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2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
National Consumer Credit Protection (Transitional and Consequential
Provisions) Bill 2009
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Minister for Human Services
Minister for Financial Services, Superannuation and Corporate Law
the Hon Chris Bowen MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Preliminary, Dictionary and other matters 5
Chapter 2 Transition from the old Credit Codes to the Credit Bill 9
Chapter 3 Registration of persons engaging in credit activities 23
Chapter 4 Consequential amendments 55
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|ACL |Australian credit licence |
|ADI |authorised deposit-taking |
| |institution |
|AFSL |Australian financial services|
| |licence |
|APRA |Australian Prudential |
| |Regulation Authority |
|ASIC |Australian Securities and |
| |Investments Commission |
|ASIC Act |Australian Securities and |
| |Investments Commission Act |
| |2001 |
|Code |National Credit Code |
|Consumer Credit |National Consumer Credit |
|Protection Reform |Protection Bill 2009, |
|Package |National Consumer Credit |
| |Protection (Transitional and |
| |Consequential Provisions) |
| |Bill 2009, and the National |
| |Consumer Credit Protection |
| |(Fees) Bill 2009 |
|Corporations Act |Corporations Act 2001 |
|Credit Bill |National Consumer Credit |
| |Protection Bill 2009 |
|EDR Scheme |External Dispute Resolution |
| |Scheme |
|MCCA |Ministerial Council on |
| |Consumer Affairs |
|Minister |Minister responsible for |
| |administering the Act, |
| |determined in accordance with|
| |section 19A of the Acts |
| |Interpretation Act 1901 |
|new Credit Code |Schedule 1 to the National |
| |Consumer Credit Protection |
| |Bill 2009 |
|old Credit Code |Consumer Credit (Name of |
| |State/Territory) Code, and |
| |the Consumer Credit (Name of |
| |State/Territory) Regulations |
|Transitional Bill |National Consumer Credit |
| |Protection (Transitional and |
| |Consequential Provisions) |
| |Bill 2009 |
General outline and financial impact
Outline
The National Consumer Credit Protection (Transitional and
Consequential Provisions) Bill 2009 (Transitional Bill) sets out
the transitional and consequential arrangements to support the
transfer of the regulation of credit from the States and
Territories to the Commonwealth.
The States and Territories regulate consumer credit through an
applied laws mechanism enacted in the Consumer Credit (Queensland)
Act 1994 (Qld) and applied in States and Territories since 1996,
known as the Consumer Credit Code (old Credit Code).
Schedule 1 to the Transitional Bill deals with the transition from
the regime provided in the old Credit Code to the new consumer
credit regime provided for in both the National Consumer Credit
Protection Bill 2009 (Credit Bill) and Schedule 2 to the
Transitional Bill, including:
. the application of the existing legislation or the
proposed legislation to legal proceedings that arose
before the change;
. the rights or liabilities a person may have under the
existing legislation; and
. the extent to which the existing legislation may continue
to have effect under the Credit Bill.
Schedule 2 sets out the requirement for persons currently engaging
in credit activities to become registered with the Australian
Securities and Investments Commission (ASIC), prior to applying for
an Australian credit licence (ACL).
Schedule 3 includes consequential amendments to other laws.
Date of effect: The Transitional Bill commences on Royal Assent.
Schedules to the Transitional Bill have a commencement linked to
commencement of the Credit Bill.
Proposal announced: The proposal to transfer responsibility for
regulating consumer credit to the Commonwealth was announced by the
Council of Australian Governments (COAG) on 26 March, 3 July and
2 October 2008.
Financial impact: The Government has provided $70.2 million over
four years to implement the decision of COAG as part of the 2008-09
Mid-Year Economic and Fiscal Outlook. This Bill includes measures
to give effect to that transfer.
The funding will support the establishment of a national licensing
regime for providers of credit and credit services, with ASIC as
the sole national regulator. It will also support the national
regulation of mortgages, margin lending, personal loans, credit
cards and pay day lending.
The funding will be partially offset by revenue raised from fees
required to be paid by persons regulated by the national framework,
payment of which commences during the 2009-10 financial year. The
amount of revenue generated from these fees will depend, in part,
on the number and type of persons seeking to be licensed.
Compliance cost impact: The main compliance cost impact arises in
relation to persons who will be subject to the licensing regime.
This will primarily involve the initial costs associated with
applying for an Australian credit licence, which include the
payment of fees to lodge application documentation with ASIC,
annual compliance costs and costs of external dispute resolution
membership.
Further details in relation to the compliance requirements
associated with the licensing of providers of credit and credit
services are set out in the Regulation Impact Statement
accompanying the Credit Bill.
Summary of regulation impact statement
Regulation impact on business
The Transitional Bill is part of a package, the key component of
which is the Credit Bill. A summary of the regulation impact
statement for the package is included in the explanatory memorandum
to the Credit Bill.
Chapter 1
Preliminary, Dictionary and other matters
Outline of chapter
1. Chapter 1 of this explanatory memorandum outlines:
. the preliminary matters such as the short title and
commencement of the National Consumer Credit Protection
(Transitional and Consequential Provisions) Bill 2009
(Transitional Bill);
. the definitions for the Transitional Bill; and
. other matters such as the regulation-making powers.
Summary of new law
2. The drafting of the provisions will, for the avoidance of doubt,
prevent the Transitional Bill from resulting in an acquisition of
property contrary to paragraph 51(xxxi) of the Constitution.
Detailed explanation of new law
Part 1 - Preliminary
3. The Transitional Bill commences on the day on which it receives
Royal Assent. Schedules 1 and 3 commence at the same time as
Schedule 1 to the National Consumer Credit Protection Bill 2009
(Credit Bill), which is the National Credit Code). Schedule 2
commences on the later of Royal Assent to the Transitional Bill or
the commencement of the National Credit Code. [Part 2, section 2]]
Part 2 - Dictionary
4. The Dictionary contains definitions of key terms used in the
Transitional Bill [Part 2, section 4]. Key definitions are
outlined below.
5. The term 'carried over provision' of the old Credit Code of a
referring State or Territory is defined as a provision of the old
Credit Code of that State or Territory that:
. was in force immediately before commencement; and
. corresponds to a provision of the new Credit Code.
6. 'Contract or other instrument' includes credit contracts,
mortgages, guarantees, consumer leases and sale contracts.
7. 'Commencement' means the commencement of the Code in the Credit
Bill.
8. The term 'new Credit Code' means Schedule 1 to the Credit Bill and
includes regulations and instruments made under that Schedule.
9. The term 'old Credit Code' covers all State and Territory
jurisdictions and means, for [name of State/Territory] - the
Consumer Credit [name of State/Territory] Code, and the Consumer
Credit [name of State/Territory] Regulations, within the meaning of
the Consumer Credit [name of State/Territory] Act of [name of
State/Territory], as in force from time to time before
commencement.
10. A fundamental term used in the Transitional Bill is 'corresponds'.
It is defined to mean that a provision (the old provision) of the
old Credit Code of a referring State or a Territory corresponds to
a provision (the new provision) of the new Credit Code (and vice
versa) if:
. the old provision and the new provision are substantially
the same, unless the regulations specify that the two
provisions do not correspond; or
. the regulations specify that the two provisions
correspond.
[Part 2, section 5]
11. Item 12 of the Transitional Bill may result in certain provisions
of the old Credit Code to be taken to be included in the new Credit
Code. [Schedule 1, Part 2, item 12]
Part 3 - Other matters
Regulations may deal with transitional matters
12. The Transitional Bill includes various powers to make regulations,
to allow flexibility to deal with unforseen transitional issues
that may arise in the future.
13. There is a power to make regulations required or permitted to be
prescribed, or that are necessary or convenient to be prescribed.
[Part 3, subsection 6(1)]
14. There is a power to prescribe transitional matters (including
application and savings) arising out of enactment of the Credit
Bill or transition from the old Credit Codes to the Credit Bill,
and those regulations take effect despite anything else in the
Transitional Bill. [Part 3, subsection 6(2)]
15. Finally, there is a power to modify by regulation provisions in
Schedule 1 or 2, and the provisions will take effect as so
modified. [Part 3, subsection 6(3)]
16. As some transitional regulations may need to take effect
retrospectively, they may be expressed to take effect from a date
before the regulations are registered under the Legislative
Instruments Act 2003 [Part 3, subsection 6(4)]. However, a court
must not convict a person of an offence, or order a person to pay a
pecuniary penalty, in relation to the conduct on the grounds that
it contravened either the Transitional Bill or Credit Bill, if the
person's conduct before the registration date of such regulations
would not have resulted in a contravention. [Part 3
subsection 6(5)]
Acquisition of property
17. It is not anticipated that the treatment of existing rights under
the Transitional Bill will result in any acquisition of property
other than on just terms for the purposes of paragraph 51(xxxi) of
the Constitution. However, for the avoidance of doubt, a provision
has been included to ensure that an acquisition other than on just
terms for the purposes of paragraph 51(xxxi) cannot take place. To
the extent that an acquisition of property other than on just terms
would occur by virtue of a provision of the Transitional Bill, the
relevant law or instrument is taken not to apply. [Part 3, section
7]
Chapter 2
Transition from the old Credit Codes to the Credit Bill
Outline of chapter
18. Chapter 2 of this explanatory memorandum describes the provisions
in Schedule 1 to the National Consumer Credit Protection
(Transitional and Consequential Provisions) Bill 2009 (Transitional
Bill) which provide for a transition from the regime under the old
Credit Code of a referring State or a Territory to the Commonwealth
regime.
19. The provisions are largely based on Part 10 of the Corporations Act
2001 (Corporations Act), which dealt with the transition from the
former Corporations Law scheme to the Corporations Act in 2001.
Summary of new law
20. The transitional provisions deal with matters including:
. treatment of credit contracts, mortgages, guarantees and
consumer leases made before commencement of the new Credit
Code;
. treatment of pre-commencement court proceedings and
orders; and
. the Australian Securities and Investments Commission's
(ASIC) role in relation to bringing or continuing appeal,
review or enforcement proceedings.
Detailed explanation of new law
Part 1 - Introduction
21. The guide to Schedule 1 states that it deals with the transition
from the regime provided for in the old Credit Codes of the
referring States and the Territories to the new regime provided for
in both the National Consumer Credit Protection Bill 2009 (Credit
Bill (including the new Credit Code)) and Schedule 2 to the
Transitional Bill. It also notes that the regulations may provide
for matters in addition to those in the Schedule and that they may
modify how the Schedule applies. [Schedule 1, Part 1, item 1]
Part 2 - Transition from the old Credit Codes to the new Credit Code
Division 1 - Object of this Part
22. Broadly, the object of Part 2 is to provide for a smooth transition
from the regime provided for in the old Credit Code of a referring
State or Territory to the regime provided for in the new Credit
Code, so that persons are, to the greatest extent possible, put in
the same position immediately after commencement of the
Transitional Bill as they would have been if the old Credit Code
had been Commonwealth legislation and the new Credit Code were a
continuation of the old Credit Code so applying [Schedule 1, Part
2, subitem 2(1)]. In resolving ambiguity about the operation of
Part 2, an interpretation consistent with that object should be
preferred [Schedule 1, Part 2, subitem 2(2)].
Division 2 - Treatment of contracts and other instruments made
before commencement
Application of the new Credit Code
23. The new Credit Code does not apply directly to contracts and other
instruments made before commencement - defined in the Transitional
Bill as the day the new Credit Code in the Credit Bill commences
[Schedule 1, Part 2, subitem 3(1)]. In this document, that day is
also referred to as 'commencement' (unless the contrary intention
appears).
24. However, with the exception of some provisions, the new Credit Code
applies to instruments that are in force and governed by the old
Credit Code on the date of commencement as if those instruments had
been made after commencement [Schedule 1, Part 2, subitems 3(2) and
(3)]. This is to allow for the continuation of rights and
liabilities regarding credit contracts, mortgages, guarantees,
consumer leases and sale contracts that existed at the commencement
of the new Credit Code to be maintained.
25. The excluded provisions are:
. a provision in which the new Credit Code applies such as
credit for the purchase, renovation, improvement or
refinancing of residential property for investment
purposes [Credit Bill, Schedule 1, section 5];
. a provision in which short term credit provides that
certain fees and charges are to count when working out if
the fees and charges imposed in relation to a provision of
credit exceed 5 per cent of the amount of credit [Credit
Bill, Schedule 1, subsection 6(2)];
. a provision which provides for a rebuttable presumption
that the new Credit Code applies [Credit Bill, Schedule 1,
section 13];
. a provision which limits the things a mortgage can cover;
and provides that a mortgage is void to the extent it
contravenes that provision [Credit Bill, Schedule 1,
section 50];
. a provision under which a debtor can request a change to
certain terms of their credit contract on the grounds of
hardship [Credit Bill, Schedule 1, subsections 72(5) and
94(4)]; and
. a provision which provides for a rebuttable presumption
that a lease is a consumer lease [Credit Bill, Schedule 1,
section 172].
26. Certain provisions in the old Credit Code, which deal with
provision of credit to which that Code applies and presumptions
relating to application of that Code, apply to old instruments as
if those provisions were the equivalent sections of the new Credit
Code. [Schedule 1, Part 2, subitem 3(4)]
27. In transferring consumer credit to the Commonwealth, the Government
has increased the threshold under which a debtor can request a
change to certain terms of their credit contract on the grounds of
hardship to $500,000 (or higher as specified in the regulations)
[Credit Bill, Schedule 1, Part 4, subsection 72(5)]. The increase
in threshold enables more consumers to apply for changes to the
terms of their credit contract when in financial hardship, for
example because of illness or unemployment. This increased
threshold also applies to request stays of enforcement [Credit
Bill, Schedule 1, Part 5, subsection 94(4)].
28. Under the old Credit Code, the threshold for hardship variations
and stays of enforcement is 110 per cent of the average loan size
for new dwellings in New South Wales (that is, $342,870 for 10 June
2009 to 7 July 2009). This arrangement is maintained in relation
to existing contracts in relation to hardship provisions and
requests for stays of enforcement after commencement. [Schedule 1,
Part 2, subitems 3(5) and (6)]
Division 3 - Treatment of court and tribunal proceedings and orders
Treatment of proceedings brought in a court under the old Credit
Code before commencement
29. Various provisions provide for the continuation of court
proceedings, civil and criminal, which were on foot on
commencement.
30. Court proceedings ('old proceedings') are those in relation to
which the following elements are satisfied:
. the proceedings were brought in a court before
commencement;
. the proceedings were brought in relation to a provision of
the old Credit Code of a referring State or a Territory;
. the proceedings were not enforcement proceedings, or
appeal or review proceedings, in relation to an order of a
court;
. the proceedings had not been concluded or terminated
before commencement; and
. either:
- if the proceedings are primary proceedings - no final
determination had been made before commencement; or
- if the proceedings are interlocutory proceedings - this
item applies to the primary proceedings to which the
interlocutory proceedings relate.
[Schedule 1, Part 2, subitem 4(1)]
31. Old proceedings do not include proceedings in a tribunal that were
brought under the old Credit Code before commencement.
[Schedule 1, Part 2, item 6]
32. Old proceedings which are on foot are substituted by equivalent new
proceedings exercising federal jurisdiction under the new Credit
Code and are taken to have been brought in the same court.
[Schedule 1, Part 2, subitem 4(2)]
33. The new proceedings relate to the new rights and liabilities
('substituted rights and liabilities') created in the general
transitional provisions discussed below. [Schedule 1, Part 2,
items 10 and 11]
34. The court is obliged to treat the steps taken under State
jurisdiction before commencement as though they were taken for the
new proceedings. [Schedule 1, Part 2, subitem 4(4)]
35. Further, if the earlier steps included an interlocutory order, the
rights and liabilities of all persons will be those that they would
have had if the order had been made by the same court, in the
exercise of federal jurisdiction, for the purpose of the new
proceeding. [Schedule 1, Part 2, subitem 4(5)]
36. With respect to interlocutory order proceedings, the court may make
orders:
. cancelling or varying rights or liabilities that a person
has under the interlocutory order;
. substituting other rights or liabilities for rights or
liabilities a person has under the interlocutory order;
. adding rights or liabilities to the rights or liabilities
a person has under the interlocutory order; and
. enforcing, or otherwise dealing with conduct contrary to,
a right or liability a person has under the interlocutory
order in the same way as it could enforce, or deal with,
the right, liability or conduct if the right or liability
had arisen under or because of an order made by the court
in the exercise of federal jurisdiction under the new
Credit Code.
[Schedule 1, Part 2, subitem 4(6)]
References to court proceedings and orders in the new Credit Code
37. A reference in the new Credit Code to the taking of a proceeding in
a court is taken to include a reference to proceedings taken in a
court before commencement under the corresponding provision of the
old Credit Code. This rule only relates to proceedings in a court
(not proceedings in a tribunal) [Schedule 1, Part 2, subitem 5(1)].
Similarly, a reference in the new Credit Code to an order made by
a court under a provision of the new Credit Code includes a
reference to an order made by a court before commencement under the
corresponding provision of the old Credit Code [Schedule 1, Part 2,
subitem 5(2)]. However, the application of that rule does not make
a person liable to any penalty (whether civil or criminal) or
enable enforcement proceedings, appeal or review proceedings in
relation to such an order or enable proceedings by way of appeal or
other review of such an order [Schedule 1, Part 2, subitem 5(3)].
It is expected that transitional provisions of the States and
Territories will deal with appeal, review and enforcement in
relation to orders made under the old Credit Code.
38. In the event that an order is varied or set aside on appeal or
review, the reference in the new Credit Code to the order is taken
to have applied from the time from which the variation or setting
aside takes or took effect. [Schedule 1, Part 2, subitem 5(4)]
39. There is a power to make regulations so that the particular
references in the new Credit Code to court proceedings do not
include references to orders made under the old Credit Code.
[Schedule 1, Part 2, subitem 5(5)]
Treatment of tribunal proceedings and orders under the old Credit
Code before or after commencement
40. The new Credit Code does not apply State and Territory tribunal
proceedings, tribunal orders or rights and liabilities in relation
to proceedings before or after the commencement of the new Credit
Code [Schedule 1, Part 2, subitem 6(1)]. The Transitional Bill and
Credit Bill are not intended to exclude or limit the operation of a
law of a referring State or Territory about proceedings that are
brought in a tribunal or orders made by a tribunal or rights and
liabilities arising from tribunal proceedings under the old Credit
Code before or after commencement [Schedule 1, Part 2, subitem
6(2)].
Interlocutory proceedings
41. For the purpose of interpreting provisions in Part 2 about related
interlocutory proceedings, two interlocutory proceedings related to
each other are taken both to be related to the primary proceeding.
[Schedule 1, Part 2, item 7]
Division 4 - General transitional provisions relating to other
things done etc. under the old Credit Code
42. Division 4 contains provision to preserve the effect of things done
by, or for the purposes of, the 'carried over provisions' of the
old Credit Code. It also creates equivalent rights and liabilities
to those that existed under provisions that were no longer in force
immediately before commencement, and deals with how time limits
under the old Credit Code are treated.
Limitations on the scope of Division 4
43. Except as specifically provided for, the general provisions are not
limited by Divisions 2 and 3 or regulations made pursuant to the
regulation-making powers discussed above. [Schedule 1, Part 2,
subitem 8(4)]
44. Orders and proceedings made or begun in courts or tribunals before
commencement of the Transitional Bill are dealt with by other
specific provisions discussed above. [Schedule 1, Part 2, items 4
to 7]
45. Accordingly, the rules in Division 4 do not generally apply to:
. court or tribunal orders;
. rights or liabilities under an order made by a court or
tribunal;
. proceedings brought (including appeal, review or
enforcement proceedings) or a step in such proceedings in
a court or tribunal; or
. rights of appeal, review or enforcement in relation to
court or tribunal orders.
[Schedule 1, Part 2, subitem 8(2)]
46. However, despite the provisions which create rights and liabilities
under the Transitional Bill, equivalent rights and liabilities
acquired or incurred under the old Credit Codes do apply to any
right or liability to which a new court proceeding established
under item 4. [Schedule 1, Part 2, subitem 8(3)]
Provisions of this Division may have an overlapping effect
47. Division 4 deals at a broad level with concepts to achieve the
object of Part 2. Some of the provisions will have effects that
overlap or interact to some extent, with each other. This effect
is intended and the provisions should not be regarded as dealing
with mutually exclusive situations. [Schedule 1, Part 2, item 9]
Things done by or under carried over provisions continue to have
effect
48. Things done under, or for the purposes of, a carried over provision
of the old credit Code of a State or Territory that have an
'ongoing significance' immediately before commencement are taken to
have been done under, or for the purposes of, the new Credit Code.
[Schedule 1, Part 2, subitem 10(1)]
49. A number of examples of things which may have been done under
'carried over provisions' of the old Credit Code, and which
continue to have effect under the new Credit Code, are set out in
item 10. The examples are:
. the making of an instrument or order (but not including
the making of an order by a court or tribunal);
. the making of an application or claim (but not including
the making of an application or claim to a court or
tribunal);
. the granting of an application or claim (but not including
the granting of an application or claim by a court or
tribunal);
. the making of an appointment or delegation;
. the commencement of a procedure or the taking of a step in
a procedure (but not including the bringing of proceedings
in a court or tribunal);
. requiring a person to do, or not to do, something (but not
including a requirement contained in an order made by a
court or tribunal); and
. the giving of a notice or document.
[Schedule 1, Part 2, subitem 10(2)]
50. Also set out are examples of things done under the old Credit Code
that have 'ongoing significance', including:
. a statutory demand served on a guarantor under the old
Credit Code that was in effect immediately before the
Credit Bill commenced is taken to have been served on the
guarantor under section 90 of the new Credit Code; and
. a credit provider that is required under the old Credit
Code to give to the debtor periodic statements of account
that was in effect immediately before the Credit Bill
commenced is taken to be required to give to the debtor
periodic statements of account under section 33 of the new
Credit Code.
[Schedule 1, Part 2, subitem 10(3)]
51. There is a power to make regulations about whether specific things
done under the old Credit Code are taken to have, or not to have,
ongoing significance. [Schedule 1, Part 2, subitem 10(4)]
Creation of equivalent rights and liabilities to those that existed
before commencement under carried over provisions of the old Credit
Code
52. Rights and liabilities (civil or criminal) equivalent to those that
existed under the old Credit Codes immediately before the
commencement of the new Credit Code are created [Schedule 1, Part
2, item 11]. Rights and liabilities are defined in the Dictionary
[Part 2, section 4].
53. If a person acquired or incurred a right or liability under a
'carried over provision' of the old Credit Code, and that right or
liability was in existence immediately before commencement of the
new Credit Code, the person is deemed to have acquired or incurred
an equivalent right or liability under the corresponding provision
of the new Credit Code; this is known as a 'substituted right or
liability' [Schedule 1, Part 2, item 11]. If the right or
liability was subject to a time limit under the old Credit Code,
the treatment of the time limit for the substituted right or
liability is dealt with in a separate provision [Schedule 1, Part
2, item 13].
54. Procedures, proceedings or remedies are available under the new
Credit Code in respect of substituted rights and liabilities.
[Schedule 1, Part 2, subitem 11(3)]
Creation of equivalent rights and liabilities to those that existed
before commencement under repealed provisions of the old Credit
Code
55. Rights and liabilities accrued or incurred under provisions of the
old Credit Code that had been repealed prior to commencement are
treated the same way in which rights and liabilities under a
carried over provision of the old Credit Code; that is, the person
is deemed to have acquired or incurred an equivalent right or
liability under the corresponding provision of the new Credit Code
[Schedule 1, Part 2, item 12]. If the right or liability was
subject to a time limit under the old Credit Code, the treatment of
the time limit for the substituted right or liability is dealt with
in a separate provision [Schedule 1, Part 2, item 13]. Procedures,
proceedings or remedies are available under the new Credit Code in
respect of substituted rights and liabilities [Schedule 1, Part 2,
subitem 12(4)].
Old Credit Code time limits etc.
56. A process, a status of a person or an instrument commenced under
the old Credit Code from a particular time before the new Credit
Code started, and is continued under the new Credit Code, is still
taken to have started at the particular time it started before the
new Credit Code commenced . Time limits that, in effect, straddle
the commencement of the new Credit Code, or the starting point of
which was known or had been determined before the commencement,
although it may actually begin to run after the commencement,
continues to run, from the same starting point, as if the same time
limit were applicable under the new Credit Code. [Schedule 1, Part
2, subitems 13(2) and (3)]
57. If a right or liability that was acquired or incurred under the
previous law continues in effect under the new Credit Code as a
substituted right or liability, any time limit applicable to that
right or liability continues to apply, and is reckoned from the
same starting point. [Schedule 1, Part 2, subitem 13(4)]
58. A time limit for these purposes can be either a period specified as
a time limit within which something must be done, or the specified
duration of an instrument or a status. [Schedule 1, Part 2,
subitem 13(2)]
Preservation of significance etc. of events or circumstances
59. An event, circumstance or other thing that occurred before
commencement that had a particular significance, status or effect
for the purposes of a carried over provision of the old Credit Code
has the same significance, status or effect after commencement, for
the purposes of the corresponding provision in the new Credit Code.
[Schedule 1, Part 2, item 14]
References in the new Credit Code generally include references to
events, circumstances or things that happened or arose before
commencement
60. A reference in the new Credit Code to an event, circumstance or
thing of a particular kind is not confined to any such event,
circumstance or thing happening or arising after the commencement
of the Bill, but can also include such an event, circumstance or
thing that happened before the commencement, unless the contrary
intention is expressed [Schedule 1, Part 2, item 15]. For example,
a provision in the new Credit Code which refers to a person
consenting to a certain course of action can include a case in
which consent was given before the new Credit Code.
References to things taken or deemed to be the case etc.
61. If a law of a referring State or Territory had effect before
commencement to take or deem something to have happened or to be
the case under the old Credit Code of that State or Territory; and
that effect was continuing immediately before commencement, then it
is deemed that thing had actually happened or were actually the
case, or as if that thing actually had that other effect.
[Schedule 1, Part 2, item 16]
Penalty units in relation to pre-commencement conduct remain at
$100
62. The amount of a penalty unit in relation to an offence that can be
prosecuted after commencement in relation to conduct that occurred
solely before commencement is deemed to be $100, despite section
4AA of the Crimes Act 1914 [Schedule 1, Part 2, item 17].
Part 3 - Application of the Credit Bill (other than the new Credit Code)
and Schedule 2 to the Transitional Bill
63. Part 3 of Schedule 1 deals with transitional matters relating to
application of both the Credit Bill (other than the new Credit
Code) and Schedule 2 to the Transitional Bill.
Application of the Credit Bill
64. The Credit Bill does not apply in relation to a contract or other
instrument made before commencement, except where a specific
provision deals with the application of the new Credit Code
[Schedule 1, Part 3, subitems 18(1) and (3)]. For example, a
person does not engage in a credit activity after commencement
merely because the person is the credit provider under a credit
contract made before commencement.
65. There is a regulation-making provision which may provide for the
application of the Credit Bill to a person (including the licensing
of that person) in relation to credit activities engaged in after
commencement in relation to a contract or other instrument that:
. was made before commencement;
. was in force immediately before commencement; and
. the old Credit Code of a referring State or a Territory
applied to immediately before commencement.
[Schedule 1, Part 3, subitem 18(2)]
66. Part 4-3 of the Credit Bill (which deals with the jurisdiction and
procedure of courts) applies to proceedings brought under the new
Credit Code in relation to an existing contract [Schedule 1, Part
3, subitem 18(3)]. Regulations may be made in relation to these
proceedings [Schedule 1, Part 3, subitem 18(4)].
Application of Chapter 3 of the Credit Bill
67. Chapter 3 of the Credit Bill (which deals with responsible lending
conduct) applies to conduct engaged in, on and after 1 January 2011
in relation to contracts made after commencement. That general
rule is subject to regulation-making powers with respect to the
application of the Credit Bill and Schedule 2 to the Transitional
Bill. [Schedule 1, Part 3, item 19]
68. Timing of the commencement of the responsible lending conduct
provisions in Chapter 3 of the Credit Bill is set in order to give
industry participants sufficient time to change their business
systems and processes to be able to comply with their new
obligations.
Application of Schedule 2 to the Transitional Bill
69. The transitional provisions dealing with registration of persons
engaging in credit activities in Schedule 2 to the Transitional
Bill do not apply to existing contracts made before the
commencement of the Credit Bill. However, regulations may provide
for a different application of Schedule 2 to particular persons and
credit activities. [Schedule 1, Part 3, item 20]
Part 4 - Transitional provisions relating to ASIC
Regulations about ASIC's approach during the transitional period
70. Regulations may provide for an approach ASIC must take in
administering the new legislation until 30 June 2011 (or a later
date as specified in the regulations). This might, for example, be
an approach in relation to provision of education or assistance to
industry participants regarding compliance matters. [Schedule 1,
Part 4, item 21]
Regulations about transfer of information etc. to ASIC
71. The regulations may provide for the transfer of information,
documents, assets or liabilities to ASIC from a referring State or
a Territory; or an authority of a referring State or a Territory.
[Schedule 1, Part 4, item 22]
72. These regulations will enable the transfer of assets (including
records) and liabilities to ASIC from the State and Territory
regulators.
ASIC's role in relation to appeal, review or enforcement
proceedings
73. ASIC has the functions and powers in relation to appeal, review or
enforcement proceedings that are expressed to be conferred on it by
or under a law of the Commonwealth or a Territory. [Schedule 1,
Part 4, subitem 23(1)]
74. It is envisaged that complementary provisions in State and
Territory legislation will give ASIC functions and powers in
relation to appeal, review or enforcement proceedings. However,
ASIC is not subject to any directions in the performance of such
functions or the exercise of such powers; and is not under a duty
to perform such functions or exercise such powers. [Schedule 1,
Part 4, subitem 23(2)]
75. In the event that a Minister of a referring State or a Territory
appoints a person (other than ASIC) to bring or continue appeal,
review or enforcement proceedings in the State or Territory, ASIC
may give the person any information and documents that ASIC has in
relation to the proceedings. [Schedule 1, Part 4, subitem 23(3)]
76. An appeal, review or enforcement proceedings in these provisions is
defined to mean appeal or review proceedings; or an enforcement
proceedings in relation to an order made by a court, but does not
apply to tribunal orders or proceedings. [Schedule 1, Part 4,
subitem 23(4)]
Chapter 3
Registration of persons engaging in credit activities
Outline of chapter
77. Chapter 3 of this explanatory memorandum relates to the
registration of persons engaging in credit activities. Schedule 2
to the National Consumer Credit Protection (Transitional and
Consequential Provisions) Bill 2009 (Transitional Bill) sets out
the requirement for persons currently engaging in credit activities
to become registered with the Australian Securities and Investments
Commission (ASIC), prior to applying for an Australian credit
licence (ACL).
78. The procedures for applying for an ACL and the consequent
obligations are contained in Chapter 2 of the National Consumer
Credit Protection Bill 2009 (Credit Bill), and are discussed in
Chapter 2 of the explanatory memorandum to that Bill.
79. The key elements of the two-stage registration and licensing scheme
are that:
. it requires persons who currently engage in credit
activities to, initially, be registered with ASIC, and to
subsequently apply for an ACL;
. it imposes entry standards for registration and licensing,
and enables ASIC to refuse an application where the person
does not meet those standards;
. it requires registered persons and licensees to meet
ongoing standards of conduct while they engage in credit
activities; and
. ASIC has the power to suspend or cancel a registration or
licence, or to ban person from engaging in credit
activities.
Context of amendments
80. Currently there is little consistency in the way in which the
States and Territories regulate providers of credit and related
services. Western Australia has a licensing system for both
lenders and brokers. Victoria and the Australian Capital Territory
have registration systems covering credit providers and brokers.
The remaining States and Territories do not impose any entry
requirements on credit providers. As a result, a finance broker
who operates nationally is required to hold three different
licences or registrations.
81. The proposed national licensing scheme therefore has benefits for
industry in removing the need for lenders and brokers who operate
nationally to meet different requirements.
82. The continuing development of a greater and more complex range of
credit products in the market has made it much straightforward for
consumers to determine whether a product is suitable for their
needs and has increased their dependence on intermediaries. As a
result there are considerable information asymmetries that justify
regulatory intervention. These issues have been evident for some
time in the relationship between consumers and finance brokers or
other intermediaries.
83. ASIC considered the scope for consumers to suffer financial loss as
a result of incompetent, conflicted or misleading conduct by
intermediaries in a 2003 report[1]. For example, if, as a result
of unsuitable advice about a loan, the borrower is placed in a loan
with an interest rate 0.5 per cent higher, then as a result the
borrower would pay an additional $15,500 in interest on a loan of
$175,000 over 25 years. It considered that the lack of uniform
regulation contributed to these outcomes.
84. In recognition of the need for national regulation of brokers the
Ministerial Council on Consumer Affairs (MCCA) released the draft
Finance Brokers Bill (NSW) in November 2007.
85. The regulation impact statement developed in the preparation of the
Finance Brokers Bill (NSW) documented in detail a number of
undesirable market practices, including:
. brokers recommending products that earned them higher
commissions but which are inappropriate, higher cost or
unaffordable for their clients;
. brokers misrepresenting the applicants' financial details
so that the loan is approved, and the broker receives
commissions, when, if the lender was aware of the
borrower's actual financial position, they would reject
the application;
. brokers 'upselling' loans to higher amounts to increase
commissions; and
. brokers and lenders engaging in 'equity stripping', that
is, arranging or providing high-cost loans for borrowers
in financial difficulty (particularly those facing
foreclosure of the family home), in the expectation that
the borrower will default with subsequent transfer of the
consumer's equity in their home to the broker and the
lender through fees, charges and default interest.
86. Before the draft Finance Brokers Bill (NSW) was finalised the
States agreed to the transfer of responsibility for credit to the
Commonwealth allowing for the introduction of a national approach
to licensing that extends to all persons engaging in credit
activities.
87. Concerns such as those discussed above were considered in 2008 when
both the Australian Government and the Council of Australian
Governments decided that providers of credit and related services
should be subject to a national licensing system administered by
ASIC.
88. Developments in the delivery of credit mean that the distinctions
between lenders, brokers and those giving advice are no longer
straightforward, and, in consequence, a comprehensive approach to
licensing all market participants is preferable.
89. This approach is consistent with the 2008 findings of the
Productivity Commission, which recommended a licensing scheme for
finance brokers and a licensing or registration scheme for
lenders.[2]
90. The main objective in introducing the licensing system is to
address these concerns by having a market environment for 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.
Summary of new law
91. The national licensing scheme for persons engaging in credit
activities is established in Chapter 2 of the Credit Bill. It is
complemented by Schedule 2 to the Transitional Bill which puts in
place transitional arrangements that require persons who engage in
credit activities prior to 1 January 2010 to be registered, before
applying for an ACL.
92. The key elements of the scheme are that:
. it requires persons who currently engage in credit
activities to, initially, register with ASIC between 1
November and 31 December 2009, and to subsequently apply
for an ACL between 1 January and 30 June 2010;
. it imposes entry standards for registration and licensing,
and enables ASIC to refuse an application where the person
does not meet those standards;
. it requires registered persons and licensees to meet
ongoing standards of conduct while they engage in credit
activities; and
. ASIC has the power to suspend or cancel a licence or
registration, or to ban an individual from engaging in
credit activities.
93. Participants will need to be registered or hold a licence if they
engage in any of the following credit activities:
. entering into credit contracts or consumer leases;
. collecting money due under a credit contract or a consumer
lease (including where the lender has ceased providing
credit, and where an assignee has purchased the debts from
the original credit provider);
. exercising rights as a mortgagee or the beneficiary of a
guarantee;
. acting as an intermediary between the borrower and the
lender (principally as finance brokers, but not
exclusively so, with the definition also covering bodies
such as mortgage managers and aggregators); or
. suggesting or providing assistance in respect of a
specific credit product with a particular credit provider.
94. Section 5 of the National Credit Code (Code) sets out the
circumstances in which the Code will apply to the provision of
credit. Generally it regulates the provision of credit where it is
provided:
. for personal domestic or household use;
. to purchase, renovate or improve the value of a
residential investment property; or
. to refinance credit provided for these purposes.
95. The definition of 'credit' otherwise expressly excludes credit
provided for business or investment use.
96. A two-stage approach is being adopted, with participants first
being registered and then transitioning to a licence. Persons are
required to register with ASIC in the period from 1 November 2009
to 31 December 2009.
97. There are only limited and specific circumstances in which ASIC can
refuse to register a person. Generally ASIC must register a person
except where they meet any of the criteria resulting in automatic
rejection of the application. The criteria relate to matters where
there is an unacceptable risk, established by a public finding or
outcome, to consumers; for example, members of organised criminal
groups who are subject to court orders as prescribed in the
Transitional Bill would be unable to be registered.
98. A registered person will need to meet set standards of conduct; for
example, they will be required to act efficiently, honestly and
fairly, to comply with the law and to become a member of an ASIC-
approved External Dispute Resolution Scheme (EDR Scheme). This
will give consumers an avenue for the expeditious resolution of
complaints through a no-cost forum, outside the court system.
99. A registered person can authorise third parties to engage in credit
activities on their behalf, without these persons having to be
registered in their own right. These persons are known as 'credit
representatives'. The registered person is generally responsible
for their conduct, and must specify in writing the credit
activities they can engage in.
100. ASIC has the power to suspend or cancel a registration, or to ban
individuals from engaging in credit activities. ASIC can take
action as it considers appropriate in a broad range of
circumstances to protect consumers from the risk of financial harm
and to maintain the integrity of the scheme.
101. After becoming registered a person who intends to continue to
engage in credit activities will have to apply for a licence in the
period from 1 January 2010 to 30 June 2010. The licensing
requirements are discussed in detail in Chapter 2 of the
explanatory memorandum to the Credit Bill.
Comparison of key features of new law and current law
|New law |Current law |
|Introduces new regulation|In the Northern |
|for lenders or |Territory, Queensland, |
|intermediaries. |South Australia and |
| |Tasmania there is no |
| |registration or licensing|
| |scheme for either lenders|
| |or intermediaries. |
|Introduces enhanced entry|In the Australian Capital|
|requirements and |Territory and Victoria |
|regulation for lenders |there is a registration |
|and intermediaries. |scheme for both |
| |intermediaries, and |
| |lenders, and in New South|
| |Wales there is a negative|
| |registration scheme for |
| |both intermediaries and |
| |lenders. |
|The main differences with|In Western Australia |
|the law operating in |there is a licensing |
|Western Australia are: |scheme for both lenders |
|the entry requirements |and intermediaries. |
|are similar, including |The main features of the |
|that the applicant is a |licensing scheme are: |
|fit and proper person, |entry requirements, |
|but applicants are |including that the |
|subject to a number of |applicant is a fit and |
|additional obligations, |proper person; |
|including a requirement |some ongoing requirements|
|to be a member of an EDR |while licensed; and |
|Scheme approved by ASIC; |the capacity to remove |
|significant ongoing |the licence if the |
|requirements while |licensee no longer meets |
|licensed (including that |the entry requirements. |
|the licensee must | |
|properly train and | |
|supervise people who act | |
|on their behalf); and | |
|the capacity to remove | |
|the licence if the | |
|licensee no longer meets | |
|the entry requirements. | |
Detailed explanation of new law
Definitions of words and phrases
102. The definition of words and phrases with specific meanings in the
Transitional Bill is determined as follows:
. expressions that have a particular meaning in the
Transitional Bill are listed in subsection 4(1) [Part 2,
subsection 4(1)];
. expressions that have a particular meaning in the Credit
Bill have the same meaning in the Transitional Bill,
unless a contrary intention appears [Part 2, subsection
4(2)]; and
. the definitions in Part 1-2 of the Credit Bill apply as if
the references to 'this Act' included references to
Schedule 2 of the Transitional Bill [Schedule 2, Part 1,
item 2].
Registration of persons who engage in credit activities
103. A person who engages in credit activities will have a two-month
window in which to register with ASIC, between 1 November 2009 and
31 December 2009 (or a later date as prescribed in the
regulations). [Schedule 2, Part 3, item 11]
104. A registered person will then need to apply for a licence between 1
January 2010 and 30 June 2010 (or a later date as prescribed in the
regulations), and can continue to engage in credit activities until
their licence application is determined by ASIC. [Schedule 2, Part
2, items 5 and 6]
105. Once ASIC has determined their licence application, they either:
. can continue to engage in credit activities as authorised
under the licence - where the licence application is
granted; or
. must cease engaging in credit activities or otherwise
commit an offence - where the licence application is
refused.
106. From 1 January 2010 (or a later date as prescribed in the
regulations) persons who are not registered who intend to engage in
credit activities must apply for and receive a licence before
commencing business. [Schedule 2, Part 2, items 3 and 4]
107. Table 3.1 summarises the changes in requirements over time.
1.
|1 November 2009 |All persons engaging in credit |
|to 31 December |activities will need to apply to |
|2009 |be registered. |
|1 January 2010 |All persons engaging in credit |
|to 30 June 2010 |activities will commit an offence |
| |unless they are registered or |
| |licenced. |
| |All persons engaging in credit |
| |activities for the first time on |
| |or after 1 January 2010 must apply|
| |for and receive a licence before |
| |commencing business. |
|1 July 2010 to |All persons engaging in credit |
|30 June 2011 |activities will commit an offence |
| |unless they are registered and |
| |have applied for a licence (and |
| |not had their application |
| |rejected) or they are licenced. |
| |A person who was registered and |
| |has applied for a licence can |
| |continue engaging in credit |
| |activities until they get notice |
| |of the decision and then either: |
| |where the application is granted -|
| |continue to engage in credit |
| |activities; or |
| |where the application is rejected |
| |- cease engaging in credit |
| |activities or they will commit an |
| |offence. |
|1 July 2011 |From this date at the latest, all |
|onwards |persons engaging in credit |
| |activities must hold a licence. |
When does a person engage in a credit activity?
108. The Dictionary to the Credit Bill contains detailed definitions of
when a person will engage in credit activities, and therefore when
the requirement to be registered arises. This part contains a
summary of these provisions; a more detailed explanation is in
Chapter 2 of the explanatory memorandum to the Credit Bill.
109. There are two broad categories of persons who are engaging in a
credit activity:
. The first category primarily covers lenders and providers
of consumer leases (or their assignees), but also embraces
activities in relation to mortgages and guarantees where
they are taken to secure or guarantee obligations under a
credit contract or lease [Credit Bill, Part 1-2, Division
3, items 1, 3, 4 and 5 in the table in subsection 6(1) and
section 10]; and
. The second category is defined as persons who provide
credit services, and primarily, but not exclusively,
covers finance brokers and other intermediaries where they
have a role in relation to securing credit for a consumer
[Credit Bill, Part 1-2, Division 3, item 2 in the table in
subsection 6(1) and sections 7 to 9].
110. In respect of the first category a person will engage in credit
activities where:
. they provide credit, or lessors who provide consumer
leases, as defined in the Code. They will engage in
credit activities as long as they are a party to a
contract. Credit providers and lessors will therefore
need to remain licensed where they are still collecting
money due under credit contracts or leases,
notwithstanding that they no longer enter into new credit
contracts or leases [Credit Bill, Part 1-2, Division 3,
items 1(a) and 3(a) in the table in subsection 6(1)];
. they carry on a business of providing credit or leases,
and will therefore need to hold a licence where they
engage in pre-contractual conduct before entering into
credit contracts or leases [Credit Bill, Part 1-2,
Division 3, items 1(b) and 3(b) in the table in subsection
6(1)];
. they perform obligations or exercise rights in relation to
a credit contract or lease, or a proposed credit contract
or lease [Credit Bill, Part 1-2, Division 3, items 1(c)and
3(c) in the table in subsection 6(1)]. Examples of
persons who fall within this definition include:
- persons performing statutory obligations arising before
a credit contract or lease has been entered into; and
- mortgage managers where they are managing the credit
contract on behalf of the credit provider;
. they are either [item 4 in the table in 6(1) in the Credit
Bill]:
- a mortgagee under a mortgage that secures the
obligations of a borrower under a credit contract; or
- they perform obligations or exercise rights in relation
to a mortgage;
. they are either [item 5 in the table in 6(1) in the Credit
Bill]:
- the beneficiary of a guarantee that guarantees the
obligations of a borrower under a credit contract; or
- they perform obligations or exercise rights in relation
to a guarantee; and
. they are a person who receives, by assignment in law, the
rights of a credit provider or a lessor, and exercises
those rights. This requirement arises irrespective of
whether they receive the rights directly from the credit
provider or lessor, or from a person who was themselves an
assignee [Credit Bill, Part 1-2, Division 3, section 10].
The definition does not extend to equitable assignees.
111. A person will be in the second category of persons who engage in
credit activities by 'providing credit services' where they either:
. provide credit assistance; or
. act as an intermediary.
[Credit Bill, Part 1-2, Division 3, section 7]
112. A person provides 'credit assistance' to a consumer where they:
. suggest that the consumer:
- apply for a provision of credit in respect of a
particular credit contract or lease;
- apply for an increase to the credit limit of a
particular credit contract; or
- remain in a particular credit contract or lease; or
. assist the consumer, in respect of a particular credit
contract or lease, to:
- apply for a provision of credit in respect of a
particular credit contract or lease; or
- apply for an increase to the credit limit of a
particular credit contract.
[Credit Bill, Part 1-2, Division 3, section 8]
113. A person will provide credit assistance regardless of whether they
deal directly with the consumer or with the consumer's agent. This
serves to cover the situation where, for example, the person is
assisting an elderly parent to apply for a credit contract, but is
dealing with their children.
114. The definition is intended to apply to situations such as:
. finance brokers where they recommend a particular credit
contract or lease; and
. a person who suggests a person apply for a particular
credit contract or lease, but does not proceed to arrange
the credit contract for the consumer.
115. A person will 'act as an intermediary' where they act as an
intermediary between a credit provider and a consumer for the
purposes of securing a provision of credit, or between a lessor and
a consumer for the purposes of securing a lease. [Credit Bill,
Part 1-2, Division 3, section 9]
116. The definition is intended to regulate every person who may be an
intermediary between the consumer and the credit provider.
Innovations in credit product design and delivery now mean that a
consumer may pass through a number of hands between the first
person they deal with and the lender, and may be uncertain as to
the roles or functions of all these different parties. It is
intended that the registration requirements will apply to all these
persons.
117. A person can act as an intermediary either directly or indirectly.
The intention is to require a person to hold a licence even where
they may have no direct or face-to-face contact with a consumer,
but, nevertheless act as an intermediary, for example by preparing
or passing on information at the request of a consumer or by
another intermediary, and their role is wholly or partially to
secure credit or a lease.
118. The definition is intended to apply to situations such as:
. finance brokers where, after recommending a particular
credit contract, they proceed to arrange the credit with
the credit provider;
. aggregators, in acting as a conduit between an individual
broker and a credit provider;
. mortgage managers, where they are involved in arranging
the credit (in addition to managing the credit once it has
been provided); and
. persons who refer the consumer to another person, where
this is done for the purpose of securing credit.
Part 2 - Transitional prohibitions relating to credit activities
Division 1 - Prohibition that applies only from 1 January 2010 to
30 June 2010, or in other prescribed period
119. A person who engages in credit activities between 1 January 2010
and 30 June 2010 (or a later date prescribed in the regulations)
will commit an offence unless they are either registered or hold a
licence. [Schedule 2, Part 2, item 3 and subitems 4(1) and (2)]
120. The effect is that:
. a person who was registered by 31 December 2009 can
continue to engage in credit activities until 30 June
2010, by which time they will have had to apply for a
licence; and
. any person who commences a new business after 1 January
2010, or were not registered by that date, will commit an
offence unless they apply for and obtain an ACL before
beginning to engage in credit activities.
121. However a person who engages in a credit activity in this period
has a defence where:
. that person engages in the credit activity on behalf of a
registered person or a licensee;
. the registered person or licensee is authorised to engage
in credit activities of that type;
. the person's conduct is within the authority of the
registered person or licensee; and
. the person themselves is either:
- an employee or a director of the registered person or
licensee, or of a related body corporate of the
registered person or licensee; or
- a credit representative of the registered person or
licensee.
[Schedule 2, Part 2, subitem 4(3)]
122. A 'credit representative' is a person formally appointed to act on
behalf of the registered person or licensee, in accordance with
either section 64 or 65 of the Credit Bill. [Schedule 2, Part 4,
item 33]
123. A person's conduct is within the authority of another person as
follows:
. where they are an employee of the person or of a related
body corporate of the person - the conduct is within the
scope of the employee's employment;
. where they are a director of the person or of a related
body corporate of the person - the conduct is within the
scope of the director's duties as director; or
. where they are a credit representative - the conduct is
within the scope of the authorisation in writing
specifically granted to the credit representative under
either subsection 64(1) or 65(1) of the Credit Bill.
[Schedule 2, Part 1, item 2 and Credit Bill, Part 1-2, Division 2,
section 5]
124. These provisions place the onus of proof on any defendant where the
defence is that they have been engaging in credit activities on
behalf of either the registered person or licensee, and that their
conduct was authorised by or conducted on behalf of that person.
125. The reason for the reversal of the onus of proof is that a defence
of this type may raise complex factual matters that cannot be
readily established by ASIC, but that will be squarely within the
knowledge of the employee, director or credit representative. That
person will be in the best position to both know and establish that
their conduct has been authorised by their principal.
126. Consumers have specific remedies against persons where they engage
in credit activities while unregistered, as there is a clear need
to deter this type of behaviour, and it is intended that consumers
should only deal with those who have demonstrated they meet the
entry requirements. [Schedule 2, Part 4, item 37 and Credit Bill,
Part 4-2, Division 2, section 180]
Division 2 - Prohibition that applies onlyfrom 1 July 2010 to
30 June 2011, or in other prescribed period
127. A person who engages in credit activities between 1 July 2010 and
30 June 2011 (or a later date prescribed in the regulations) will
commit an offence unless:
. they already hold a licence; or
. they are registered and have applied for a licence (so
that they can continued operating until their application
is determined by ASIC).
[Schedule 2, Part 2, item 5 and subitems 6(1) and (2)]
128. This allows registered persons who have applied for a licence prior
to 1 July 2010 to continue to engage in credit activities until
ASIC has determined their licence application, and to then either:
. where the licence application is granted - engage in
credit activities as authorised under the licence; or
. where the licence application is refused - cease engaging
in credit activities or otherwise commit an offence.
129. A defence for persons engaging in credit activities in this period
applies (in equivalent terms to that in item 4 as discussed in
paragraph 3.45), where:
. the person engages in the credit activity on behalf of a
registered person or a licensee;
. the registered person or licensee is authorised to engage
in credit activities of that type;
. the person's conduct is within the scope of the authority
of the registered person or licensee; and
. the person themself is either:
- an employee or a director of the registered person or
licensee, or of a related body corporate of the
registered person or licensee; or
- a credit representative of the registered person or
licensee.
[Schedule 2, Part 2, subitem 6(3)]
Division 3 - Application of Division 3 of Part 2-1 of the National
Credit Act in relation to registered persons and this Schedule
130. This Division applies provisions of the Credit Bill during the
transitional period, to assist in the enforcement of the
requirement that a person is registered, by creating offences in
specified circumstances.
131. The Division has effect during the period from the commencement of
the Transitional Bill to 30 June 2011 (or a later date prescribed
in the regulations). [Schedule 2, Part 2, item 7]
132. A person will commit an offence where:
. they falsely hold out that they are authorised to engage
in a credit activity (for example, that they are
registered when this is not the case) [Schedule 2, Part
2, paragraphs 8(a) to (d)].
. they hold out or advertise that they can engage in credit
activities when they would commit an offence if they
actually engaged in those credit activities [Schedule 2,
Part 2, paragraph 8(e)].
. they demand or receive a fee from a consumer in relation
to a credit activity, when they are unable to engage in
the credit activity (for example, because they are not
registered) [Schedule 2, Part 2, item 10].
133. A person will also commit an offence where although registered
themselves, they conduct business with another person who is
engaging in a credit activity and is not registered when required
to be. This provision will in practice only have effect from 1
January 2010, as the requirement to be registered commences on that
date. [Schedule 2, Part 2, item 9]
Part 3 - Registration of persons who engage in credit activities
Division 1 - How to become registered
134. Division 1 sets out the process for becoming registered. To make
the transition from State and Territory to Commonwealth regulation
as simple as possible, the procedure for becoming registered is
straightforward, while still designed to allow for some persons to
be automatically excluded because of their past conduct or history.
135. A person may apply to ASIC to be registered between 1 November and
31 December 2009 (or a later date prescribed in the regulations).
The application must be in the approved form [Schedule 2, Part 3,
item 11]. An applicant can be a natural person, a body corporate,
a trustee or a partnership.
136. To be eligible to be registered, the applicant must be a member of
an EDR Scheme that has been approved by ASIC. [Schedule 2, Part 3,
paragraph 12(1)(b)]
137. ASIC may only register the applicant where they have applied in
accordance with item 11, and have made a statement which certifies
that none of the criteria resulting in automatic exclusion apply:
. where the applicant is a natural person - to that person;
. where the applicant is a body corporate - to any directors
or secretaries who will perform duties in relation to the
credit activities to be authorised by the registration;
and
. where the applicant is a partnership or trust - to any
partners or trustees, again where those persons will
perform duties in relation to the credit activities to be
authorised by the registration.
[Schedule 2, Part 3, paragraphs 12(1)(a) and (c)]
138. The criteria resulting in automatic exclusion relate to matters
where there has been an adverse public outcome, which means there
is an unacceptable risk to consumers from allowing the person to be
registered. It will be a question of fact whether a person meets
any of these criteria. Where they do, ASIC is required to refuse
the registration and cannot exercise any discretion.
139. The criteria are:
. the person has been banned or disqualified either from
engaging in credit activities under Part 2-4 of the Credit
Bill, or from providing financial services under Part 7.6
of the Corporations Act 2001 (Corporations Act);
. the person has been banned or disqualified from engaging
in credit activities under State or Territory law (whether
as a result of a licence being suspended or cancelled, or
as a result of injunctions or other orders of a court);
. where the person was previously registered, that any such
registration is not suspended or has not been cancelled;
. where the person was previously the holder of an
Australian financial services licence under the
Corporations Act, and their licence is currently suspended
or was cancelled in the last seven years:
- because of mental or physical incapacity (under either
paragraph 915B(1)(d) or subparagraph 915B(4)(b)(iii) of
the Corporations Act); or
- after a hearing (under section 915C of the
Corporations Act);
. the person is insolvent; or
. where the applicant is a natural person:
- the person is disqualified from managing corporations
under Part 2D.6 of the Corporations Act;
- the person has been convicted of serious fraud within
10 years of the application being made; or
- a prescribed State or Territory order is in effect
against that person - this provision results in persons
being excluded where they are subject to orders such as
'control orders' made by a court in respect of criminal
gangs.
[Schedule 2, Part 3, subitem 12(2)]
140. A person is insolvent where:
. if they are a natural person - they are a person who is an
insolvent under administration (within the meaning of the
Corporations Act);
. if they are a body corporate - it is a body corporate that
is an externally administered body corporate (within the
meaning of the Corporations Act); or
. if they are a partnership - it is a partnership against
which a creditor's petition or a debtor's petition is
presented under Division 2 or 3 of Part IV of the
Bankruptcy Act 1966.
[Credit Bill, Part 1-2, Division 3, section 5]
141. A person will have been convicted of serious fraud if they have
been convicted of an offence involving fraud or dishonesty, being
an offence and against a law of the Commonwealth, or of a State or
Territory, or any other law punishable by imprisonment for life or
for a period, or maximum period, of at least three months. [Credit
Bill, Part 1-2, Division 3, section 5]
142. ASIC can also refuse an application for registration if it believes
the application is false or misleading or there is a material
omission. This would cover, for example, the situation where a
person states they are a member of an EDR Scheme, when this is not
the case. [Schedule 2, Part 3, subitem 12(3)]
143. ASIC is required to give the applicant written notice of its
decision to grant or refuse the registration. Where ASIC grants
the registration it must advise the applicant of the date on which
they become registered, which is the date when ASIC enters their
name on its register. Where ASIC refuses to register the
application it must give reasons for its decision. [Schedule 2,
Part 3, subitems 12(4) and (5)]
144. An applicant who has had their registration application refused can
seek a review of ASIC's decision by the Administrative Appeals
Tribunal. [Schedule 2, Part 4, item 39 and Credit Bill, Part 7-1,
Division 3, section 327]
145. It is explicitly provided that a registration can be subject to
conditions that, in turn, may be varied or revoked, or subject to
cancellation or suspension, and that no compensation is payable in
relation to any such action in respect of a registration.
[Schedule 2, Part 3, item 13]
Division 2 - The conditions on the registration
146. At the request of the registered person on an approved form, or on
its own initiative, ASIC can impose conditions, or vary or revoke
conditions on a registration. ASIC must ensure the registration
includes a condition that specifies the credit activities the
person is authorised to engage in. [Schedule 2, Part 3, subitems
14(1), (2), (3) and (6)]
147. ASIC must give the registered person written notice of the
imposition, variation or revocation of any condition, with the
change taking effect on the day specified in the notice. Except
where the condition is imposed on registration, ASIC must first
give the registered person an opportunity to make submissions and
give evidence at a private hearing. [Schedule 2, Part 3, subitems
14(4) and (5)]
148. ASIC's power to vary or revoke conditions does not extend to any
conditions prescribed by regulation. [Schedule 2, Part 3, subitem
14(7)]
149. Where the registered person is regulated by the Australian
Prudential Regulation Authority (APRA), special procedures apply.
[Schedule 2, Part 3, item 15]
150. If the registered person is either an authorised deposit-taking
institution (ADI) or a related body corporate of an ADI, and the
proposed condition, in ASIC's opinion, has or would have the result
of preventing the ADI from being able to carry on all or any of its
banking business, then the power to impose, vary or revoke such a
condition can only be exercised by the Minister, and not ASIC.
Before exercising the power, the Minister must first consider
advice from ASIC on the proposed action, being advice given after
ASIC has consulted with APRA on the proposed action. [Schedule 2,
Part 3, subitem 15(2)]
151. The Minister refers to the Minister responsible for administering
the Transitional Bill, determined in accordance with section 19A of
the Acts Interpretation Act 1901.
152. If the registered person is not an ADI but still regulated by APRA,
ASIC must consult with APRA in relation to any new conditions, or
varying existing conditions, where they would prevent the
registered person from carrying on all or any of its usual
activities. This is intended to allow for a consistency in
approach by the two regulators. [Schedule 2, Part 3, subitem
15(1)]
Division 3 - Obligations of registered persons
General conduct obligations
153. Once registered, a person will be required to conduct their
business in accordance with a number of specific obligations.
Given that applicants engaging in credit activities will not
previously have been subject to Commonwealth law the obligations
applying to registered persons are limited to those that can be met
immediately. Licensing will build on these requirements by
requiring the registered person to demonstrate, for example, the
necessary operational capacity and an appropriate commitment of
resources to meet these standards.
154. A person must be a member of an EDR Scheme in order to be
registered, and must remain in an EDR Scheme while registered.
[Schedule 2, Part 3, subitem 16(1)]
155. The following obligations apply, irrespective of the date of
registration, to registered people from 1 January 2010 (or a later
date as prescribed in the regulations) [Schedule 2, Part 3, subitem
16(2)]:
. to do all things necessary to ensure that the credit
activities authorised by the registration are engaged in
efficiently, honestly and fairly [Schedule 2, Part 3,
paragraph 16(3)(a)];
. to comply with any conditions on the registration
[Schedule 2, Part 3, paragraph 16(3)(b)];
. to comply with the credit legislation [Schedule 2, Part 3,
paragraph 16(3)(c)];
. to take reasonable steps to ensure that its
representatives comply with the credit legislation
[Schedule 2, Part 3, paragraph 16(3)(d)];
. to take reasonable steps to ensure that clients of the
registered person are not disadvantaged by any conflict of
interest that may arise wholly or partly in relation to
credit activities engaged in by the licensee [Schedule 2,
Part 3, paragraph 16(3)(e)]; and
. to comply with any additional obligations imposed by
regulation [Schedule 2, Part 3, paragraph 16(3)(f)].
156. The obligations are principle-based, so that registered persons can
have flexibility in adopting practices that suit their
organisation. For example, if a registered person only provides
one type of credit product then it will be more straightforward for
them to meet the obligations than a large organisation with diverse
products and distribution channels.
157. The obligations are continuing once a person is registered. While
the period of registration will be relatively short, situations may
still arise where a registered person needs to make changes to
their business systems in order to continue complying with these
obligations.
158. In respect of the requirement to engage in credit activities
efficiently, honestly and fairly, each criterion must be considered
independently. For example, the efficiency criterion cannot be
used to justify conduct that is unfair or dishonest. That is, if a
registered person adopts a practice that is efficient but is also
unfair or even dishonest (for example, consistently arranging for
consumers to sign contract documents without any explanation) that
conduct would, in all likelihood, be in breach of the obligation.
[Schedule 2, Part 3, paragraph 16(3)(a)]
159. The registered person must also 'do all things necessary' to meet
this requirement. This is a higher requirement than in relation to
other obligations, where the registered person must only 'take
reasonable steps to ensure' a specified outcome. This emphasises
that one of the policy objectives of the Credit Bill and the
Transitional Bill is to introduce standards of conduct which will
result, over time, in improved outcomes for consumers from the
credit contracts and consumer leases they enter into.
160. A registered person must comply with the credit legislation
[Schedule 2, Part 3, paragraph 16(3)(c)]. Credit legislation is
defined as:
. the Credit Bill;
. the Transitional Bill;
. Division 2 of Part 2 of the Australian Securities and
Investments Commission Act 2001; and
. any other Commonwealth, State or Territory legislation
that covers conduct relating to credit activities (whether
or not it also covers other conduct), but only in so far
as it covers conduct relating to credit activities.
[Credit Bill, Part 1-2, Division 3, section 5]
161. This obligation requires the registered person to conduct their
business with an appreciation of the credit legislation and with
respect for the law (particularly in their dealings with
consumers), and to consider the application of the credit
legislation to all aspects of their operation.
162. A registered person must take reasonable steps to ensure that its
representatives comply with this legislation [Schedule 2, Part 3,
paragraph 16(3)(d)]. Representatives refers to the following
classes of persons:
. any employees and directors of the registered person, or
of a related body corporate of the registered person; and
. any other person acting on behalf of the registered
person, including credit representatives.
[Credit Bill, Part 1-2, Division 3, section 5]
163. This obligation will have limited application as the Transitional
Bill largely places obligations directly on the registered person
rather than its representatives. Generally, a registered person
will be responsible for the conduct of their representatives, and
answerable to third parties for any misconduct. A registered
person needs to be confident that their representatives will comply
with the law, or else take appropriate action (for example,
limiting the scope of their authority).
164. What constitutes reasonable steps will vary according to the nature
and scale of the business. For example, where the registered
person has only a single retail outlet it will be able to adopt
simpler procedures to ensure it is complying than a registered
person with a number of credit representatives in a range of
different locations.
165. A registered person must take reasonable steps to ensure that their
clients are not disadvantaged by any conflict of interest that
arises wholly or partly in relation to credit activities engaged in
by the person or by its representatives, that is, that they must
manage any conflicts appropriately. [Schedule 2, Part 3, paragraph
16(3)(e)]
166. This obligation only applies to conflicts of interests that arise
by operation of law. It does not require a registered person to
take action in respect of different interests of parties where they
do not constitute a conflict of interest at law.
1. : Conflict of interest
The client of a finance broker is at risk of being
disadvantaged by a conflict of interest arising out of a
fiduciary relationship between the client and the broker.
On becoming a registered person the finance broker would be
expected to take reasonable steps to avoid this outcome.
2. : No conflict of interest
The lender, in preferring the interests of its shareholders,
disadvantages the client of a lender. As there is no
conflict of interest in law in this case, the lender, on
becoming a registered person, does not need to take
reasonable steps to avoid this outcome.
Obligations to assist ASIC
167. The Transitional Bill also imposes specific obligations on
registered persons to assist ASIC in gathering intelligence and
information about registered persons, in order to assist it in its
functions in regulating those engaging in credit activities.
[Schedule 2, Part 3, items 17 to 19]
168. First, a registered person must provide ASIC with information about
their credit activities, whether in response to a written direction
from ASIC or where this is required by the regulations. [Schedule
2, Part 3, subitems 17(1) and 18(1)]
169. It will be an offence of strict liability if a registered person
fails to comply with a notice to provide information to ASIC within
the time specified in the notice or fails to provide information as
prescribed by the regulations. [Schedule 2, Part 3, subitems
17(6), and (8) and 18(4) and (5)]
170. These are strict liability offences as it crucial that ASIC is able
to obtain information about the conduct of a registered person in a
timely way, that allows it to effectively perform its regulatory
role.
171. All of these offences also have a criminal penalty, and a civil
penalty of 2,000 penalty units, so that ASIC may appropriately
penalise any contravention of these provisions. [Schedule 2, Part
3, subitems 17(6) and (7) and 18(2) and (3)]
172. A written direction by ASIC for information is expressly stated not
to be a legislative instrument. This is declaratory of the
position, consistent with section 5 of the Legislative Instruments
Act 2003. [Schedule 2, Part 3, subitem 17(4)]
173. A registered person must also give reasonable assistance to ASIC as
requested, in relation to whether the person and their
representatives are complying with credit legislation. [Schedule
2, Part 3, item 19]
174. A request from ASIC in writing it is not a legislative instrument.
This statement is declaratory of the law, consistent with section 5
of the Legislative Instruments Act 2003 rather than itself creating
an exemption. [Schedule 2, Part 3, subitem 19(2)]
175. Reasonable assistance is not defined in the Transitional Bill, but
is intended to cover conduct such as making and keeping
appointments with ASIC staff, and cooperating in a reasonable way
with requests by ASIC for assistance.
176. This offence has a criminal penalty of 25 penalty units, or
imprisonment for 6 months or both, and a civil penalty of 2,000
penalty units, to ensure consistency with section 912E of the
Corporations Act. [Schedule 2, Part 3, subitems 19(1) and (3)]
177. The assistance may include the registered person showing ASIC books
of the registered person. This requirement is not to be read as
requiring the registered person to show books where it would not
otherwise be required to do so as a result of the proper exercise
of ASIC's powers. [Schedule 2, Part 3, subitem 19(4)]
Division 4 - When registrations can be suspended, cancelled or
varied
178. All registered persons are required to apply for a licence by
30 June 2010 (or a later date specified in the regulations). The
entry requirements for licensing are more onerous and it may be
that not all registered persons will be able to meet the
requirements for holding a licence. Where a person's licence
application is rejected by ASIC their registration is automatically
cancelled. They can no longer legally engage in credit activities
unless they make a new licence application which is approved by
ASIC. [Schedule 2, Part 3, items 6 and 20]
179. If the person applies for, and is granted a licence by ASIC, their
registration is cancelled, as it has been superseded by the
licence. [Schedule 2, Part 3, item 20]
180. For the purposes of certainty, it is expressly provided that all
registrations cease to operate on 30 June 2011 (or a later date
specified in the regulations). [Schedule 2, Part 3, item 21]
181. ASIC can direct a registered person, by written notice, to apply
for a licence within 28 days. The power can be used by ASIC to
smooth the transition from registration to licensing by bringing
forward an application for a licence by a registered person or
where there is a need to ascertain sooner rather than later whether
a person can satisfy the requirements for holding a licence, and,
therefore, remain active in the credit market. [Schedule 2, Part
3, subitem 22(1)]
182. A direction given by ASIC is not a legislative instrument. This
statement is merely declaratory of the law, consistent with section
5 of the Legislative Instruments Act 2003. [Schedule 2, Part 3,
subitem 22(3)]
183. ASIC may suspend or cancel the person's registration if they do not
apply for a licence as required by the written notice. [Schedule
2, Part 3, subitem 22(2)]
1.
ASIC receives numerous complaints from consumers alleging
serious misconduct by a registered person, Mr F. ASIC
conducts inquiries into the conduct of Mr F generally. As a
result it decides to use its power to serve a notice on Mr
F, requiring him to apply for his licence before 30 June
2011.
ASIC may also decide to impose penalties on Mr F for
breaches of the law, and consumers may seek to recover loss
or damage as a result of his misconduct.
In assessing whether or not Mr F is a fit and proper person,
in order to decide whether or not to grant him a licence,
ASIC can take into account the complaints from consumers and
the information obtained during its surveillance of his
operation.
184. ASIC can also suspend or cancel a registration. It can do so
without a hearing in limited circumstances only. First, ASIC can
take this action at the request of the registered person or where
they cease to engage in credit activities. [Schedule 2, Part 3,
paragraphs 23(1)(a) and (b)]
185. Secondly, ASIC can also take prompt or immediate action where any
of the excluding criteria specified in subitem 12(2) apply to the
registered person, such as where, for example, the person is
insolvent or has had their Australian financial services licence
cancelled. [Schedule 2, Part 3, paragraphs 23(1)(c) to (h)]
186. Finally, where the registered person is not a natural person, ASIC
can also suspend or cancel a registration without a hearing where a
prescribed State or Territory order is made against a director or
secretary (in the case of a body corporate) or a partner or trustee
(in the case of a partnership or trust), where that person performs
duties in relation to credit activities authorised by the
registration. [Schedule 2, Part 3, paragraph 23(1)(i)]
187. ASIC can also suspend or cancel a registration after a hearing, on
the following grounds:
. the registered person has either contravened one or more
of the conduct obligations in item 16, or ASIC has reason
to believe that they are likely to contravene them;
. the application for registration contained information
that was false or materially misleading; or
. where the registered person is not a natural person, that
any of the excluding criteria specified in subitem 12(2)
apply to a director or secretary (in the case of a body
corporate) or a partner or trustee (in the case of a
partnership or trust) where that person performs duties in
relation to credit activities authorised by the
registration.
[Schedule 2, Part 3, item 24]
188. ASIC is required to exercise its discretion in considering whether
any of the grounds should result in a suspension or cancellation.
Where a director, secretary, partner or trustee now meets any of
the specified excluding criteria ASIC would need to consider the
nature of the conduct by the person, and the extent of their role
and influence in the business of the body corporate, partnership or
trust in deciding whether or not to suspend or cancel the
registration.
189. The circumstances in which action can be taken to suspend or cancel
the registration of an APRA-regulated body contain additional
requirements, such that:
. where the registered person is an ADI or a related body
corporate of an ADI - the power to cancel or suspend the
registration can only be exercised by the Minister
[Schedule 2, Part 3, subitem 25(2)]; and
. in all other cases where the registered person is
regulated by APRA - ASIC must consult with APRA in
relation to any new conditions, or varying existing
conditions [Schedule 2, Part 3, subitem 25(1)].
190. ASIC may vary a registration as a result of a change in the name of
the registered person. This is to ensure that where a registered
person has changed their name, consumers are able to search the
register using the new name. [Schedule 2, Part 3, item 26]
191. Where ASIC suspends a registration, the registration will have no
effect, except where ASIC specifically provides for this in the
suspension. [Schedule 2, Part 3, item 27]
192. Notwithstanding that ASIC has suspended or cancelled a registration
it can specify that the registration continues for the purpose of
specified provisions of the Transitional Bill in relation to either
a specified matter or for a specified period, or both. [Schedule
2, Part 3, item 31]
193. This is intended to allow ASIC to deal flexibly with suspensions or
cancellations by requiring the registered person to comply with
some of the obligations that attach to registered persons, rather
than all of these obligations ceasing with the suspension or
cancellation. For example, ASIC could require a person whose
registration is suspended or cancelled to nonetheless remain a
member of an EDR Scheme for a specified period, so that affected
consumers may still have access to the scheme for the purposes of
having any complaints resolved.
194. ASIC may revoke a suspension of a registration at any time.
[Schedule 2, Part 3, item 28]
195. ASIC is required to give written notice of any suspension, or its
revocation, or the cancellation or variation of a registration to
the registered person. ASIC must also publish notice of this
action on its website. [Schedule 2, Part 3, subitems 29(1) and
(3)]
196. When ASIC gives notice of the suspension or cancellation of a
registration it must also provide a statement of its reasons for
taking this action. [Schedule 2, Part 3, item 30]
197. Any change to a registration by ASIC takes effect from the date on
which the notice is given to the registered person, except where
the registration was cancelled under item 23. [Schedule 2, Part 3,
subitem 29(2)]
Part 4 - Application of other provisions of the National Credit Act in
relation to registered persons and this Schedule
198. This Part of the Transitional Bill specifies how certain provisions
of the Credit Bill apply to registered persons. The provisions
only apply during the period from commencement until 30 June 2011
(or later as prescribed by the regulations). [Schedule 2, Part 4,
item 32]
199. In general terms, the following provisions of the Credit Bill apply
as if references to licensees or licences were references to
registered persons or registrations, or as if obligations or rights
applying to or in relation to licensees were obligations or rights
applying to or in relation to registered persons:
. Part 2-3 which deals with credit representatives and
representatives of licensees [Schedule 2, Part 4, item
33];
. Part 2-4 which deals with banning and disqualification of
persons from engaging in credit activities [Schedule 2,
Part 4, item 34];
. Division 2 of Part 2-5 which deals with financial records
of licensees [Schedule 2, Part 4, subitem 35(1)];
. Division 4 of Part 2-5 which deals with auditors
[Schedule 2, Part 4, subitem 35(2)];
. Chapter 3 which deals with responsible lending conduct
[Schedule 2, Part 4, item 36];
. Chapter 4 which deals with remedies [Schedule 2, Part 4,
item 37];
. Chapter 5 which deals with administration [Schedule 2,
Part 4, item 38]; and
. Chapter 7 which deals with miscellaneous matters [Schedule
2, Part 4, item 39].
200. Table 3.2 summarises the nature or effect of these provisions from
the Credit Bill, which are discussed in more detail in the
explanatory memorandum to the Credit Bill.
1.
|Part 2-3 Credit representatives |
|Part 2-3 of the Credit Bill has effect so that: |
|Registered persons can authorise credit |
|representatives to act on their behalf in writing.|
| |
|Registered persons must notify ASIC of the |
|appointment of credit representatives. |
|Registered persons are liable for the conduct of |
|credit representatives. |
|Part 2-4 Banning and disqualification of persons |
|ASIC can take action under section 80 of the |
|Credit Bill to ban an individual from engaging in |
|credit activities where it has cancelled or |
|suspended a registration of a person. |
|Division 2 of Part 2-5 Financial records of |
|licensees |
|A registered person must: |
|maintain financial records that correctly record |
|and explain their business of engaging in credit |
|activities; and |
|comply with requirements in relation to the |
|keeping and location of those records, and their |
|production to ASIC. |
|The requirements in Division 3 of Part 2-5 of the |
|Credit Bill, in respect of keeping trust account |
|records, only commence on licensing. |
|Division 4 of Part 2-5 Audit reports |
|The Application of Division 4 of Part 2-5 of the |
|Credit Bill is extended to reports by auditors |
|required under subitem 17(3). As a result |
|registered persons are required to cooperate with |
|the auditor in the preparation of the report. |
|The power to make regulations under section 106 of|
|the Credit Bill is extended to include regulations|
|in respect of reports under subitem 17(3). |
|Chapter 3 Responsible lending conduct |
|Chapter 3 of the Credit Bill will have minimal |
|application to registered persons (given the |
|different timetable for commencement of these |
|provisions). To the extent it may apply to |
|registered persons, it is provided that they do |
|not need to comply with the provisions in respect |
|of disclosure of an ACL number and information |
|about internal dispute resolution procedures. |
|Chapter 4 Remedies |
|Chapter 4 of the Credit Bill (which deals with |
|remedies) applies as if: |
|all references to 'this Act' included references |
|to Schedule 2 to the Transitional Bill; and |
|all references to civil penalty provisions |
|included references to civil penalty provisions |
|within the meaning of the Transitional Bill. |
|It is specifically provided that the power of a |
|court to make orders giving remedies to consumers |
|against persons engaging in unlawful credit |
|activities is extended to apply where the conduct |
|is unlawful because it contravenes item 4 or 6. |
|Chapter 5 Administration |
|Chapter 5 of the Credit Bill (which deals with |
|administration) applies as if all references to |
|'this Act' included references to Schedule 2 to |
|the Transitional Bill. |
|It is specifically provided that a person will |
|have qualified privilege in relation to |
|information given to ASIC relevant to a decision |
|by ASIC whether to register a person or whether to|
|suspend or cancel a registration. |
|Chapter 7 Miscellaneous |
|Chapter 7 of the Credit Bill (which deals with |
|miscellaneous matters) applies as if all |
|references to 'this Act' included references to |
|Schedule 2 to the Transitional Bill. |
[Schedule 2, Part 4, items 33 to 39]
Part 5 - Exemptions and modifications
201. Exemptions and modifications can be effected both by ASIC and
through the regulations to the following provisions of the
legislation:
. Divisions 1 and 2 of Part 2 - the requirement to be a
registered person;
. Part 3 - the provisions determining whether or not a
person can be registered, the obligations applying to them
when registered, and the procedures for ASIC taking action
in respect of a registration;
. the definitions in the Transitional Bill and the Credit
Bill, as they apply in Divisions 1 and 2 of Part 2, and in
Part 3 of the Transitional Bill; and
. instruments made for the purposes of any of the above
three matters.
[Schedule 2, Part 5, item 40]
202. There are three different ways in which the application of these
provisions can be modified or changed:
. by ASIC exempting or modifying their application to
[Schedule 2, Part 5, subitem 41(1)]:
- a particular person; or
- a credit activity that is engaged in relation to a
specified credit contract, mortgage, guarantee or
consumer lease;
. by ASIC exempting or modifying their application to
[Schedule 2, Part 5, subitems 41(3) and (4)]:
- a class of persons; or
- a class of credit activities; or
. by an exemption or modification of their application in
the regulations to [Schedule 2, Part 5, item 42]:
- a class of persons; or
- a class of credit activities.
203. An exemption by ASIC of a particular person or a credit activity
that is engaged in relation to a specified credit contract,
mortgage, guarantee or consumer lease is stated not to be a
legislative instrument. This statement is declaratory of the
position, consistent with section 5 of the Legislative Instruments
Act 2003. [Schedule 2, Part 5, subitem 41(2)]
204. An exemption by ASIC of a particular person or a credit activity
that is engaged in relation to a specified credit contract,
mortgage, guarantee or consumer lease must be in writing and must
be published by ASIC on its website. [Schedule 2, Part 5,
subitem 41(5)]
205. A person will not commit an offence where their conduct:
. is only an offence because of the nature of the exemption
by ASIC (for example, where the exemption is conditional
and the condition is not met), and
. at the time of the conduct the person had not been given
notice of the exemption (either because they had not been
given written notice of it by ASIC or because it had not
been published by ASIC on its website).
[Schedule 2, Part 5, subitem 41(6)]
Part 6 - Regulations relating to infringement notices
206. Regulations can be made to allow for infringement notices to be
issued by ASIC, effectively imposing a fine on a person as an
alternative to:
. imposing a civil penalty, provided the fine does not
exceed one-fortieth of the maximum penalty that a court
could impose [Schedule 2, Part 6, subitems 43(1) and (2)];
and
. imposing a penalty in respect of a strict liability
offence, provided the fine does not exceed one-fifth of
the maximum penalty that a court could impose [Schedule 2,
Part 6, subitems 43(3) and (4)].
Chapter 4
Consequential amendments
Outline of chapter
207. Chapter 4 of this explanatory memorandum outlines consequential
amendments to various statutes, which are contained in Schedule 3
to the National Consumer Credit Protection (Transitional and
Consequential Provisions) Bill 2009 (Transitional Bill).
Summary of new law
208. A consequential amendment to the Australian Securities and
Investments Commission Act 2001 (ASIC Act) gives effect to certain
administrative requirements relating to the Australian Securities
and Investments Commission's (ASIC) role as the regulator of
consumer credit under the National Consumer Credit Protection Bill
2009 (Credit Bill) and the Transitional Bill.
209. A consequential amendment to the Corporations Act 2001
(Corporations Act) serves to assist business by minimising
administrative requirements through aligning the licence number for
the Australian financial services licence and the Australian credit
licence (ACL) where a person holds both.
Detailed explanation of new law
Australian Securities and Investments Commission Act 2001
210. ASIC has responsibility for the administration of certain Acts or
parts of Acts, in addition to the Corporations Act, which are set
out in subsection 12A(1) of the ASIC Act.
211. Given ASIC's new role as the regulator for consumer credit, it is
necessary to amend this provision by inserting the name of the
Credit Bill and the Transitional Bill. [Schedule 3, item 1]
Corporations Act 2001
212. Each Australian financial services licence must have a unique
licence number, which ASIC must notify to the holder under section
913C of the Corporations Act.
213. Where a person is the holder of an Australian financial services
licence (AFSL) and an ACL, the licence number that ASIC gives to
the AFSL held by that person must be the same number as the
person's ACL number. [Schedule 3, items 2 and 3]
214. This amendment complements subsection 43(2) of the Credit Bill.
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[1] A Report to ASIC on the finance and mortgage broker industry,
Consumer Credit Legal Centre (NSW) Inc., March 2003
[2] Review of Australia's Consumer Policy Framework, Productivity
Commission Inquiry Report, No. 45, 30 April 2008.