On 27 April 2009, the Federal Government introduced the National Consumer Credit Reform Package. In the time since then, the new legislation has passed and is soon to become operative. The new legislation is the National Consumer Credit Protection Act 2009 (Cth) which is designed to provide additional safeguards and protections to the process of obtaining credit in this country for all types of consumer credit credit from credit cards to mortgages. The new legislation has been made possible as a result of the referral power in s.51(xxxvii) of the Constitution which has allowed the matter to be referred to the Commonwealth from the States. This was because of the meeting of the Council of Australian Governments (COAG) where it was decided that reform was needed in light of the global financial crisis. Amongst other things, the objective of the package is to replace the state system of consumer credit regulation with a consistent overarching national system which applies in the same way across all of the states. Although the major content of the bill will simply replace the existing consumer credit codes with the same regulations, the new legislation will also require businesses engaging in ‘credit activity’ to hold an Australia Credit Licence which will mean that providers such as finance brokers, mortgage managers and assignees of the major banks will need licences where previously they may not have.
The objective of the licence is to ensure that activities of credit providers are carried out efficiently, honestly and fairly and ensure that the representative are trained and competent to engage in the activities for which they are licensed. The enforcement of the act with be both the power and responsibility of the Australian Securities and Investments Commission. If misconduct occurs, imprisonment of 5 years and civil penalties of up to $220,000 or $1.1million for a corporation can apply. Also, new requirements are to apply to the giving of loans and brokers will need to ensure that the a loan is suitable for a consumer’s needs and that they have the capacity to repay the loan. This will include the obligation to make reasonable inquiries about the financial position of the consumer and to attempt to verify that the information given is correct. Also, credit institutions will need to find out what purpose the credit is being used for and a purpose declaration. Disclosure obligations will also come in in relation to the receipt of commissions. One of the newer and more novel areas to be reformed is that now credit from strata corporations to purchase or renovate buildings will be regulated by the new legislation and another reform is the increasing of the thresholds available for a hardship application. If you would like more information about the consumer credit code and how these changes will affect your business please do not hesitate to contact us.