How the Australian Credit Licensing regime affects you

Chris Lim explains how the introduction of the Australian Credit Licensing Regime could affect you.

In an industry filled with three-letter acronyms, another one has been kindly bestowed upon us — ACL, otherwise known as the Australian Credit Licence.

The Australian Credit Licensing regime has now begun and registration to apply for an ACL is open. This means that if you engage in a credit activity, you must complete registration by 30 June 2010.

At this point, you may be inclined to ask whether the Australian Credit Licence regime will affect you or whether you have to engage in a credit activity?

Who needs a credit licence?

You will be affected by the ACL regime if you are either:

• a credit provider; or
• a credit service provider.

However, the ACL regime only applies to credit that is:

• provided to a natural person or a strata corporation (apartment/building management); and
• provided predominantly for personal, household or domestic purposes or residential property investment.

If you provide credit or credit services, you will not be regulated by the ACL regime if your clients are all corporations (non-strata), or if you are only involved in credit products that are for business or investment purposes (other than residential property investment).

Am I a credit provider?

Figuring out whether or not you are a credit provider is relatively straight forward — if you provide credit to a consumer for personal, household or domestic purposes, you are probably a credit provider.

The ACL regime applies to loans or leases to consumers that are regulated by the National Credit Code, which includes:

• credit contracts (eg, personal loans, credit cards, etc);
• mortgage loans and guarantees (eg, home loans); or
• consumer leases (eg, the rental of furniture or white goods).

You will also be classified as a credit provider if you are legally assigned some or all of the rights of a lender or lessor under a credit contract, such as assignments of debts to debt collectors.

Do I provide credit services?

A credit service involves either:

• providing credit assistance; or
• acting as an intermediary.

Credit assistance

You will be providing credit assistance if you:

• suggest that a client apply for, increase their credit limit in, or remain in, a particular credit product; or
• assist a client to apply for, or increase their credit limit in, a particular credit product.

‘Suggesting’ to a client includes proposing the idea to a client, or introducing the idea into the mind of a client. This may even include stating that a particular bank’s credit card product is good.

This definition of credit assistance seems quite broad. However, it only applies to credit assistance related to a particular credit product and you will not be providing credit assistance unless you name or discuss a specific credit product.

Therefore, you will not be regulated by the ACL regime if you only provide generic advice relating to credit without naming a product. This is illustrated in figure 1. If you answer ‘yes’ to any of the examples, you will be regulated by the ACL regime.

2. Acting as an intermediary

An intermediary is anyone that has a role, wholly or partly, in securing a credit contract or consumer lease for a client with a credit provider or lessor.

This includes passing on information as the result of a request by a client to obtain credit. Examples of intermediaries include:

• referrers — persons who refer the consumer to another person, where this is done for the purpose of securing credit. However, you can avoid the ACL licensing requirements if all benefits and commissions are disclosed and the referral only consists of providing the client with contact information;
• finance brokers who, after recommending a particular credit contract, proceed to arrange the credit with the credit provider;
• aggregators acting as a conduit between an individual broker and credit provider; and
• mortgage managers who are involved in arranging the credit (in addition to managing the credit once it has been provided).

If you are involved in any of these credit activities, you will be regarded as an intermediary, and will be regulated by the ACL regime.

What if I stop offering credit but still receive commissions?

The licensing requirements for individuals leaving the credit industry but still receiving payments from pre-existing credit contracts are not clear at this stage.

According to the proposed regulatory framework, lenders that do not offer new loans or leases after 1 July 2010, but are still collecting payments due under pre-existing contracts, must either:

• apply for a licence; or
• notify the Australian Securities and Investments Commission (ASIC) by 30 June 2010 that they have pre-existing contracts and do not intend to register or apply for a credit licence. By choosing not to apply for an ACL, lenders will be required to meet statutory requirements and obligations similar to ACL holders so that ASIC can monitor their conduct and compliance with the law.

The regulations are expected in early May 2010. If this affects you, watch this space.

I am caught by the ACL regime — so what now?

If you have discovered that you provide credit or a credit service, the time to act is now. By 30 June 2010 you need to be registered under the ACL regime.

Prior to lodging your registration, you will need to ensure you comply with certain licensing requirements, including being a member of an external dispute resolution scheme, completing background checks on staff and ensuring your business details with ASIC are up to date.

By 31 December 2010 you will need to have either:

• lodged an ACL application with ASIC and be awaiting its outcome; or
• found an ACL licensee for which you can be a representative.

If you have discovered that you are not regulated by the ACL regime, congratulations. You will not need to take action in fulfilling the ACL requirements.

In any case, it will be a good idea to implement policies and procedures to ensure you do not stray into providing credit activities in the future.

For example, a financial planning firm may wish to implement a general credit advice policy which prescribes that credit advice must be general in nature and must not name a particular credit product, and provide examples of prohibited statements to its representatives.

Chris Lim is a regulatory compliance consultant for Compact — Compliance & Corporate Training.