The recent introduction of the National Consumer Credit Protection Act 2009 and related National Credit Code, have increased the regulation of credit providers in Australia. If your business engages in credit activities for personal, household or domestic purposes such as directly providing credit, making related suggestions or acting as an intermediary between a lender and a consumer, then you will probably need an Australian credit license to carry on your business. The licenses are administered and enforced by the Australian Securities and Investments Commission (ASIC).
How do I know if I need a license to be a credit provider?
The new regime only applies to credit provided to natural persons or strata corporations wholly or predominantly for personal, household or domestic purposes or for a residential investment property. The credit must also be provided in the course of carrying on a business providing credit within Australia, or as part of, or incidental to, any other business carried on in Australia.
Whether or not you need a credit licence depends on whether you are engaged in the kinds of ‘credit activities’ envisaged by the new regime. The two main groups requiring licenses under the new regime are credit providers and providers of credit services.
Credit activity of credit providers includes the provision of credit contracts or consumer leases, benefitting from mortgages and guarantees relating to credit contracts and being an intermediary or representative in relation to any of these transactions.
· A ‘credit contract’ is a contract under which credit may be provided, such as personal loans, credit cards, small-amount loans, housing loans and contracts for sale of goods or land by instalments.
· A ‘consumer lease’ is a contract for the hire of goods where the consumer does not have the right to purchase the goods. The hire must be wholly or predominantly for personal, domestic or household purposes for a fee which exceeds the cash price of the goods.
Providers of Credit Services
Providers of Credit services give credit assistance to a consumer or act as an intermediary between a lender or lessor and a consumer eg. a mortgage or finance broker.
The provision of credit assistance occurs if you suggest to a consumer that they:
· apply for a particular credit contract or consumer lease with a particular lender or lessor;
· apply for a credit limit increase on a particular credit contract; or
· remain with a current particular credit contract or consumer lease.
Credit assistance also extends to assisting a consumer to achieve any of the above suggestions.
Who does not need to be licensed?
There are certain categories of exceptions from licensing requirements. The main categories are:
· Representatives of a licensed principal, engaging in credit activities on their behalf such as:
o employees and directors of the licensee or of a related body corporate of the licensee; or
o authorized credit representatives;
· Certain credit providers who engaged in credit activities in relation to contracts entered into prior to the new regime (1 July 2010); and
· Certain persons exempted by the regulations or by ASIC.
Some exemptions contained in the regulations include specific professions such as lawyers, insolvency practitioners, registered tax agents, point-of-sale retailers, financial counselling agencies or state-licensed debt collectors, amongst others.
There are significant civil and criminal penalties for individuals and businesses that carry on credit provision without a license, so it is important to be aware of whether your business engages in these activities. If you need advice on complying with licensing requirements, please do not hesitate to contact us.