Credit providers that do not write new business regulated by the National Credit Code after 30 June 2010 do not need to get an Australian Credit Licence under the National Consumer Credit Protection Act 2009 (Cth) (the National Credit Act), but only if they comply with special provisions in the National Consumer Credit Protection Regulations 2010 (NCCPR). These unlicensed credit providers are referred to in NCCPR as “unlicensed carried over instrument lenders” (UCOI Lenders).
What’s a “carried over instrument”?
The term “carried over instrument” refers to existing regulated loans. They are called “carried over” because they become regulated by the National Credit Code and cease to be regulated under the Uniform Consumer Credit Code, with effect from 1 July 2010.
In early drafts of the NCCPR, UCOI Lenders were exempt from the requirement to be licensed. When the regulations were issued on 10 March 2010, however, this exemption was not included. Based on the March regulations, UCOI Lenders would need to get an Australian Credit Licence.
But the government then decided that full regulation was not necessary for these lenders, because they would not be writing any new business. Amendments to NCCPR to cover UCOI Lenders were introduced on 20 May 2010. A new Schedule 2 was inserted into NCCPR. Schedule 2 modifies the application of the National Credit Act to UCOI Lenders. Some refinements were made to these changes in regulations made on 15 June 2010.
What general obligations apply to a UCOI Lender?
UCOI Lenders must comply with many of the obligations that also apply to Australian Credit Licensees. A UCOI Lender must do all the following in relation to its carried over instruments:
- do all things necessary to ensure that the credit activities engaged in are engaged in efficiently, honestly and fairly;
- have in place adequate arrangements to ensure that its clients are not disadvantaged by any conflict of interest that may arise wholly or partly in relation to credit activities engaged in by it or its representatives;
- ensure that its representatives are adequately trained and competent to engage in credit activities;
- maintain its competence to engage in credit activities;
- unless the UCOI Lender is regulated by APRA, have adequate resources (including financial, technological and human resources) available so it can engage in credit activities, and to carry out supervisory arrangements, and also have adequate risk management systems; and
- have an internal dispute resolution procedure.
These are all obligations that also apply to Australian Credit Licensees.
UCOI Lenders must also have adequate arrangements and systems to ensure compliance with the above obligations, and a written plan documenting those arrangements and systems.
Unlike Australian Credit Licensees, UCOI Lenders are not required to be members of an ASIC approved external dispute resolution scheme. But if a UCOI Lender is not a member of an approved external dispute resolution scheme, it has to keep registers of:
- complaints in relation to carried over instruments;
- applications by a debtor for changes to the terms a credit contract under the hardship provisions of the National Credit Code; and
- requests to negotiate a postponement of enforcement proceedings in relation to the credit contract, mortgage or guarantee under the National Credit Code.
In addition, a UCOI Lender that is not a member of an approved external dispute resolution scheme must:
- Compliance report: provide to ASIC an audit report by 31 December 2010, prepared by a suitably qualified person, about whether the UCOI Lender has complied with the requirements of the National Credit Code concerning the content of its credit contract documents or consumer lease documents; and
- Breach reporting: when it becomes aware of an actual or likely significant contravention of the National Credit Act, the Transitional Act or the ASIC Act, give ASIC a written report on the matter as soon as practicable, and in any case no later than 10 business days after becoming aware of the contravention or likely contravention. (This requirement is similar to the breach reporting obligations of Australian Financial Services Licensees.)
All UCOI Lenders must lodge an annual compliance certificate with ASIC, just as an Australian Credit Licensee must do. The first certificate is due by 15 August 2011. They must also keep financial records and trust accounts in the same way as Australian Credit Licensees.
Do UCOI Lenders need to register?
Persons engaged in credit activities are required to register with ASIC by 30 June 2010. UCOI Lenders are not exempt from this requirement, and so must register with ASIC by that date.
Dealing with unlicensed persons, and credit representatives
Like licensees, UCOI Lenders must not engage in a credit activity or conduct business with another person who is not licensed or a registered person.
UCOI Lenders will be able to appoint third parties as their credit representatives, and will need to notify ASIC of the appointment of new credit representatives and the revocation of such appointments.
Prescribed UCOI Lenders
A prescribed UCOI Lender is someone who is the subject of certain orders or judgments or disqualifications specified in NCCPR that would in essence make that lender a person not fit to be a UCOI Lender.
From 1 July 2010, such prescribed UCOI Lenders must not engage in a credit activity in relation to a carried over instrument if the lender is engaging in the credit activity as the credit provider under a credit contract, or the lessor under a consumer lease. They must instead appoint a licensee or registered person as the lender’s representative to engage in the credit activity.
The prescribed UCOI Lender and the appointed licensee or registered person must notify ASIC of the appointment within 15 business days. If the appointment ends, the prescribed UCOI Lender must find and appoint a replacement within 15 business days.
Credit register and notifications
ASIC must include details of each UCOI Lender in a credit register for UCOI Lenders.
UCOI Lenders must notify ASIC of:
- a change in a matter in the credit register that is not a direct consequence of an act by ASIC (within 10 business days);
- any change in control of the lender (within 10 business days); and
- if the UCOI Lender is not regulated by APRA, when an event occurs that may make a material adverse change to the financial position of the UCOI Lender (as soon as practicable, and in any case not later than 3 business days).