ASIC’s Overview of decisions on relief applications (February to May 2011) (REP 252) sets out recent decisions relating to applications for credit relief. In particular it gives guidance as to when ASIC will give “comfort” relief or issue “no-action” letters.
Credit by Charity
ASIC granted conditional licensing relief to a registered charity that provides a simple credit product to widows and dependents of deceased veterans. The relief preserved baseline protections under the National Credit Code and access to an external dispute resolution scheme for the borrowers. ASIC granted relief because it considered that the costs of compliance greatly exceeded the likely benefits and that any potential consumer detriment would be minimised by the relief conditions.
ASIC also granted relief under s203A(1) of the National Credit Code from all the provisions of the Code, except Div 3 of Pt 2 (limits on interest charges, default interest), Div 3 of Pt 4 (hardship and unjust transaction protection provisions) and Pt 5 (requirements for ending and enforcing credit contracts).
Change to the annual compliance date
ASIC granted relief to bring forward the annual compliance date for two related credit licensees to better suit the business needs of the entities. Relief was granted to facilitate business and was subject to the applicant paying the full annual fee for a period of operation of less than 12 months.
Inadvertent breach of the National Credit Act
ASIC adopted a no-action position for a breach of the prohibition on engaging in credit activities in items 4 and 6 of Sch 2 of the Transitional Act. The no-action position was granted in circumstances where an entity acquired another entity and, when integrating the operations of that entity, identified that a small part of the business of the acquired entity involved the lease of health care equipment to consumers.
Relief was granted because the entity, after it identified the breach:
- properly obtained legal advice and applied to be a member of an EDR scheme;
- applied for an Australian credit licence;
- ceased to enter into any new consumer leases until an Australian credit licence was granted by ASIC; and
- provided an undertaking that it had complied, and would continue to comply, with the National Credit Code.
ASIC also took into consideration the size of the leasing business operations and the effect on consumers of recalling the health care equipment in circumstances where the consumer is heavily reliant on that equipment.
Relief refused to credit introducer
ASIC refused to grant licensing relief to a provider of solar power systems. The applicant was in the practice of informing its customers of the availability of third party finance and introduced its customers to a particular credit provider over the telephone. The applicant also assisted clients by completing parts of the finance application forms and provided clients with the credit provider’s prescribed documents (such as its credit guide). Some of the applicant’s business resulted from cold calling, door knocking and mailouts.
ASIC refused relief for the following reasons:
- The applicant could not establish that the cost of compliance with their obligations under the National Credit Act is disproportionately burdensome to the regulatory benefits and that the potential for detriment to consumers was minimal.
- ASIC considered that Parliament’s intention is for such activity to be regulated, even if the activity is only a small part of the applicant’s business.
- ASIC considered that the applicant had a number of alternatives to relief, which would reduce the compliance burden (e.g. providing credit services as a credit representative of another licensee or restricting its activities to only those that fall within an existing exemption, such as the exemption for the suppliers of goods or the referrer exemption).
Refusal of licensing relief to an entity seeking comfort relief
ASIC refused to grant licensing relief to an entity that provides commercial funding to insurance companies who in turn, offer pay-by-the-month insurance contracts to consumers. The applicant proposed to enter into arrangements with the insurance companies to collect the monthly payments from consumers. The applicant held the view that it was not engaging in a credit activity because the insurance companies provided the credit to the consumers and, therefore, the applicant could rely on the exemption in s6(8) of the National Credit Code. However, the applicant sought ‘comfort’ relief in relation to this arrangement. ASIC refused relief because the operation of s6(8) of the National Credit Code and s6 of the National Credit Act are clear and, therefore, relief was not necessary.
Refusal to approve alternative compensation arrangements
ASIC refused to grant a class exemption from the obligation under reg 12 of the National Credit Regulations to hold professional indemnity (PI) insurance to the members of an industry body, when those members enter into joint venture transactions with property owners selling a property under a vendor finance contract. ASIC refused to grant the relief because a clearly defined class had not been established and ASIC considered the members who hold an Australian credit licence did not require relief from the requirement to obtain PI insurance to enter into vendor finance arrangements where the only credit activity they undertake is the provision of credit.