The New Credit Code

Consumer credit providers must be registered with ASIC by 30 June 2010 to continue to engage in credit activities.

The National Consumer Credit Protection Act 2009 (Cth) (NCP Act) and the National Consumer Credit Protections (Transitional and Consequential Provisions) Act 2009 (Cth) (NCP Transitional Act) came into force on 1 April 2010.

The new National Consumer Credit Regulation Package, including a new National Credit Code (Code), administered by the Australian Securities and Investments Commission (ASIC), replaces the Uniform Consumer Credit Code currently administered by State governments.

Prohibition of Credit Activities

From 1 July 2010:

1. A person must not engage in a credit activity unless:
   1. The person is registered to engage in the credit activity; or
   2. The person holds a licence authorising the person to engage in the credit activity.

(Section 4(1) NCP Transitional Act)

Who does the prohibition apply to?

Key concepts are “credit” to which the Code applies, specified in Section 5 of the Code (in Schedule 1 of the NCP Act) and “credit activity”, defined in Section 6 of the NCP Act.

The NCP Act and the NCP Transitional Act apply to credit that is:

1. provided to a natural person or strata corporation;
2. provided wholly or predominantly for:
   1. personal, household or domestic purposes, or
   2. residential investment;
3. charged for, or may be charged for, by the lender; and
4. provided in the course of carrying on a business of providing credit in Australia or as part of, or incidental to, any other business carried on in Australia.

A “credit contract” is a contract under which credit is or may be provided.

A “credit activity” includes, but is not limited to, circumstances in which a person:

1. is a credit provider under a credit contract;
2. provides a credit service;
3. is a lessor under a consumer lease [of goods];
4. is a mortgagee under a mortgage;
5. is a beneficiary of a guarantee; or
6. engages in activities prescribed by the regulations.

A person provides a “credit service” if the person acts as an “intermediary” between a credit provider and a consumer, or a lessor and a consumer, wholly or partly for the purposes of securing a provision of credit, or a consumer lease for the consumer; or the person provides “credit assistance” to a consumer.

“Credit assistance” includes circumstances in which a person:

1. suggests that, or assists, the consumer to, apply for a particular credit contract with a particular credit provider;
2. suggests that, or assists, the consumer to, apply for an increase to the credit limit of a particular credit contract with a particular credit provider;
3. suggests that the consumer remain in a particular credit contract with a particular credit provider;
4. suggests that, or assists the consumer to, apply for a particular consumer lease with a particular lessor;
5. suggests that the consumer remain in a particular consumer lease with a particular lessor;
6. assists the consumer to apply for an increase to the credit limit of a particular credit contract with a particulr credit provider.

A “person” includes companies and partnerships, among other entities and a “consumer” means a natural person or a strata corporation.

Penalty

After 1 July 2010, an unregistered or unlicensed person engaging in a credit activity will be liable for a civil penalty of 2,000 penalty units (currently $220,000.00) and may also be liable to be charged with an offence for which the penalty will be 200 penalty units ($22,000.00) or two years imprisonment or both.

What must you do to register?

Registration is available only to those persons currently engaging in credit activities prior to 1 July 2010. If you are not currently engaging in credit activities, and will not commence doing so until after 1 July 2010, then you must apply for a licence.

If you are currently engaging in credit activities, or you will commence engaging in credit activities prior to 1 July 2010, then, to ensure that you are registered by 30 June 2010 and are able to continue engaging in credit activities on or after 1 July 2010, ASIC recommends that you apply to be registered with ASIC by no later than 18 June 2010.

You are able to register online at www.asic.gov.au. In order to register, you must be a member of an ASIC approved External Dispute Resolution Scheme, being either the Financial Ombudsmen Service or the Credit Ombudsmen Service Ltd.

Obligations for registration

When applying for registration, details must be produced of the business and past activities of the business and directors and employees involved in the business. A company must also ensure that all its returns to ASIC are up-to-date.

When registered, a business will be obliged to comply with requirements of the new Code and legislation.

If you are registered, do you still have to be licensed?

On 31 December 2010, Section 4(1) NCP Transitional Act will cease to operate. This means that on or after 1 January 2011, Section 29 of the NCP Act will come into force so that:

A person must not engage in a credit activity if the person does not hold a licence authorising the person to engage in the credit activity.

Therefore, if you are registered with ASIC and continue to engage in credit activities after 1 July 2010, you must apply to ASIC for a licence on or before 31 December 2010, to be able to continue engaging in credit activities on or after 1 January 2011.

The penalties for continuing to engage in unlicensed credit activities on or after 1 January 2011 are the same as set out above.

Licence Application Fee

You can apply for a licence online through www.asic.gov.au.

A fee is payable on lodgement of a licence application with ASIC, which will range from $450 to $21,000, depending on the total amount of credit advanced by the applicant, among other things.

When a business applies for a licence, all of the requirements of the legislation must be satisfied, including the requirement that a licence must have adequate arrangements for compensating persons for loss or damage suffered because of a contravention of the NCP Act by the licensee or its representatives.

Registration is Urgent

To avoid incurring any penalties, businesses engaging in credit activities should register with ASIC now! ASIC warns that registration, including any necessary background checks on people, may take time.

For further information please contact Donaldson Walsh Lawyers or visit the ASIC website at www.asic.gov.au.