The National Credit Code: what you must do from 1 July 2010

All of the requirements under the National Credit Code (“NCC”) will apply to regulated credit contracts that are made on or after 1 July 2010.

From 1 July 2010 the NCC will also apply to existing Uniform Consumer Credit Code (“UCCC”) regulated credit contracts (called “carried over instruments”) with some modifications – see Transitional Provisions below.

Variations of UCCC loans must be made in accordance with NCC requirements.

The UCCC will not apply to any credit contract from 1 July 2010, including contracts entered into prior to that date.

The NCC will not apply to any contract made prior to 1 July 2010 that was not regulated by the UCCC (eg residential property investment loans).

All rights and liabilities regarding credit contracts, mortgages, guarantees, consumer leases and sale contracts that existed at the commencement of the NCC will be maintained. If a person had a right or liability under the UCCC, a new right or liability (referred to as a “substituted right or liability”) that is equivalent to the old right or liability is created under the NCC. Procedures, proceedings and remedies in relation to the substituted right or liability may be brought, or continued, after commencement of the NCC.

The NCC applies regardless of whether the credit provider is a registered person or credit licensee.

Transitional Provisions
The modifications to the NCC that apply for existing UCCC contracts from 1 July 2010 are as follows:

  • As credit for a residential investment property is not UCCC regulated, an existing residential investment property loan will not become regulated on 1 July – it will stay unregulated.
  • Existing mortgages that are permitted under the UCCC, but would not be permitted under the NCC (eg a mortgage over essential household property), will remain unregulated (and lawful).
  • The existing UCCC limits in relation to hardship and postponement of enforcement applications will apply, not the new higher NCC limits.
  • The new NCC provisions in relation to Business Purpose Declarations will not apply to existing UCCC contracts, so existing declarations will not become retrospectively invalid because of the NCC provisions.
  • Changes which narrow the exemption for short-term credit in the NCC will not apply to existing short-term credit contracts.

Can we use old forms?
For a two-year period after the start of the NCC (ie until 30 June 2012), you can provide or use UCCC prescribed forms instead of the corresponding NCC forms . If the NCC form requires you to provide more information than required by the equivalent UCCC form, you still have to provide the additional information, but you can provide the additional information in a separate document with the equivalent UCCC form.

Suitability Assessments
Suitability assessments must be made in respect of an increase in a credit limit as well as new contracts. If you are not an authorised deposit-taking institution (“ADI”) or registered financial corporation (“RFC”) – for example, if you are a broker – this applies from 1 July 2010. For ADI’s and RFC’s, this requirement will commence on 1 January 2011.

Accordingly a variation of a pre-1 July 2010 UCCC regulated contract by increasing the credit limit will require a suitability assessment from 1 July 2010 if you are not an ADI or RFC, and from 1 January 2011 if you are an ADI or RFC.

If you are an existing lender you should apply for registration by 18 June.

Licensing applications may be made on-line with ASIC from 1 July.

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