National Credit Reform – A Benefit for Consumers and Brokers alike

You may be aware that the Finance Industry is undergoing major credit reform.

This is being driven largely by the Australian Securities & Investment Commission (ASIC) with input from industry bodies such as the Mortgage and Finance Association of Australia (MFAA).

 It will result in a more professional industry, as at times the industry has been portrayed in a negative manner, due primarily to the deeds of a minority of unqualified brokers.Reform will of course increase standards and put in place a set of rules, with significant penalties for those that don’t follow them.  

It will ensure a higher level of integrity and should generate increased consumer confidence in the industry.

 It may also present brokers who remain in the industry with new opportunities in finance, as other brokers exit the industry.

 You can visit www.asic.gov.au/credit should you wish to read more on the changes.

Impact of New Credit Legislation on Brokers

 There are many new matters that require compliance.

 You can read about it in detail at the relevant communication posted on the MFAA website (www.mfaa.com.au) – an excerpt of which appears below.

NCCP REGULATION AMENDMENTS – REFERRERS

As you will be aware MFAA has been working over the past few weeks with Treasury and ASIC on a workable method by which brokers and lenders could work with referrers without referrers having to be licensed or a credit rep of a licensee. Without this all referrers would have to have been licensed or a credit rep and it would have been a breach of the NCCP to deal with an unlicensed referrer.

Below is the media release announcing new regulations to give effect to this and to the position of temporary employees. MFAA will distribute details of the regulatory referrer exemption as soon as it is available.

NATIONAL CONSUMER CREDIT PROTECTION AMENDMENT REGULATIONS – REFERRERS AND TEMPORARY EMPLOYEES

The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP today announced minor changes to the National Consumer Credit Law with respect to the exemption of the referral of customers to banks and brokers from the requirement to hold an Australian credit licence (ACL).

These changes support current industry practice where non-credit businesses, like community or sporting organisations, refer customers’ details to credit and credit assistance providers who may subsequently contact the customer.

The exemption will allow lenders and brokers to continue to obtain new business through existing referral networks.

“Importantly, lenders and brokers will be able to continue to receive referrals from businesses while consumers remain protected under the National Consumer Credit Laws.

“However, a person must give their consent before their contact details can be passed on and banks and brokers can follow up such referrals.”

The new regulations will also impose conditions and safeguards on referrers and businesses seeking to rely on such referrals, to ensure consumers are not harassed or pressured into credit they are not seeking.

In addition, lenders or brokers must meet certain obligations that ensure that referrers comply with the terms of the referral and will not act in a way that may be detrimental to consumers.

To further assist industry, the Government will provide a three month transitional period to adapt to the new arrangements. Therefore, some additional requirements which may require referrers and licensees to put in place new processes will not commence until 1 October 2010.

The Australian Securities and Investment Commission will monitor and where necessary, review the appropriateness of these proposed arrangements to safeguard against abuse. Further details of the new arrangements applying to referrers are attached.

Further changes include allowing temporary employees engaged by ACL holders or their credit representatives, to be treated as employees of the ACL holder. This will ensure that contractors or employment agencies will not need to be licensed if their employees engage in credit activities, provided that these persons are largely supervised and managed in the same way as the employees of the licensee. Further details will be announced after consultation with relevant stakeholders.

These changes will be effected by amendment to National Consumer Credit Protection Regulations 2010 and the National Consumer Credit Protection (Transitional and Consequential Provisions) Regulations 2010 proposed in July 2010.

ASIC has agreed not to take action against people and entities covered by the policy changes announced by the Minister, for failure to be registered in the short period up until the changes are implemented by Regulation.

Updates and further information on the new national consumer credit regime are available at www.treasury.gov.au/consumercredit or www.asic.gov.au/credit.

NEW ARRANGEMENTS APPLYING TO REFERRERS

To help the industry adapt to the new arrangements for referrers, the full requirements of the exemption will be introduced over a 3 month period. Most of the obligations will be in place from commencement of the Credit Act on 1 July 2010, however, some additional requirements which may require referrers and licensees to put in place new processes will not commence until 1 October 2010. These are outlined below.

To be eligible for the proposed referrer exemption, businesses who pass on consumers’ details (referrers) to licensees [or their credit representatives] will need to:

- from 1 July 2010:

• only engage in credit activities as a referrer incidentally to another business they are carrying on;
• only engage in credit activities as a representative of the licensee or registered person they are referring the customer to;
• not have been banned from engaging in credit activities under State, Territory or Commonwealth law;
• not charge a fee to the consumer for the referral;
• only inform the consumer that the licensee or registered person is able to provide a particular credit activity or class of credit activities, not any particular product;
• inform the consumer of commissions or other benefits they receive; and
• obtain the consent of the consumer to pass their name, contact details and the purpose for which the credit is sought to the licensee or registered person.

The following additional requirements need to be in place by the end of the transitional period so that businesses using the proposed upstream referrer exemption will need to:

- from 1 October 2010:

• pass on a consumer’s contact details within 5 business days; and
• not conduct their business from temporary or non-standard business premises (such as a stall in a shopping centre); and
• have in place an agreement with the licensee or registered person (in which the referrer acknowledges and agrees to the limitations on the information they can provide to a consumer and the need to obtain their consent to having their details passed on).

In addition, a licensee or registered person who makes contact with a consumer as a result of a referral must:

- from 1 October 2010:

• do so within 10 business days;
• inform the consumer that they have obtained the consumer’s contact details from the referrer;
• explain the financial benefits, if any, the referrer may receive for the referral; and
• specifically ask the consumer whether they are happy to continue with the conversation.

For more information, view Michael Poynter’s publication, Borrowing and Superannuation in relation to Real Property – Custodial Trust Deeds.