Australian Credit Licences: Licensing Under the National Consumer Credit Protection Legislation
In the first of a series of articles on the new National Consumer Credit Protection Legislation, Sydney Partner, Peter Ryan, examines licensing under the Scheme which comes into effect on 1 November 2009.
One of the major initiatives of the new Legislation, is the implementation of a national licensing scheme through the issuance of Australian Credit Licences for persons engaging in credit activities.
The main objective in introducing the licensing system is to ensure a market environment for consumer credit in which:
- lenders and intermediaries act honestly and have adequate resources and competency to carry on their businesses;
- borrowers who suffer losses because of a breach of their obligations by lenders or intermediaries are able to obtain compensation; and § dishonest or incompetent lenders and intermediaries are prevented from continuing to operate.
There are two broad categories of persons who engage in credit activities:
- the first category primarily covers credit providers being consumer lenders and providers of consumer leases but is extended also to cover activities in respect of mortgages and guarantees where they are taken to secure or guarantee obligations under a credit contract; and
- the second category is defined as persons who provide credit services. Primarily, but not exclusively, these persons are:
- finance brokers and other intermediaries where they have a role in relation to securing credit for a consumer; and
- persons who assist consumers in relation to a particular credit contract with a particular credit provider.
Credit activities will therefore not include:
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lending for business purposes which is not regulated by the legislation; or
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where a person engages in an activity in respect of credit but not a specified credit activity – eg: where a persons provides credit assistance but not in relation to a particular credit contract with a particular credit provider.
There is a two phase approach being adopted, initially comprising registration and then transitioning to licensing with ASIC.
Persons are required to register with ASIC in the period from 1 November 2009 to 31 December 2009.
Once registered a person must meet set standards of conduct such as acting efficiently, honestly and fairly and complying with law including responsible lending obligations and becoming a member of an external dispute resolution scheme.
After becoming registered a person will then have to apply to ASIC for an Australian Credit Licence in the period from 1January 2010 to 30June 2010.
The entry requirements for licensing are more rigorous than for registration and will require ASIC to consider two key elements in respect of each application:
- the adequacy of the applicant’s organisational capacity, systems and competence when engaging in credit activities; and
- whether there is any reason to doubt that the applicant is a fit and proper person to be involved in the provision of credit services.
A person registered or a licensee can authorise third parties to engage in credit activities on their behalf without each person having to hold a licence in their own right. These persons are known as “credit representatives” and the registered person or licensee is generally responsible for their conduct and must specify in writing the activities which they can engage in.
A key element of the licensing requirements is that registered persons and licensees risk having their registration or licence suspended or cancelled if they fail to meet responsible lending obligations, and do not take reasonable steps in determining the borrowers have the financial capacity to meet repayments due under the credit contracts.
In addition, persons who engage in credit activities in contravention of the licensing requirements are liable to both civil penalties and criminal sanctions.
