Commonwealth Numbered Regulations - Explanatory Statements
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NATIONAL CONSUMER CREDIT PROTECTION AMENDMENT REGULATIONS 2011 (NO. 4) (SLI NO 143 OF 2011)
EXPLANATORY STATEMENT
Select Legislative Instrument 2011 No. 143
Subject - National Consumer Credit Protection Act 2009
National Consumer Credit Protection Amendment Regulations 2011 (No. 4)
The National Consumer Credit Protection Act 2009 (Credit Act) applies to the provision of credit for personal use, and to related matters, including the establishment of a licensing regime for persons engaging in credit activities.
Section 329 of the Credit Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Credit Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Credit Act.
The Regulations make amendments to the National Consumer Credit Protection Regulations 2010 (Credit Regulations) related to the transition from the current state-based regulatory framework for consumer credit to the national consumer credit protection regime.
The Regulations address concerns raised by stakeholders and identified by the Department of the Treasury and the Australian Securities and Investments Commission (ASIC) since the Credit Regulations were made in March 2010.
The Regulations make a number of changes, including:
• providing further guidance about what must be included in credit guides of credit assistance providers, mortgage managers and product designers and credit representatives;
• exempting certain information about fees, charges and commissions from being disclosed in the credit assistance provider and credit representative's credit guide;
• outlining how information about fees, charges and commissions must be set out in the credit assistance provider's quote and proposal disclosure document;
• outline how information about commissions must be set out in the credit assistance provider's proposal disclosure document;
• modifying in limited circumstances the disclosure obligations in relation to trail commissions and some commissions in a credit assistance provider's proposal disclosure document; and
• make other minor and technical changes.
Details of the Regulations are set out in the Attachment.
The Credit Act does not specify any conditions that need to be satisfied before the power to make the Regulations may be exercised.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Schedule 1 and regulations 1 to 3 commence on the day after they are registered. Schedule 2 of the Regulations commence on 1 October 2011.
The Minute recommends that Regulations be made in the form proposed.
Consultation
The amendments address stakeholder concerns in relation to the Credit Regulations. Targeted and detailed consultation with stakeholders have been undertaken to ensure these regulations are based on or operate consistently with industry practice.
Authority: Section 329 of the
National Consumer Credit Protection Act 2009
ATTACHMENT
Details of the National Consumer Credit Protection Amendment Regulations 2011 (No. 4)
Regulation 1 - Name of Regulations
This regulation provides that the name of the Regulations is the National Consumer Credit Protection Amendment Regulations 2011 (No. 4).
Regulation 2 - Commencement
The Schedule 1 and regulations 1 to 3 of the proposed Regulations would commence on the day after they are registered. Schedule 2 of the proposed Regulations would commence on 1 October 2011.
Regulation 3 - Amendment of the National Consumer Credit Protection Regulations 2010
This regulation provides that Schedule 1 and Schedule 2 amend the National Consumer Credit Protection Regulations 2010 (the Credit Regulations).
Schedule 1 - Amendment commencing on day after registration
Item 1 amends regulation 28N to extend the commencement date of the disclosure obligations from 1 August 2011 to 1 October 2011. This extension will give persons engaging in credit activities time to update their systems to meet their obligations under the Credit Regulations in Schedule 2.
Schedule 2 - Amendments commencing on 1 October 2011
Items 1 to 6 inserts into regulation 3 of the Credit Regulations a range of new definitions for various terms. This provides consistency between the definitions in the National Credit Code (the Code) and the National Consumer Credit Protection Act 2009. The amendment also inserts definitions for new terms introduced by the Regulations.
Item 1 inserts into regulation 3 of the Credit Regulations a definition for 'annual percentage rate' after 'associate' and provide that the term would have the same meaning as in section 27 of the Code.
Item 2 inserts in regulation 3 of the Credit Regulations a definition of 'credit card', 'credit card contract' and 'default rate'.
Item 3 inserts in regulation 3 a definition for 'managed contract' and 'mortgage manager' after 'linked credit provider or lessor', by reference to regulation 26.
Item 4 inserts in regulation 3 a definition of 'product designer' after 'officer of a body corporate', by reference to regulation 26.
Item 5 inserts in regulation 3 a definition for 'trail commission' after 'substantial holding', by reference to regulation 26.
Item 6 inserts in regulation 3 a definition for 'volume bonus arrangement' after 'unsolicited contact' by reference to regulation 26.
Item 7 amends regulation 7 to limit its application to a foreign entity that is not a registered foreign company. The amendment closes an unintended gap in regulation and ensures foreign companies not regulated under the Corporations Act 2001 have an Australian presence in order to obtain an Australian Credit License.
Item 8 amends regulation 7 to provide that a 'registered foreign company' has the meaning given by section 9 of the Corporations Act 2001. The amendment together with item 7 ensures foreign companies subject to the licensing requirements under the Corporations Act 2001 will not also be required to have a local presence in order to undertake credit activities.
Item 9 amends regulation 26 to insert a definition for 'managed contract', 'mortgage manager' and 'product designer'. These two additional definitions for managers are necessary to address, first, intermediaries who manage contracts on behalf of the lender and, second, intermediaries who, while not the lender, largely control the terms on which products are designed and altered.
Item 10 amends regulation 26 to insert a definition of 'trail commission' and 'volume bonus arrangement'. A trail commission is commission contingent on a consumer's conduct after the consumer has entered into a credit contract or lease. Volume bonus arrangements cover arrangements where commission payable increases as the total volume of business increases. This item provides limited exemptions from the disclosure obligations for these types of commissions because it is not possible to determine the amount of commission in some circumstances.
Item 11 amends Part 3.2 to insert new regulations 26A, 26B, 27, 27A and 27B which detail the disclosure requirements for credit guides of credit assistance providers, mortgage managers, product designers and credit representatives in relation to credit contracts and consumer leases. These regulations are needed to provide guidance on the information that must be included in credit guides.
Regulation 26A will achieve the following:
• where the credit assistance provider is referred business by a third party and pays commission for this referral, they must disclose information about the third party in the credit guide. The credit guide must also provide a statement to the effect that a reasonable estimate of the amount of commission will be provided to the consumer on request. [subregulation 26A(2)]
• the credit assistance provider's credit guide must include specified information about any volume bonus arrangements in place with the credit provider, lessor or any other person with whom they have a volume bonus arrangement. [subregulation 26A(3)]
• where a credit contract or consumer lease arises as a result of credit assistance provided by a mortgage manager, the mortgage manager's credit guide must include information about their relationship with the credit provider, lessor or third party and state whether any fees are payable. [subregulation 26A(4)]
• the product designer's credit guide must include information about their relationship with the credit provider or lessor, and state whether any fees are payable. [subregulation 26A(5)]
Regulation 26B will require credit providers and lessors to include information about their relationship with a mortgage manager or product designer in their credit guides.
Regulation 27 will achieve the following:
• where the credit assistance provider's credit guide states that the method for working out fees, charges and commission, and reasonable estimates of the amounts of commission, will be available to the consumer upon request, the credit guide does not need to include this specific information. This avoids consumers being presented with excessive detail about fees and charges. [subregulation 27(2)]
• where the credit assistance provider's credit guide discloses the maximum amount of commission payable on entering the credit card contract, and any additional commissions payable in the future, the credit guide does not need to include the method for working out the commission or the reasonable estimate of the amount of commission. The regulations provide a limited exemption in relation to credit card contracts where the commission may depend on future use of the card and performance across a portfolio of borrowers. [subregulation 27(3)]
Regulation 27A achieves the following:
• where the credit representative is referred business by a third party and pays commission for this referral, they must disclose information about the third party in the credit guide. The credit guide must also provide a statement to the effect that a reasonable estimate of the amount of commission will be provided to the consumer on request. [subregulation 27A(2)]
• the credit representative's credit guide must provide the names of the credit providers or lessors with whom they conduct the most business (up to a maximum of six). [subregulation 27A(3)]
• the credit representative's credit guide must include information about any volume bonus arrangements in place with the credit provider, lessor or any other person with whom they have a volume bonus arrangement. [subregulation 27A(4)]
• the credit representative is exempt from having to provide additional information about their top credit providers or lessors, or their volume bonus arrangements if the credit guide is combined in a single document with the licensee's credit guide. This exemption means that where the licensee and the credit representative operate closely, so that only a single combined credit guide is provided, information only needs to be disclosed in respect of the licensee. [subregulation 27A(5)]
Regulation 27B provides that where the credit representative's credit guide states the method for working out the fees, charges and commission, and the reasonable estimate of the amount of commission, will be available to the consumer upon request, the credit guide does not need to include this information.
Item 12 relocates regulation 28A as regulation 28P in Part 3.6 to ensure a logical structure in the Credit Regulations so that regulations covering similar topics are located in the same Part 3.6.
Item 13 amends Part 3.3 to insert new regulation 28D which clarifies the specific manner in which information about fees and charges must be presented and described in the quote by a credit assistance provider in relation to credit contracts and consumer leases. It requires fees and charges to be clearly identified or explained. If the maximum amount is known, it must be expressed in dollar terms either as a single figure or a range of amounts. If the maximum amount is unknown, it must be expressed as a percentage or proportion of the amount borrowed. The amendment also requires the information to be set out in a clear manner which makes it easy for a consumer to understand.
Item 14 amends Part 3.4 to insert new regulations 28E, 28F, 28G and 28H to clarify the disclosure requirements for proposal disclosure documents of credit assistance providers, mortgage managers and product designers in relation to credit contracts and consumer leases.
Regulation 28E clarifies the manner in which information abouts fees and charges must be presented and described in the credit proposal document by a credit assistance provider in relation to credit contracts and consumer leases. It requires fees and charges to be clearly identified or explained, and to be expressed in dollar terms (either as a single figure, a range of amounts, or as a percentage or proportion of the amount borrowed). The amendment also requires that the information be set out in a clear manner which makes it easy for a consumer to understand.
Regulation 28F clarifies the circumstances when information about fees and charges are not required in the proposal disclosure document of the credit assistance provider. Information about fees and charges is exempt where the information has already been provided in an earlier quote.
Regulation 28G clarifies how information about commissions, including referral commissions and commissions from volume bonus arrangements, that must be set out in the credit proposal disclosure document. This includes estimates of the reasonable amount of commission and descriptions of the amounts of commission. The regulations also outline assumptions that will assist in calculating the commission. Finally, the regulations provide two exemptions. Firstly, specific amounts of commission do not need to be disclosed if the commission is payable under a referral arrangement and the amount depends on the overall number of referrals in a period. Secondly, credit assistance providers are exempt from having to disclose commission payable to employees or directors.
Regulation 28H clarifies the circumstances when information about commissions is not required in the proposal disclosure document of a credit assistance provider. The amendment outlines exemptions for mortgage managers, product manufacturers and a specific exemption for trail commissions. If the conditions are satisfied, mortgage managers and product manufacturers will not need to include reasonable estimates of the amounts of each kind of commission, or reasonable estimates of the total amount of commissions. In addition, estimates of the total amount of trail commissions do not need to be disclosed if information about the amount of the highest single payment of trail commission payable is disclosed.
Item 15 relocates regulation 28K as new regulation 28Q in Part 3.6 to ensure a logical structure in the Credit Regulations so that regulations covering similar topics are located in the same Part 3.6.
Item 16 amends regulation 28P to insert an exemption for product designers from the requirement to provide a credit guide if the credit provider or lessor has already provided a credit guide that included an explanation of their relationship with the product designer under regulation 26.
Item 17 amends Part 3.6 to insert new regulation 28R which outlines a limited exemption for credit assistance providers from having to provide a proposal disclosure document where no fees or charges are payable by the consumer in relation to the credit contract or consumer lease. The exemption will also apply if the information is not given to the consumer immediately, as long as it is passed on as soon as practicable after credit assistance is given.
Item 18 amends regulation 65C to exempt credit for the purposes of purchasing, renovating or improving a residential property with a value over $5,000,000 for investment purposes, from the operation of the National Credit Code. Currently, regulation 65C only exempts credit provided for the purchase of a residential investment property, but not credit taken out to refinance the initial loan. The amendment clarifies that credit provided for the predominant purpose of refinancing credit for investment purposes is also exempt.
Items 19, 21, 22, 23, 24, and 26 amends Schedule 3 to the Credit Regulations to change any reference from 'special purpose' to 'exempt special purpose' to ensure internal consistency.
Items 20 and 25 would amend Schedule 3 to the Credit Regulations by substituting new items 3.28, 3.28A, 3.39 and 3.39A which have the effect of modifying any references from a 'licensee' to 'exempt special purpose funding entity' in section 128 and section 151 of the Credit Act.
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