National Consumer Credit Protection Reform - January 2010

As part of our series of articles on the National Consumer Credit Protection reforms, this article and Parts 2, 3 and 4 which will follow over the coming months, will provide an overview of some of the key aspects of registration and licensing under the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Transitional Act) and the National Consumer Credit Protection Act 2009 (National Credit Act), applicable to persons and businesses engaging in credit activities covered by the National Credit Act.

What you should do and by when

If you wish to engage in credit activities from 1 July 2010, you should:

• register with ASIC between 1 April 2010 and 30 June 2010. The registration period formally closes on 30 June 2010 and ASIC has indicated that due to the volume of anticipated applications, applications received after 18 June 2010 may not be processed quickly enough for credit activities to continue beyond 1 July 2010;
• apply for an Australian Credit Licence (ACL) between 1 July 2010 and 31 December 2010. Registration will enable you and your representatives to engage in credit activities until you complete the licensing process. If you are registered, you may only continue to engage in credit activities from 1 January 2011 if you have applied for an ACL by 31 December 2010; and
• become a representative of a registered person or the holder of an ACL.

If you intend to engage in credit activities for the first time from 1 July 2010, you must first apply for and receive an ACL, or be covered by someone else’s. Not all persons engaging in credit activities need to be registered or have an ACL, for example if your credit activities are not regulated by the National Credit Act or if you only engage in credit activities on someone else’s behalf, and that person is registered or has an ACL. This situation might arise if you are authorised as a credit representative or are an employee / director of the company or one of its related bodies corporate. 

If you are required to register with ASIC and you do not do so by 30 June 2010, you must stop engaging in credit activities until you have an ACL.

If you only engage in credit activities (other than providing credit services) in relation to carried over instruments, you may not be required to be registered or hold an ACL. A carried over instrument is a contract or other instrument that was made and in force prior to 1 July 2010 and to which an existing State or Territory consumer credit legislation applies. The Transitional Act and associated regulations contain special provisions with respect to carried over instruments. A separate article in this series will provide further information regarding these provisions.

Registration

If you are required to be registered you will need to:

• lodge your application during the registration period - between 1 April 2010 and 30 June 2010. ASIC will not accept registration applications lodged after 30 June 2010;
• complete an on-line application in the approved form and lodge it electronically. The application process will require certain details about yourself, the people who are involved in your business and the business activities in which you wish to engage after you are registered;
• make a statement that the applicant is a member of an ASIC-approved external dispute resolution (EDR) scheme. The current ASIC-approved EDR schemes are the Financial Ombudsman Service and the Credit Ombudsman Service Ltd. If ASIC accepts your application for registration, ASIC will enter details of your EDR scheme in the Australian Credit Register; and
• make a prescribed statement about past conduct of the applicant, and where the applicant is a company, each director or secretary of the company, where the applicant is a partnership, each partner, and where the applicant is a multiple trustee, each trustee.

The required personal statement is: 

• that there are no banning orders or disqualification orders under Part 2-4 of the National Credit Act or under Division 8 of Part 7.6 of the Corporations Act 2001 in force against the person and nor is the person banned from engaging in a credit activity under a State or Territory law;
• if the person is or has been registered, that registration is neither suspended nor cancelled;
• that an Australian financial services licence of the person is neither suspended, nor has been cancelled within the last seven years because of mental or physical incapacity or after a relevant hearing;
• that the person is not insolvent (this statement is not required for multiple trustees, but applies to each trustee that makes up that person); and
• that for natural persons:
  ~ the person is not disqualified from managing corporations under Part 2D.6 of the Corporations Act 2001; 
  ~ the person has not been convicted, within 10 years before the application is made, of serious fraud; and
  ~ a prescribed State or Territory order is not in force against the person.

If you are not able to agree to the statement for each relevant person, you will not be able to proceed with your application. ASIC may also refuse to register a person if it believes the application is false in a material particular or is materially misleading, or there is an omission of a material matter from the application.

ASIC is required to give written notice of:

• ASIC’s decision on the application;
• if the decision is to register the applicant, the day on which the applicant becomes registered; and
• if the decision is not to register the applicant, the reasons for that decision. 

The applicant becomes registered when ASIC enters the applicant’s name on the Australian Credit Register maintained by ASIC. ASIC may impose conditions on a person’s registration and vary or revoke conditions imposed on a person’s registration subject to certain special procedures for APRA-regulated bodies and ADI’s, and not in relation to conditions prescribed by the regulations.

Obligations after registration

Registered persons will have a number of general conduct obligations. These include:

• being a member of an ASIC-approved EDR scheme, which is also a precondition to registration;
• doing all things necessary to ensure that the credit activities authorised by the registration are engaged in efficiently, honestly and fairly;
• complying with the conditions on the registration;
• complying with the credit legislation which includes the Transitional Act and the National Credit Act;
• taking reasonable steps to ensure that its representatives comply with the credit legislation which includes the Transitional Act and the National Credit Act; and
• taking reasonable steps to ensure that clients of the registered person are not disadvantaged by any conflict of interest that arises in relation to the credit activities engaged in by that registered person or its representatives.

Some of the responsible lending obligations in Chapter 3 of the National Credit Act will also apply from 1 July 2010. For example, the requirement not to arrange or provide credit that is unsuitable will apply to authorised deposit-taking institutions and registered finance companies from 1 January 2011. For all other persons, that requirement will apply from 1 July 2010. This requirement includes obligations to make reasonable enquiries about the consumer as required by the National Credit Act. Other responsible lending obligations such as upfront disclosure of fees and commissions, provision of quotes, credit guides and assessments will commence on 1 January 2011. 

As a registered person, you may also be required to give information to ASIC at certain times. For example, if there are any changes to your details on the Australian Credit Register, if you authorise a credit representative, or if you are directed by ASIC to provide a written statement or obtain an audit report about your credit activities or those of your representatives.

Registered persons will need to be familiar with all of these obligations.

When does a registration end?

Registration will continue until it is cancelled or suspended by one of the following occurring, or is otherwise cancelled or suspended by ASIC under other applicable provisions of the Transitional Act:

• if you have applied for and been granted an ACL -  your registration will be cancelled when your ACL is granted;
• if you have applied for an ACL and ASIC has refused the application – your registration will be cancelled when the decision is made to refuse your application; and
• if you have been directed by ASIC to apply for an ACL by a specified date and you failed to comply with that direction – your registration may be cancelled on a date specified by ASIC.

If your registration has not been cancelled by one of the above events your registration will be cancelled after 30 June 2011.

What to do next

It is important that you start getting ready now. All persons and businesses who engage in credit activities under the National Credit Act should consider the extent to which they need to comply with the legislation and requirements, including being ready to make the necessary applications for registration and an ACL within the prescribed time.

In relation to registration, you should:

• determine whether your business involves ‘credit activities’ for which you will need to be registered and have an ACL;
• familiarise yourself with the registration process and your obligations following registration;
• become a member of an ASIC-approved EDR scheme;
• do background checks on your people to enable you to make the required statements; and
• update your information on registers kept by ASIC to make sure all details are correct and current e.g. the company register and the financial services licensee register. You will not be able to complete your online application until all relevant registers are up to date.

Further information

For further information please contact Kylie O'Keeffe, Partner, on (08) 9288 6852 or email her at kylie.okeeffe@lavanlegal.com.au.