated are:
- debt management assistance – which includes conduct such as suggesting and/or assisting a consumer to apply for a change to a credit contract for which the consumer is a debtor or make a complaint or claim to the credit provider, AFCA, ASIC or the Office of the Information Commissioner, where a fee, charge or other amount is paid or payable on or behalf of the consumer in relation to the service;
- credit reporting assistance – which includes conduct such as suggesting and/or assisting a consumer apply for a change to information collected by a credit reporting body in relation to a credit contract for which the consumer is a debtor, where a fee, charge or other amount is paid or payable on or behalf of the consumer in relation to the service.
What will I need to do?
If you are a provider of debt management services and wish to continue to provide debt management services once the new laws apply, it is expected that you will need to:
- apply for a credit licence (or vary your existing licence) by 1 July 2021; and
- be a member of AFCA by 1 July 2021 (regardless of whether you have been granted a licence by ASIC).
ASIC will be unable to accept licence applications or variation applications for ‘debt management services’ until the regulations are finalised. However, you can visit our Licensing resources to help you understand the process and what will be expected of you.
If you are unsure about how these changes may affect you, you should seek your own independent legal advice.
ASIC will continue to update the content on this webpage to communicate important information to you about these changes. We encourage you to visit this page regularly to stay up to date.
If you have any questions about these changes you can also contact us at: firstname.lastname@example.org.
If I obtain a credit licence, what are some of my obligations?
As an Australian credit licensee, you will be required to meet the general licensing obligations under the Act, including to:
- do all things necessary to ensure that the credit activities covered by the credit licence are provided efficiently, honestly and fairly;
- have adequate arrangements in place to manage conflicts of interest;
- comply with their credit licence conditions;
- comply with the credit legislation;
- take reasonable steps to ensure representatives comply with the credit legislation;
- have adequate resources (including financial, human and technological);
- maintain competence to provide the credit activities authorised by the licence;
- adequately train representatives and ensure they are competent to provide the credit activities;
- be a member of the Australian Financial Complaints Authority (AFCA);
- have adequate risk management systems and internal dispute resolution procedures; and
- have compensation arrangements for losses suffered by customers (professional indemnity insurance).
For more information, refer to Regulatory Guide 205 Credit licensing: General conduct obligations (RG 205).