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2008-2009
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
HOUSE OF REPRESENTATIVES
National Consumer Credit Protection Bill 2009
EXPLANATORY MEMORANDUM
(Circulated by the authority of the
Minister for Human Services
Minister for Financial Services, Superannuation and Corporate Law
the Hon Chris Bowen MP)
Table of contents
Glossary 1
General outline and financial impact 3
Chapter 1 Introduction 11
Chapter 2 Licensing of persons engaging in credit activities 27
Chapter 3 Responsible lending conduct 79
Chapter 4 Remedies 117
Chapter 5 Administration 153
Chapter 6 Compliance and enforcement 167
Chapter 7 Miscellaneous 233
Chapter 8 National Credit Code 239
Chapter 9 Regulation impact statement 321
Chapter 10 Attachment A: Regulation impact statement 363
Glossary
The following abbreviations and acronyms are used throughout this
explanatory memorandum.
|Abbreviation |Definition |
|AAT |Administrative Appeals |
| |Tribunal |
|ABN |Australian Business Number |
|ACL |Australian credit licence |
|AD(JR) |Administrative Decisions |
| |(Judicial Review) Act 1977 |
|ADIs |authorised deposit-taking |
| |institutions |
|Agreement |Uniform Credit Laws Agreement|
| |1993 |
|APRA |Australian Prudential |
| |Regulation Authority |
|ASIC |Australian Securities and |
| |Investments Commission |
|ASIC Act |Australian Securities and |
| |Investments Commission Act |
| |2001 |
|ASX |Australian Securities |
| |Exchange |
|COAG |Council of Australian |
| |Governments |
|COAG agreement |Agreement by COAG to the |
| |Commonwealth assuming |
| |responsibility for regulating|
| |mortgage credit (including |
| |non-deposit-taking |
| |institutions) and advice, |
| |including persons and |
| |corporations engaged in |
| |mortgage broking activities. |
| |The agreement also extends to|
| |the Commonwealth regulating |
| |margin loans. |
|Code |National Credit Code |
|Consumer Credit |National Consumer Credit |
|Protection Reform |Protection Bill 2009, |
|Package |National Consumer Credit |
| |Protection (Transitional and |
| |Consequential Provisions) |
| |Bill 2009, and the National |
| |Consumer Credit Protection |
| |(Fees) Bill 2009 |
|Corporations Act |Corporations Act 2001 |
|Credit Bill |National Consumer Credit |
| |Protection Bill 2009 |
|Crimes Act |Crime Act 1914 |
|EDR Scheme |External Dispute Resolution |
| |Scheme |
|EFT Code |Electronic Funds Transfer |
| |Code of Conduct |
|Fees Bill |National Consumer Credit |
| |Protection (Fees) Bill 2009 |
|FSR |Financial Services Reform Act|
| |2001 |
|GST |goods and services tax |
|IDR |internal dispute resolution |
|LVR |loan to value ratio |
|MCCA |Ministerial Council on |
| |Consumer Affairs |
|MCR |mandatory comparison rates |
|Minister |Minister responsible for |
| |administering the Credit Bill|
| |determined in accordance with|
| |section 19A of the Acts |
| |Interpretation Act 1901 |
|PC |Productivity Commission |
|PC Report |Productivity Commission's |
| |report on the Review of |
| |Australia's Consumer Policy |
| |Framework |
|the Council |Ministerial Council for |
| |Uniform Credit Laws |
|Transitional Bill |National Consumer Credit |
| |Protection (Transitional and |
| |Consequential Provisions) |
| |Bill 2009 |
|UCCC |Uniform Consumer Credit Code |
| |enacted in Queensland by the |
| |Consumer Credit (Queensland) |
| |Act 1994 (Qld) and applied in|
| |States and Territories since |
| |1996 |
|VCAT |Victorian Civil and |
| |Administrative Tribunal |
General outline and financial impact
Outline
The National Consumer Credit Protection Bill 2009 (Credit Bill),
the National Consumer Credit Protection (Transitional and
Consequential Provisions) Bill 2009 (Transitional Bill) and the
National Consumer Credit Protection (Fees) Bill 2009 (Fees Bill),
(collectively the Consumer Credit Protection Reform Package)
outline a new national consumer credit regime. The new regime:
. gives effect to the Council of Australian Governments'
(COAG) agreements of 26 March and 3 July 2008 to transfer
responsibility for regulation of consumer credit, and a
related cluster of additional financial services, to the
Commonwealth; and
. implements the first phase of a two-phase Implementation
Plan to transfer credit regulation to the Commonwealth
endorsed by COAG on 2 October 2008.
The Consumer Credit Protection Reform Package establishes the key
components of the proposed national credit regime which include:
. a comprehensive licensing regime for those engaging in
credit activities via an Australian credit licence (ACL)
to be administered by the Australian Securities and
Investments Commission (ASIC) as the sole regulator;
. industry-wide responsible lending conduct requirements for
licensees;
. improved sanctions and enhanced enforcement powers for the
regulator; and
. enhanced consumer protection through dispute resolution
mechanisms, court arrangements and remedies.
The regime also replicates the Uniform Consumer Credit Code (UCCC),
enacted in the Consumer Credit (Queensland) Act 1994 (Qld) and
applied in the States and Territories since 1996 into Commonwealth
law. It also expands the scope of regulation to cover credit for
residential investment properties.
National licensing regime
The proposed reforms introduce a comprehensive national licensing
regime, which is to be distinguished from the current regulation of
financial services under the Corporations Act 2001 (Corporations
Act). This arises because credit involves consumers receiving
money that they must repay, rather than the purchase of, or
investment in, a financial product that generally includes the
expectation of a benefit or return from the payment. The ACL is
tailored to meet the issues arising in the credit context.
The key elements of the new licensing regime are that:
. it requires persons who engage in credit activities to,
initially, be registered with ASIC, and to subsequently
hold an ACL;
. it imposes entry standards for registration and licensing,
and enables ASIC to refuse an application where the person
does not meet those standards;
. it requires registered persons and licensees to meet
ongoing standards of conduct while they engage in credit
activities; and
. it provides ASIC the power to suspend or cancel a licence
or registration, or to ban an individual from engaging in
credit activities.
Responsible lending conduct
In addition to licensing obligations, the Credit Bill includes a
collection of conduct obligations applicable to all holders of an
ACL, which apply responsible lending conduct requirements.
Broadly, the responsible lending conduct obligations set in place
expected standards of behaviour of licensees when they enter into
consumer credit contracts or leases, where they suggest a credit
contract or lease to a consumer, or assist a consumer to apply for
a credit contract or lease.
The key obligation on licensees is to ensure they do not provide a
credit contract or lease to a consumer or suggest or assist a
consumer to enter into a credit contract or lease that is
unsuitable for them. This obligation requires licensees to assess
that the credit contract or lease is not unsuitable for the
consumer's requirements and that the consumer has the capacity to
meet the financial obligations under the credit contract or lease.
Sanctions and remedies
The Credit Bill establishes a civil penalty and consumer remedy
framework that promotes strong consumer protections, including a
civil enforcement regime and broad civil remedies. The key
provisions:
. enable ASIC to seek a court declaration of contravention
for a civil penalty and to seek a pecuniary penalty;
. set out the administrative provisions in relation to a
civil penalty;
. enable the court to grant remedies to consumers for loss
or damage suffered as a result of a contravention of the
Credit Bill, including through varying the contract as
well as monetary redress;
. enable the court to grant relief to consumers for
unlicensed conduct; and
. permit infringement notices to be issued by ASIC for
strict liability offences and civil penalties as provided
by regulations.
Dispute resolution and the courts
A key feature of the Credit Bill is the improved accessibility to
dispute resolution in terms of location, procedural simplicity and
lower costs.
Consumers will have access to a three-tiered dispute resolution
process for credit issues. They will have access to the credit
provider's and credit service provider's internal dispute
resolution process as a first point of dispute resolution.
More importantly, to obtain a licence to provide credit or credit
services, the credit provider and credit service provider will be
required to have membership of an ASIC-approved External Dispute
Resolution Scheme (EDR Scheme).
Therefore, if consumers are not satisfied with the review outcomes
from the internal process, they may access the licensee's EDR
Scheme.
In addition, consumers will retain access to the courts to seek
redress. Neither internal nor external dispute resolution
processes will remove a consumer's right to seek redress directly
from a court.
Other key provisions in the Credit Bill to promote accessibility in
terms of location, procedural simplicity and costs of dispute
resolution include:
. access to all relevant Commonwealth, State and Territory
courts;
. delineation of civil and criminal jurisdiction, including
transfer and appeal arrangements;
. 'opt-in' streamlined court procedures for certain consumer
remedies; and
. a presumption that a court may not impose an adverse cost
order for a hardship application or a variation of a
contract unless vexatious or without reasonable cause.
National Credit Code
Schedule 1 to the Credit Bill contains the National Credit Code
(Code) which largely replicates the State and Territory based UCCC.
The objectives of the Code remain the same as those when the UCCC
was first enacted, namely, to ensure strong consumer protection
through 'truth in lending', while recognising that competition and
product innovation must be enhanced and encouraged by the
development of non-prescriptive flexible laws. The Code regulates
many aspects of the provision of certain types of credit, including
upfront and ongoing disclosure obligations, changes to the credit
contract, advertising and marketing requirements, termination of
the credit contract and penalties and remedies.
The Code also governs consumer leases, and extends the scope of
credit contracts covered by the Code to contracts where the credit
is provided to purchase, renovate or improve a residential
investment property.
The approach of the Code is for it to be as similar to the UCCC as
is practicable, except where the Commonwealth has specifically
decided to amend or extend its operation.
Date of effect: The short title and commencement provisions of the
Credit Bill commence on Royal Assent. The remaining provisions
commence on a single day to be fixed by Proclamation.
Proposal announced: The proposal to transfer responsibility for
regulating consumer credit to the Commonwealth was announced by
COAG on 26 March, 3 July and 2 October 2008.
Financial impact: The Government has provided $70.2 million over
four years to implement the decision of COAG as part of the 2008-
09 Mid-Year Economic and Fiscal Outlook. This Bill includes
measures to give effect to that transfer. The funding will support
the establishment of a national licensing regime for providers of
credit and credit services, with ASIC as the sole national
regulator. It will also support the national regulation of
mortgages, margin lending, personal loans, credit cards and pay day
lending. The funding will be partially offset by revenue raised
from fees required to be paid by persons regulated by the national
framework, payment of which commences during the 2009-10 financial
year. The amount of revenue generated from these fees will depend,
in part, on the number and type of persons seeking to be licensed.
Compliance cost impact: The main compliance cost impact arises in
relation to the licensing regime. This will primarily involve the
initial costs associated with applying for an ACL which include the
payment of fees to lodge application documentation with ASIC,
annual compliance costs and costs of EDR Scheme membership.
Summary of regulation impact statement
Regulation impact on business: National licensing regime
Impact: The new national licensing regime will affect consumers of
credit; industry participants including providers of credit and
credit services; the Government and ASIC.
Main points:
. The main group affected is industry participants who will
need to become holders of an ACL in order to continue
engaging in credit activities.
. The most significant impact will be on those who only
conduct business in States or Territories where there is
currently no licensing or registration scheme. It can be
anticipated that these businesses will face significant
transitional costs.
. Licensing will involve one-off costs associated with
applying for a licence, together with ongoing fees for
lodging various documents. There will also be costs of
complying with the ongoing obligations associated with the
licence, including, in particular:
- training and supervision costs; and
- maintaining adequate compensation arrangements (for
example, professional indemnity insurance).
Regulation impact on business: Responsible lending conduct
Impact: The groups affected by the responsible lending
requirements are consumers of credit; industry participants in
particular, providers of credit and credit assistance; the
Government and ASIC.
Main points:
. The costs on holders of an ACL associated with complying
with the responsible lending conduct requirements
primarily relate to the development of adequate systems
and resources to undertake and provide compliant
suitability assessments that will meet the requirements
not to provide or suggest unsuitable credit contracts.
Regulation impact on business: Sanctions, remedies dispute resolution and
the courts
Impact: The groups affected by the new regime of consumer remedies
and ASIC enforcement powers would be: consumers of credit; industry
participants, including providers of credit and credit assistance;
and the Government and ASIC.
Main points:
. The costs of both the regulator and the industry from an
expanded enforcement framework are expected to be less
than using the limited enforcement avenues that currently
exist. Cost savings can be expected where administrative
actions may be used as an alternative to civil and
criminal sanctions. However, this may not necessarily
lead to any change in the costs of a defended action.
. The costs for both the regulator and the industry from an
expanded enforcement framework are expected to be less
than using the limited enforcement avenues that currently
exist. Cost savings can be expected where administrative
actions may be used as an alternative to civil and
criminal sanctions. However, this may not necessarily
lead to any change in the costs of a defended action.
While broader enforcement powers carry some potential
additional compliance costs for industry participants,
this outcome is expected to deliver greater net benefits
for consumers particularly over time, through overall
improvements to standards of industry behaviour.
Regulation impact on business: National Credit Code
Impact: The groups affected by the Code would be consumers of
credit; industry participants (principally credit providers and,
indirectly, credit service providers); and the Government and ASIC.
Main points:
. As the Code largely replicates the State-based UCCC, the
activities of credit providers are for the most part
currently regulated consistent with this aspect of the
proposed credit regime. Therefore, regulatory impact for
industry is expected to be minimal.
. Industry will now need to comply with the Code where
credit for residential investment properties is provided
but the impact on industry compliance is expected to be
minimal.
Chapter 1
Introduction
Outline of chapter
1. Chapter 1 of this explanatory memorandum outlines the preliminary
provisions, dictionary and application provisions established in
Chapter 1 of the National Consumer Credit Protection Bill 2009
(Credit Bill).
Context of new law
2. At its meeting on 2 October 2008, the Council of Australian
Governments (COAG) agreed that the Commonwealth would assume
responsibility for the regulation of consumer credit.
Summary of new law
3. Chapter 1 of the Credit Bill covers the following:
. the preliminary matters such as the short title and
commencement of the Credit Bill;
. defined terms and other definitions for the Credit Bill;
. the constitutional basis and application of this Credit
Bill; and
. the interaction between Commonwealth credit legislation
and State and Territory laws.
4. The Credit Bill and the National Consumer Credit Protection
(Transitional and Consequential Provisions) Bill 2009 (Transitional
Bill) are based, in part, on a referral of constitutional power by
the States.
5. The relationship between the new Commonwealth Act and State and
Territory legislation is dealt with in a set of provisions,
contained in the Credit Bill, called the 'inconsistency'
provisions. These provisions deal with how any inconsistencies
between Commonwealth, and State and Territory law are treated. The
purpose of these legislative provisions is to provide a mechanism
to allow certain potentially inconsistent State and Territory laws
to operate, notwithstanding the application of section 109 of the
Constitution. Section 109 provides that where a State law is
inconsistent with a Commonwealth law, the Commonwealth law prevails
and the State law, to the extent of the inconsistency, is invalid.
6. The definitions provisions contain terms that apply to the
interpretation of the Credit Bill which assists in clarifying the
operation and effect of these provisions.
Detailed explanation of new law
Part 1-1 - Preliminary
Division 1 - Preliminary
Commencement
7. Sections 1 and 2 of the Credit Bill commence on the day on which it
receives Royal Assent. The remaining provisions commence on a day
to be fixed by Proclamation. Provisions that do not commence
within six months after the commencement day of the Credit Bill
commence the day after that period. [Part 1-1, Division 1, section
2]
8. In relation to the new licensing regime, a two-phase approach is
being adopted on commencement of the Credit Bill. Credit providers
and credit service providers will be required to be registered with
the Australian Securities and Investments Commission (ASIC) by
31 December 2009, and to have applied for a licence by 30 June 2010
in order to engage in credit activities.
9. The responsible lending conduct obligations in Chapter 3 of the
Credit Bill will commence on 1 January 2011 to provide industry
time to put in place the systems and training needed to comply with
their new obligations.
10. Schedule 1 to the Credit Bill which contains the National Credit
Code (Code) has effect as law of the Commonwealth. [Part 1-1,
Division 1, section 3]
Part 1-2 - Definitions
Division 2 - The Dictionary
Explanation of the use of defined terms in the Bill
11. The Credit Bill and Transitional Bill specify the regulatory
requirements applying to persons engaged in credit activities. A
person will need a licence if they engage in credit activities.
When does a person engage in a credit activity
12. The Dictionary in the Credit Bill contains detailed definitions of
when a person will engage in credit activities, and therefore when
the requirements to be registered and licensed arise. This chapter
of the explanatory memorandum contains a detailed explanation of
these provisions.
Division 3 - Definitions relating to the meaning of credit activity
13. There are two broad categories of persons who engage in credit
activities:
. the first category primarily covers lenders and providers
of consumer leases, but is extended to also cover
activities in respect of mortgages and guarantees where
they are taken to secure or guarantee obligations under a
credit contract [Part 1-2, Division 3, items 1, 3, 4 and 5
in the table in subsection 6(1)]; and
. the second category is defined as persons who provide
credit services, and primarily, but not exclusively,
covers [Part 1-2, Division 3, item 2 in the table in
subsection 6(1)]:
- finance brokers and other intermediaries where they have
a role in relation to securing credit for a consumer;
and
- persons who assist consumers in relation to a particular
credit contract with a particular credit provider.
14. Whether or not a person engages in a credit activity will therefore
depend both on the activity they are performing and whether it is
in relation to a credit contract, a consumer lease, a mortgage or a
guarantee that is regulated by the Credit Bill. This means that a
person will not engage in credit activities as defined in the
Credit Bill:
. where they engage in credit activities but not in respect
of a credit contract, consumer lease, mortgage or
guarantee as defined in the Credit Bill - for example,
they lend money but it is for business purposes and
therefore not regulated; or
. where they engage in an activity in respect of credit
as defined in the Bill but it is not a specified
credit activity - for example, where a person provides
credit assistance but not in relation to a particular
credit contract with a particular credit provider.
15. In order to determine whether a person is engaging in credit
activities it is necessary to consider the definitions of:
. a credit contract;
. a consumer lease;
. a mortgage; and
. a guarantee.
16. A 'credit contract' is defined in section 5 of the Credit Bill as
having the same meaning as in section 4 of the Code, and this in
turn defines it 'as a contract under which credit is or may be
provided to which the Code applies'. In broad terms, the Code will
apply to the provision of credit where:
. the debtor is a natural person or a strata corporation;
and
. the credit is provided wholly or predominantly for:
- personal, domestic or household purposes; or
- to purchase, renovate, improve or refinance a
residential investment property; and
. a charge is made for the credit.
17. A 'consumer lease' is defined in section 5 of the Credit Bill as a
consumer lease to which Part 11 of the Code applies. Section 170
of the Code provides that consumer leases are leases with the
following characteristics:
. the goods are hired wholly or predominantly for personal,
domestic or household purposes; and
. a charge is or may be made for the hiring of the goods and
the charge, together with any other amount payable under
the consumer lease, exceeds the cash price of the goods.
[Credit Bill, Schedule 1, section 170]
18. A 'mortgage' is defined in section 7 of the Code as a mortgage to
which the Code applies, that is, a mortgage:
. that secures obligations under a credit contract or a
related guarantee; and
. where the mortgagor is a natural person or a strata
corporation.
[Credit Bill, Schedule 1, section 7]
19. A 'guarantee' is defined in section 8 of the Code as a guarantee to
which the Code applies, that is a guarantee:
. that guarantees obligations of a debtor under a credit
contract; and
. where the guarantee is given by a natural person or a
strata corporation.
[Credit Bill, Schedule 1, section 8]
20. The definitions in the first category mean that a person will
engage in credit activities where:
. they are credit providers who provide credit, or lessors
who provide consumer leases (as defined in the Code).
They will continue to engage in credit activities as long
as they are a party to a contract. The need to be
licensed will therefore remain while they are still
collecting money due under credit contracts or leases,
even where they no longer enter into new credit contracts
or leases [Part 1-2, Division 3, paragraphs 1(a) and 3(a)
in the table in subsection 6(1)];
. they carry on a business of providing credit or leases,
and will therefore need to hold a licence where they
engage in pre-contractual conduct before entering into
credit contracts or leases [Part 1-2, Division 3,
paragraphs 1(b) and 3(b) in the table in subsection 6(1)];
. they perform obligations or exercise rights in relation to
a credit contract or lease, or a proposed credit contract
or lease [Part 1-2, Division 3, paragraphs 1(c) and 3(c)
in the table in subsection 6(1)]. This applies to:
- persons performing statutory obligations arising before
a credit contract or lease has been entered into; and
- mortgage managers where they are managing the credit
contract on behalf of the credit provider;
. they are either [Part 1-2, Division 3, item 4 in the
table in subsection 6(1)]:
- a mortgagee under a mortgage that secures the
obligations of a borrower under a credit contract; or
- they perform obligations or exercise rights in relation
to a mortgage;
. they are either [Part 1-2, Division 3, item 5 in the table
in subsection 6(1)]:
- the beneficiary of a guarantee that guarantees the
obligations of a borrower under a credit contract; or
- they perform obligations or exercise rights in relation
to a guarantee; and
. a person who receives, by assignment, the rights of a
credit provider or a lessor, will be engaging in credit
activities where they exercise those rights [Part 1-2,
Division 3, section 10]. This requirement arises
irrespective of whether they receive the rights directly
from the credit provider or lessor, or from a person who
was themselves as assignee.
21. The definitions in respect of mortgages and guarantees are intended
to regulate the following situations:
. where the same person is the credit provider, the
mortgagee and the beneficiary of the guarantee; or
. where the credit provider is a different party from the
mortgagee and a beneficiary of a guarantee. This is
intended to cover two situations:
- it addresses the risk of the licensing requirements
being able to be avoided by the transaction being
structured so that the credit provider or lessor is a
different person from the mortgagee or the beneficiary
of the guarantee; and
- it will mean that a person needs to hold a licence where
they are an assignee only of rights under a mortgage or
a guarantee, but not under the credit contract. They
will only need to meet the obligations in a more limited
way in relation to this activity only, should this be
the case.
22. A person will be in the second category of persons who engage in
credit activities, and will 'provide credit services' where they
either:
. provide credit assistance; or
. act as an intermediary.
[Part 1-2, Division 3, section 7]
23. A person provides 'credit assistance' to a consumer where they:
. suggest that the consumer:
- apply for a provision of credit (in respect of either a
particular credit contract with a particular credit
provider or a particular lease with a particular
lessor);
- apply for an increase to the credit limit of a
particular credit contract with a particular credit
provider; or
- remain in their current credit contract or lease; or
. assist the consumer to:
- apply for a provision of credit (in respect of either a
particular credit contract with a particular credit
provider or a particular lease with a particular
lessor); or
- apply for an increase to the credit limit of a
particular credit contract.
[Part 1-2, Division 3, section 8]
24. A person will provide credit assistance regardless of whether they
deal directly with the consumer or with the consumer's agent. This
will cover the situation where, for example, the person is
assisting an elderly parent to apply for a credit contract, but is
dealing with their children.
25. The definition applies to situations such as:
. finance brokers where they recommend a particular credit
contract or lease; and
. a person who suggests a consumer apply for a particular
credit contract or lease, but does not necessarily proceed
to arrange the credit contract for the consumer.
26. A person will 'act as an intermediary' where they act as an
intermediary between a credit provider and a consumer for the
purposes of securing a provision of credit, or between a lessor and
a consumer for the purposes of securing a lease. [Part 1-2,
Division 3, section 9]
27. The definition is intended to regulate every person who may be an
intermediary between the consumer and the credit provider.
Innovations in credit product design and delivery now mean that a
consumer may pass through a number of hands between the first
person they deal with and the lender, and may be uncertain as to
the roles or functions of all these different parties. It is
intended that the licensing requirements will apply to all these
persons.
28. A person will act as an intermediary notwithstanding that the type
of credit or the identity of the credit provider is not yet known.
It differs from the definition of 'providing credit assistance', as
it does not require a person to engage in an activity in relation
to a particular credit contract with a particular credit provider,
or a particular lease with a particular lessor. It may be, for
example, that it is only the intermediary who finally deals with
the credit provider who determines or is aware of the particular
credit contract to be arranged.
29. A person can act as an intermediary either directly or indirectly.
The intention is to require a person to hold a licence even where
they may have no direct or face-to-face contact with the consumer,
but, nevertheless act as an intermediary by preparing or passing on
information, and their role is wholly or partially to secure a
provision of credit or a lease.
30. The definition is intended to apply to situations such as:
. finance brokers where, after recommending a particular
credit contract, they proceed to arrange the credit with
the credit provider;
. aggregators, in acting as a conduit between an individual
broker and a credit provider;
. mortgage managers, where they are involved in arranging
the credit (in addition to managing the credit once it has
been provided); and
. persons who refer the consumer to another person, where
this is done for the purpose of securing credit (including
where the referrer does not need to be contemplating a
particular credit contract with a particular credit
provider or a particular lease with a particular lessor).
Division 4 - Other definitions
31. In most instances a person will only engage in a credit activity if
they do so in the course of, as part of, or incidentally to, a
business 'carried on in this jurisdiction' by the person.
32. A business is taken to be 'carried on in this jurisdiction' where a
person engages in conduct that is intended to induce people in
Australia to use the goods or services the person provides, or is
likely to have that effect. [Part 1-2, Division 4, section 12]
33. The Credit Bill will apply where the person engaging in credit
activities is:
. a natural person;
. a body corporate;
. a partnership; or
. a trustee.
[Part 1-2, Division 4, sections 14 and 15]
34. There is also provision made to allow for additional activities
requiring a person to hold a licence to be prescribed by the
regulations. No regulations have been made yet, and this is to
allow for future contingencies. [Part 1-2, Division 3, item 6 in
the Table in subsection 6(1)]
Part 1-3 - Application of this Act
Division 1 - Introduction
35. Division 2 is about the constitutional basis and geographical
application of the Credit Bill. It also deals with the application
of this Credit Bill to the Crown. [Part 1-3, Division 1, section
17]
Division 2 - Constitutional basis and application of the Credit
Bill and the Transitional Bill
Constitutional basis for this Bill and the Transitional Bill
Application in a referring State
36. The Credit Bill provides the constitutional basis for its effective
operation; that is, the States will be referring constitutional
power of the States to the Parliament of the Commonwealth.
37. The application of the Credit Bill and Transitional Bill (Bills) in
the referring States is based on:
. the legislative powers of the Commonwealth Parliament
under section 51 of the Constitution, apart from
paragraph 51(xxxvii); and
. the legislative powers of the Commonwealth Parliament
which it has as a result of matters referred to it by the
Parliament of the referring States under paragraph
51(xxxvii) of the Constitution.
[Part 1-3, Division 2, section 18]
38. The State referrals cover matters to the extent to which they are
not otherwise included in the legislative powers of the
Commonwealth Parliament.
Application in a Territory
39. In the Northern Territory, the Australian Capital Territory and the
Jervis Bay Territory, the application of the Bills is based on the
legislative powers of the Commonwealth Parliament under section 122
of the Constitution to make laws for the government of those
Territories, and under section 51 of the Constitution. The Credit
Bill applies in those Territories as a law of the Commonwealth,
therefore overriding subsection 22(3) of the Acts Interpretation
Act 1901. [Part 1-3, Division 2, subsection 18(2)]
Application outside Australia
40. Outside Australia, the application of the Bills is based on:
. the legislative power the Commonwealth Parliament has
under paragraph 51(xxix) of the Constitution; and
. the other legislative powers that the Commonwealth
Parliament has under section 51 of the Constitution; and
. the legislative powers that the Commonwealth Parliament
has under section 122 of the Constitution to make laws for
the government of those Territories.
[Part 1-3, Division 2, subsection 18(3)]
Application in a non-referring State
41. Application of the Bills in a State that is not a referring State
is based on:
. the legislative powers that the Commonwealth Parliament
has under section 51 (other than paragraph 51(xxxvii)) and
section 122 of the Constitution; and
. the legislative powers that the Commonwealth Parliament has
in relation to matters to which this Act relates because
those matters are referred to it by the Parliaments of the
referring States under paragraph 51(xxxvii) of the
Constitution.
Meaning of Referring State
Reference of matters by State Parliament to Commonwealth Parliament
42. A State which has referred powers on this basis is a 'referring
State':
. if and to the extent that the matters are not otherwise
included in the legislative powers of the Parliament of
the Commonwealth (otherwise than by a reference under
paragraph 51(xxxvii) of the Constitution); and
. if and to the extent to which the matters are included in
the legislative powers of the Parliament of the State.
[Part 1-3, Division 2, subsection 19(1)]
43. A State is a referring State even if a law of the State provides
that the reference to the Commonwealth Parliament is to terminate
in particular circumstances. [Part 1-3, Division 2, subsection
19(2)]
44. The reference of powers is in two parts, the first enabling the
initial enactment of the Bills, and the second enabling subsequent
amendment of the Bills by the Commonwealth Parliament. These
references of power are explained in more detail as follows.
Reference covering initial Bills
45. The first part of the reference of powers relate to the extent of
making laws with respect to those matters by including the referred
provisions in the initial Bills. [Part 1-3, Division 2, subsection
19(3)]
Reference covering amendments of the Bills or the Trade Practices
Act
46. The second part of the reference of powers covers the referred
credit matters to the extent of the making of laws with respect to
those matters by making express amendments of the Credit Bills or
the Trade Practices Act 1974. [Part 1-3, Division 2, subsection
19(4)]
Effect of termination of reference
47. A State will cease to be a referring State if its initial reference
terminates. [Part 1-3, Division 2, subsection 19(5)]
48. Moreover, a State ceases to be a referring State if:
. the State's amendment reference terminates; and
. the exception to the amendment reference termination
[Part 1-3, Division 2, subsection 19(7)] does not apply to
the termination [Part 1-3, Division 2, subsection 19(6)].
49. A State whose amendment reference has terminated will not cease to
be a referring State if the termination is to take effect on a day
to be fixed by proclamation; that day is no earlier than six months
after the proclamation date; and the State' amendment reference,
and the amendment reference of every other State, terminates on
that day [Part 1-3, Division 2, subsection 19(7)]. The effect of
this provision is that a State can remain part of the national
scheme for the regulation of credit if it terminates its amendment
reference, but only if it gives at least six months notice of the
termination and if every other referring State terminates its
amendment reference on the same day.
50. There are various definitions relevant to explaining the terms used
in the operation of Division 2. For example; there is a definition
of the term 'amendment reference' of a State which means the
reference by the Parliament of the State to the Parliament of the
Commonwealth of the referred credit matters. [Part 1-3, Division
2, subsection 19(8)]
Meaning of referred credit matters
Referred credit matters
51. 'Referred credit matters' is defined in the Credit Bill as
follows:
. the matter of the regulation of credit or personal
property leases;
. the matter of the regulation of securities (including
mortgages), guarantees or insurance insofar as they relate
to credit or personal property leases;
. the matter of the regulation of credit activities;
. the matter of the regulation of sales of goods or supplies
of services where the sale or supply is financed, or
proposed to be financed, wholly or partly by the provision
of credit and related matters.
[Part 1-3, Division 2, subsection 20(1)]
52. Referred credit matters do not include the making of laws with
respect to the following:
. the creation, holding, transfer, assignment, disposal or
forfeiture of a State statutory right;
. limitations, restrictions or prohibitions concerning the
kinds of interests that may be created or held in, or the
kinds of persons or bodies that may create or hold
interests in, a State statutory right;
. any matters involving the forfeiture, or disposal, of
property or in connection with the enforcement of the
general law or the transfer of property from a person to
another person; or
. an excluded State statutory right.
[Part 1-3, Division 2, subsection 20(2)]
53. Despite the definitions in the new Credit Code, certain terms are
given different definitions for the purpose of these provisions.
These terms include: credit, credit activity, licence, personal
property lease and property. [Part 1-3, Division 2, subsection
20(3)]
General application of the Bills
Application in this jurisdiction
54. Each provision of the Bills applies in this jurisdiction. [Part 1-
3, Division 2, subsection 21(1)]
Geographical coverage of "this jurisdiction"
55. Subject to a referral of constitutional power by all of the States,
the Bills extend to every jurisdiction covering each geographical
area that consists of each 'referring State', the Australian
Capital Territory, the Jervis Bay Territory and the Northern
Territory. [Part 1-3, Division 2, subsection 21(2)]
56. Therefore, jurisdiction throughout the Bills consists of either the
whole of Australia (if all of the States are referring States); or
Australia (other than any State that is not a referring State) if
one or more States are not referring States. [Part 1-3, Division
2, subsection 21(3)]
Application outside Australia
57. Subject to subsection 21(6), each provision of the Bills applies,
according to their tenor, in relation to acts and omissions outside
this jurisdiction. [Part 1-3, Division 2, subsection 21(4)]
Application in non-referring States
58. The Credit Bill does not apply to an act or omission in a State
that is not a referring State to the extent to which that
application would be beyond the legislative powers of the
Parliament (including powers it has under paragraphs 51(xxxvii) and
(xxxix) of the Constitution). [Part 1-3, Division 2, subsection
21(5)]
Residence, place of formation etc.
59. Each provision of the Bills applies to natural persons and all
bodies corporate and unincorporated. [Part 1-3, Division 2,
subsection 21(5)]
Bills bind Crown
60. The Credit Bill (other than Chapter 3 and the Credit Code) and the
Transitional Bill bind the Crown in each of its capacities, but do
not make the Crown liable to be prosecuted for an offence or to any
pecuniary penalty. [Part 1-3, Division 2, section 22]
Division 3 - Interaction between Commonwealth credit legislation and State
and Territory laws
Concurrent operation intended
61. A provision provides that the Bills are not intended to exclude or
limit the concurrent operation of any law of a State or Territory
[Part 1-3, Division 3, section 23]. This provision is in terms
similar to those of several other Commonwealth legislative
provisions, including section 75 of the Trade Practices Act 1974,
section 250B of the Water Act 2007 and section 5E of the
Corporations Act 2001 (Corporations Act).
62. Where a person commits an act or omission which is an offence
against either of the Bills and an offence against the law of a
State or Territory; and that person is convicted of either of those
offences, the person is not liable to be convicted of the other of
those offences. [Part 1-3, Division 3, section 23]
63. The concurrent operation provision provides that in all
circumstances where a Commonwealth law and a State law can operate
concurrently, they are intended to do so. This means, for example,
that if a State government sets additional conditions or
requirements in relation to the registration of a mortgage or
charge over real property interests in that State, then those
conditions or requirements would not be inconsistent with the
Credit Bill.
When Commonwealth credit legislation does not apply
64. A provision of a State or Territory law may declare a matter to be
an excluded matter, in relation to either the whole of the
Commonwealth credit legislation or a specified provision of the
legislation. As a result, the Bills (or the provision specified)
will not apply in that State or Territory in relation to the
declared matter [Part 1-3, Division 3, subsections 24(1) and (2)].
A regulation may provide that the provision does not apply to the
declaration [Part 1-3, Division 3, subsection 24(3)]. This
provision is in terms similar to section 5F of the Corporations
Act.
Avoiding direct inconsistency between Commonwealth and State and
Territory laws
65. There is a provision which limits or qualifies the operation of the
Bills if a valid displacement provision is in effect. The key rule
is that this provision of the Credit Bill does not prohibit the
doing of an act, or impose a civil or criminal liability for doing
an act, if a provision of a State or Territory law (displacement
provision) specifically authorises or requires the doing of that
act [Part 1-3, Division 3, section 25]. This provision is in
terms similar to section 5G of the Corporations Act.
Regulations to deal with interaction between laws
66. A provision provides that regulations can be made modifying the
operation of the Credit Bill and Transitional Bill so that it does
not apply to a matter dealt with by a State or Territory law, or is
not inconsistent with the operation of a State or Territory law
specified in the regulations. The regulation-making power allows
regulations to be made regarding the interaction between the Credit
Bill and Transitional Bill, independently of the displacement
provision mechanism discussed above. [Part 1-3, Division 3,
section 26]
Chapter 2
Licensing of persons engaging in credit activities
Outline of chapter
67. Chapter 2 of this explanatory memorandum explains the requirement
for persons engaging in credit activities to be holders of an
Australian credit licence (ACL) and the obligations that are
imposed on such licensees, as set out in Chapter 2 of the National
Consumer Credit Protection Bill 2009 (Credit Bill).
68. In order to facilitate a smooth transition to licensing, persons
currently engaging in credit activities will first need to be
registered with the Australian Securities and Investments
Commission (ASIC). These arrangements are set out in Schedule 2 to
the National Consumer Credit Protection (Transitional and
Consequential Provisions) Bill 2009 (Transitional Bill). A
detailed explanation of registration is in Chapter 3 of the
explanatory memorandum to that Bill.
69. The key elements of the scheme are that:
. it requires persons who engage in credit activities to,
initially, be registered with ASIC, and to subsequently
hold an ACL;
. it imposes entry standards for registration and licensing,
and enables ASIC to refuse an application where the person
does not meet those standards;
. it requires registered persons and licensees to meet
ongoing standards of conduct while they engage in credit
activities; and
. ASIC has the power to suspend or cancel a licence or
registration, or to ban an individual from engaging in
credit activities.
Context of amendments
70. Currently there is no consistency in the way in which the States
and Territories regulate providers of credit and related services.
Western Australia has a licensing system for both lenders and
brokers. Victoria and the Australian Capital Territory have
registration systems covering credit providers and brokers. The
remaining States and Territories do not impose any entry
requirements on credit providers. As a result, a finance broker
who operates nationally is required to hold three different
licences or registrations.
71. The proposed national licensing scheme therefore has benefits for
industry in removing the need for lenders and brokers who operate
nationally to meet different requirements.
72. At the same time the development of a greater and more complex
range of credit products in the market has made it much less
straightforward for consumers to determine whether a product is
suitable for their needs and increased their dependence on
intermediaries. As a result there are considerable information
asymmetries that justify regulatory intervention. These issues
have been evident for some time in the relationship between
consumers and finance brokers or other intermediaries.
73. ASIC considered the scope for consumers to suffer financial loss as
a result of incompetent, conflicted or misleading conduct by
intermediaries in a 2003 report[1]. For example, if, as a result
of unsuitable advice about a loan, the borrower is placed in a loan
with an interest rate 0.5 per cent higher, then as a result the
borrower would pay an additional $15,500 in interest on a loan of
$175,000 over 25 years. It considered that the lack of uniform
regulation contributed to these outcomes.
74. In recognition of the need for national regulation of brokers the
Ministerial Council on Consumer Affairs (MCCA) released the draft
Finance Brokers Bill (NSW) in November 2007.
75. The regulation impact statement developed in the preparation of the
draft Finance Brokers Bill (NSW) documented in detail a number of
undesirable market practices, including:
. brokers recommending products that earned them higher
commissions but which are inappropriate, higher cost or
unaffordable for their clients;
. brokers misrepresenting the applicants' financial details
so that the loan is approved, and the broker receives
commissions, when, if the lender was aware of the
borrower's actual financial position, they would reject
the application;
. brokers 'upselling' loans to higher amounts to increase
commissions; and
. brokers and lenders engaging in 'equity stripping', that
is, arranging or providing high-cost loans for borrowers
in financial difficulty (particularly those facing
foreclosure of the family home), in the expectation that
the borrower will default with subsequent transfer of the
consumer's equity in their home to the broker and the
lender through fees, charges and default interest.
76. Before the draft Finance Brokers Bill (NSW) was finalised the
States agreed to the transfer of responsibility for credit to the
Commonwealth allowing for the introduction of a national approach
to licensing that extends to all persons engaging in credit
activities.
77. Concerns such as those discussed above were considered in 2008 when
both the Australian Government and the Council of Australian
Governments decided that providers of credit and related services
should be subject to a national licensing system administered by
ASIC.
78. Developments in the delivery of credit mean that the distinctions
between lenders, brokers and intermediaries are no longer
straightforward, and that a comprehensive approach to licensing all
market participants is therefore preferable.
79. This approach is consistent with the 2008 findings of the
Productivity Commission, which recommended a licensing scheme for
finance brokers and a licensing or registration scheme for
lenders.[2]
80. The objectives in introducing the licensing system are to improve
the conduct of the industry over time, and to address concerns such
as those identified above, by having a market environment for
credit in which:
. lenders and intermediaries act honestly and have adequate
resources and competency to carry on their businesses;
. borrowers who suffer losses because of a breach of their
obligations by lenders or intermediaries are able to
obtain compensation; and
. dishonest or incompetent lenders and intermediaries are
prevented from continuing to operate.
81. It was decided to provide a stand-alone national licensing scheme
that is to be distinguished from the regulation of financial
services under the Corporations Act 2001 (Corporations Act). This
is because credit involves consumers receiving money that they must
repay, rather than the purchase of, or investment in, a financial
product that generally includes the expectation of a benefit or
return from the payment. From the outset the ACL is tailored to
meet the issues arising in the credit context, thereby avoiding the
need to extensively modify or vary elements of the Corporations
Act.
Summary of new law
82. The Credit Bill implements a national licensing scheme for persons
engaging in credit activities. It is complemented by the
Transitional Bill which establishes transitional arrangements that
require persons who currently engage in credit activities to be
registered by 31 December 2009, before becoming holders of an ACL.
83. The key elements of the scheme are that:
. it requires persons who engage in credit activities to,
initially, be registered with ASIC, and to subsequently
hold an ACL;
. it imposes entry standards for registration and licensing,
and enables ASIC to refuse an application where the person
does not meet those standards;
. it requires registered persons and licensees to meet
ongoing standards of conduct while they engage in credit
activities; and
. ASIC has the power to suspend or cancel a licence or
registration, or to ban an individual from engaging in
credit activities.
84. Participants will need to be registered or hold a licence if they
engage in any of the following credit activities:
. entering into credit contracts or consumer leases;
. collecting money due under a credit contract (including
where the lender has ceased providing credit, and where an
assignee has purchased the debts from the original credit
provider);
. acting as an intermediary between the borrower and the
lender (principally as finance brokers, but not
exclusively so, with the definition also covering bodies
such as introducers, mortgage managers and aggregators);
or
. suggesting or providing assistance in respect of a
specific credit product with a particular credit provider.
85. Section 5 of the National Credit Code (Code) sets out the
circumstances in which the Code will apply to the provision of
credit. Generally it regulates the provision of credit where it is
provided:
. for personal domestic or household use;
. to purchase, renovate or improve a residential investment
property; or
. to refinance such credit.
86. The definition of 'credit' otherwise expressly excludes credit
provided for business or investment use.
87. There are only limited and specific circumstances in which ASIC
can refuse to register a person. Generally ASIC must register a
person except where they meet any of the criteria resulting in
automatic rejection of the application. The criteria relate to
matters where there is an unacceptable risk, established by a
public finding or outcome, to consumers; for example, members of
organised criminal groups who are subject to court orders as
prescribed in the Bill would be unable to be registered.
88. Once registered a person must meet set standards of conduct; for
example, they will be required to act efficiently, honestly and
fairly, to comply with the law, and to remain a member of an
External Dispute Resolution Scheme (EDR Scheme) (as approved by
ASIC). This will give consumers an avenue for the expeditious
resolution of complaints through a no-cost forum, outside of the
court system.
89. After becoming registered a person will then have to apply for a
licence in the period from 1 January 2010 to 30 June 2010. A
person engaging in credit activities for the first time after 1
January 2010 can no longer be registered and will need to apply for
an ACL.
90. The entry requirements for licensing are more rigorous and will
require ASIC to consider two key elements in respect of the
application.
91. First, ASIC must assess whether the applicant has adequate
organisational capacity, systems and competence to be able to
comply with their obligations under the Credit Bill when engaging
in credit activities. For example, ASIC will need to consider
whether the applicant has systems in place both to meet responsible
lending obligations, and to deal with conflicts of interest so that
their clients are not disadvantaged where any such conflict exists.
92. Secondly, ASIC must assess whether there is any reason to doubt the
applicant is a fit and proper person to be involved in the
provision of credit services. In considering this question ASIC is
able to take into account a broad range of relevant matters, such
as their past conduct and compliance with credit laws of States and
Territories (including prior to the enactment of the Credit Bill).
93. A special process (called streamlining) has been designed for
authorised deposit-taking institutions (ADIs). It is considered
that ADIs are subject to levels of government supervision that are
sufficiently rigorous so that they do not need to demonstrate, in
order to obtain a licence, their competencies and qualifications.
Once licensed they will be subject to the same obligations as all
other holders of an ACL.
94. The regulations may describe other categories of participants who
may also be streamlined to an ACL.
95. These will be the only categories of person who will be
streamlined, given the lack of uniformity in relation to
registration and licensing of other credit providers and brokers or
intermediaries at a State and Territory level.
96. A registered person or a licensee can authorise third parties to
engage in credit activities on their behalf, without these persons
having to hold a licence in their own right. These persons are
known as 'credit representatives'. The registered person or
licensee is generally responsible for their conduct, and must
specify in writing the credit activities they can engage in.
97. ASIC has the power to suspend or cancel a licence or registration,
or to ban individuals from engaging in credit activities. ASIC can
take action as it considers appropriate in a broad range of
circumstances to protect consumers from the risk of financial harm
and to maintain the integrity of the scheme.
98. The national scheme means that a person who is banned or loses
their licence or is deregistered by ASIC will be unable to legally
engage in credit activities throughout Australia. At present there
is nothing to prevent a person who has been banned in one State or
Territory from continuing to operate as a broker or lender simply
by moving to a different jurisdiction.
Comparison of key features of new law and current law
|New law |Current law |
|Introduces nationally |In the Northern |
|consistent licensing |Territory, Queensland, |
|regime for lenders or |South Australia and |
|intermediaries, |Tasmania there is no |
|irrespective of the |registration or licensing|
|jurisdiction they operate|scheme for either lenders|
|in. |or intermediaries. |
|Introduces enhanced entry|In the Australian Capital|
|requirements and ongoing |Territory and Victoria |
|conduct obligations for |there is a registration |
|lenders and |scheme for both |
|intermediaries. |intermediaries, and |
| |lenders, and in New South|
| |Wales there is a negative|
| |registration scheme for |
| |both intermediaries and |
| |lenders. |
|The main differences with|In Western Australia |
|the law operating in |there is a licensing |
|Western Australia are: |scheme for both lenders |
|applicants are subject to|and intermediaries. |
|a number of additional |The main features of the |
|obligations, including a |licensing scheme are: |
|requirement to be a |entry requirements, |
|member of an EDR Scheme |including that the |
|approved by ASIC; |applicant is a fit and |
|significant ongoing |proper person; |
|requirements while |some ongoing requirements|
|licensed (including that |while licensed; and |
|the licensee must |the capacity to remove |
|properly train and |the licence if the |
|supervise people who act |licensee no longer meets |
|on their behalf); and |the entry requirements. |
|the capacity to remove | |
|the licence if the | |
|licensee no longer meets | |
|the entry requirements. | |
Detailed explanation of new law
When does a person engage in a credit activity?
99. The Dictionary to the Credit Bill contains detailed definitions of
when a person will engage in credit activities, and therefore when
the requirements to be registered and licensed arise. Paragraphs
2.34 to 2.43 contain a summary of these provisions; a more detailed
explanation is in Chapter 1 of this explanatory memorandum.
100. There are two broad categories of persons who are engaging in a
credit activity:
. The first category primarily covers lenders and providers
of consumer leases, but also embraces activities in
relation to mortgages and guarantees where they are taken
to secure or guarantee obligations under a credit contract
or lease [Part 1-2, Division 3, items 1, 3, 4 and 5 in the
table in subsection 6(1)].
. The second category is defined as persons who provide
credit services, and primarily, but not exclusively,
covers finance brokers and other intermediaries where they
have a role in relation to securing credit for a consumer
[Part 1-2, Division 3, item 2 in the table in subsection
6(1)].
101. In respect of the first category a person will engage in credit
activities where:
. they are credit providers who provide credit, or lessors
who provide consumer leases, as defined in the Code. They
will engage in credit activities as long as they are a
party to a contract. Credit providers and lessors will
therefore need to remain licensed where they are still
collecting money due under credit contracts or leases,
notwithstanding that they no longer enter into new credit
contracts or leases [Part 1-2, Division 3, items 1(a) and
3(a) in the table in subsection 6(1)];
. they carry on a business of providing credit or leases,
and will therefore need to hold a licence where they
engage in pre-contractual conduct before entering into
credit contracts or leases [Part 1-2, Division 3, items
1(b) and 3(b) in the table in subsection 6(1)];
. they perform obligations or exercise rights in relation to
a credit contract or lease, or a proposed credit contract
or lease [Part 1-2, Division 3, items 1(c) and 3(c) in the
table in subsection 6(1)]. Examples of persons who fall
within this definition include:
- persons performing statutory obligations arising before
a credit contract or lease has been entered into; and
- mortgage managers where they are managing the credit
contract on behalf of the credit provider;
. they are either [Part 1-2, Division 3, item 4 in the table
in subsection 6(1)]:
- a mortgagee under a mortgage that secures the
obligations of a borrower under a credit contract; or
- they perform obligations or exercise rights in relation
to a mortgage;
. they are either [Part 1-2, Division 3, item 5 in the table
in subsection 6(1)]:
- the beneficiary of a guarantee that guarantees the
obligations of a borrower under a credit contract; or
- they perform obligations or exercise rights in relation
to a guarantee; and
. they are a person who receives, by assignment in law, the
rights of a credit provider or a lessor, and exercises
those rights. This requirement arises irrespective of
whether they receive the rights directly from the credit
provider or lessor, or from a person who was themselves an
assignee [Part 1-2, Division 3, section 10]. The
definition does not extend to equitable assignees.
102. A person will be in the second category of persons who engage in
credit activities by 'providing credit services' where they either:
. provide credit assistance; or
. act as an intermediary.
[Part 1-2, Division 3, section 7]
103. A person provides 'credit assistance' to a consumer where they:
. suggest that the consumer:
- apply for a provision of credit in respect of a
particular credit contract or lease;
- apply for an increase to the credit limit of a
particular credit contract; or
- remain in a particular credit contract or lease; or
. assist the consumer, in respect of a particular credit
contract or lease, to:
- apply for a provision of credit in respect of a
particular credit contract or lease; or
- apply for an increase to the credit limit of a
particular credit contract.
[Part 1-2, Division 3, section 8]
104. A person will provide credit assistance regardless of whether they
deal directly with the consumer or with the consumer's agent. This
will cover the situation where, for example, the person is
assisting an elderly parent to apply for a credit contract, but is
dealing with their children.
105. The definition is intended to apply to situations such as:
. finance brokers where they recommend a particular credit
contract or lease; and
. a person who suggests a person apply for a particular
credit contract or lease, but does not proceed to arrange
the credit contract for the consumer.
106. A person will 'act as an intermediary' where they act as an
intermediary between a credit provider and a consumer for the
purposes of securing a provision of credit, or between a lessor and
a consumer for the purposes of securing a lease. [Part 1-2,
Division 3, section 9]
107. The definition is intended to regulate every person who may be an
intermediary between the consumer and the credit provider.
Innovations in credit product design and delivery now mean that a
consumer may pass through a number of hands between the first
person they deal with and the lender, and may be uncertain as to
the roles or functions of all these different parties. It is
intended that the licensing requirements will apply to all these
persons.
108. A person can act as an intermediary either directly or indirectly.
The intention is to require a person to hold a licence even where
they may have no direct or face-to-face contact with the consumer,
but, nevertheless act as an intermediary by preparing or passing on
information, as the result of a request by a consumer or by another
intermediary, and their role is wholly or partially to secure
credit or a lease.
109. The definition is intended to apply to situations such as:
. finance brokers where, after recommending a particular
credit contract, they proceed to arrange the credit with
the credit provider;
. aggregators, in acting as a conduit between an individual
broker and a credit provider;
. mortgage managers, where they are involved in arranging
the credit (in addition to managing the credit once it has
been provided); and
. persons who refer the consumer to another person, where
this is done for the purpose of securing credit.
Registration and licensing of persons who engage in credit activities
110. Paragraphs 2.45 to 2.56 summarise the transitional arrangements for
registered persons. These paragraphs discuss the timetable for the
transition from registration to licensing, enabling the changing
requirements to be followed in sequence.
111. Initially, a person who engages in credit activities will have
a two-month window in which to register with ASIC, between
1 November 2009 and 31 December 2009. [Transitional Bill, Schedule
2, Part 3, item 11]
112. From 1 January 2010 persons engaging in credit activities for the
first time must apply for a licence. [Transitional Bill, Schedule
2, Part 2, item 4]
113. A registered person will then need to apply for a licence between 1
January 2010 and 30 June 2010. The effect is that:
. a person who held a registration as at 1 January 2010 has
until 30 June 2010 to apply for a licence; and
. they can continue to engage in credit activities as a
registered person until their licence application is
determined by ASIC.
114. Table 2.1 summarises the changes in requirements over time.
1.
|1 November 2009 |All persons engaging in credit |
|to 31 December |activities will need to apply to |
|2009 |be registered. |
| |They need to demonstrate |
| |membership of an EDR Scheme in |
| |order to be registered. |
|1 January 2010 |All persons engaging in credit |
|to 30 June 2010 |activities will commit an offence |
| |unless: |
| |they are registered; or |
| |they are licenced. |
|1 January 2010 |All persons engaging in credit |
|and onwards |activities for the first time on |
| |or after 1 January 2010 cannot be |
| |registered and must apply for and |
| |receive a licence before |
| |commencing business. |
|1 July 2010 to |All persons engaging in credit |
|30 June 2011 |activities will commit an offence |
| |unless: |
| |they are registered and have |
| |applied for a licence (and not had|
| |their application rejected); or |
| |they are licenced. |
| |A person who was registered and |
| |has applied for a licence can |
| |continue engaging in credit |
| |activities until they get notice |
| |of the decision and then either: |
| |where the application is granted -|
| |continue to engage in credit |
| |activities as authorised by the |
| |licence; or |
| |where the application is rejected |
| |- cease engaging in credit |
| |activities or they will commit an |
| |offence. |
|1 July 2011 and |From this date at the latest, all |
|onwards |persons engaging in credit |
| |activities must be holders of an |
| |ACL. |
115. A person must apply to ASIC to be registered by lodging an
application in the approved form. They cannot be registered if:
. they are not a member of an EDR Scheme that has been
approved by ASIC.
. any of the criteria resulting in automatic exclusion apply
(such as insolvency or convictions for serious fraud).
The criteria relate to matters where there is an
unacceptable risk, established by a public finding or
outcome, to consumers were the applicant to be allowed to
engage in credit activities. [Schedule 2, Part 3, item
12]
116. A registered person is required to conduct their business in
accordance with a number of specific obligations, such as that they
will engage in credit activities efficiently, honestly and fairly,
and they will comply with the credit legislation and with any
conditions imposed by ASIC on the registration. [Schedule 2, Part
3, item 16]
117. Given that applicants engaging in credit activities will not
previously have been registered under the Commonwealth law the
obligations applying to registered persons are limited to those
that can be met immediately. Licensing will build on these
requirements by requiring the registered person to demonstrate, for
example, the necessary operational capacity and an appropriate
commitment of resources to meet the required conduct standards.
118. The Transitional Bill also imposes specific obligations on
registered persons to assist ASIC in gathering intelligence and
information about registered persons, in order to assist it in its
functions in regulating those engaging in credit activities.
[Transitional Bill, Schedule 2, Part 3, items 17 to 19]
119. ASIC is given power to:
. impose a condition on a registration, or vary or revoke a
condition [Transitional Bill, Schedule 2, Part 3, items 14
and 15]; and
. suspend or cancel a registration [Transitional Bill,
Schedule 2, Part 3, items 21 to 26].
120. All registered persons are required to apply for a licence by
30 June 2010. The entry requirements for licensing are more
onerous and it may be that not all registered persons will be able
to meet the requirements for holding a licence. Where a person's
licence application is rejected by ASIC then their registration is
automatically cancelled [Transitional Bill, Schedule 2, Part 3,
item 20]. They can no longer legally engage in credit activities
unless they make a fresh licence application which is approved by
ASIC. [Transitional Bill, Schedule 2, Part 3, item 6]
121. If the person is granted a licence by ASIC then the registration no
longer has any effect, as it has been superseded by the licence.
For the purposes of certainty, it is expressly provided that all
registrations cease to operate on 30 June 2011. [Transitional
Bill, Schedule 2, Part 3, item 21]
122. The Transitional Bill allows for the dates by which a person must
be registered or have applied for a licence to be varied by
regulation. [Transitional Bill, Schedule 2, Part 3, items 3 and 5]
National Consumer Credit Protection Bill
Part 2-1 - Requirement to be licensed to engage in credit
activities
Division 2 - Engaging in credit activities without a licence
123. A person who engages in credit activities after 1 July 2011 will
need to hold a licence or they will commit an offence. It is
expected that by this date, at the very latest, there will no
longer be any need for transitional arrangements. [Part 2-1,
Division 2, subsection 29(1)]
124. However a person who engages in a credit activity without holding a
licence has a defence where:
. that person engages in the credit activity on behalf of a
licensee;
. the licensee is authorised to engage in credit activities
of that type;
. the person's conduct is within the authority of the
licensee; and
. the person themselves is either:
- an employee or a director of the licensee, or of a
related body corporate of the licensee; or
- a credit representative of the licensee.
[Part 2-1, Division 2, subsection 29(3)]
125. A 'credit representative' is a person formally appointed to act on
behalf of the licensee, in accordance with section 64 or section
65.
126. A person' s conduct is within the authority of another person as
follows:
. where they are an employee of the person or of a related
body corporate of the person - the conduct is within the
scope of the employee's employment;
. where they are a director of the person or of a related
body corporate of the person - the conduct is within the
scope of the director's duties as director; or
. where they are a credit representative - the conduct is
within the scope of the authorisation in writing
specifically granted to the credit representative under
subsection 64(1) or 65(1).
[Part 1-2, Division 2, section 5]
127. These provisions place the onus of proof on any defendant where the
defence is that they have been engaging in credit activities on
behalf of the licensee, and that their conduct was authorised by or
conducted on behalf of that person.
128. The reason for the reversal of the onus of proof is that a defence
of this type may raise complex factual matters that cannot be
readily established by ASIC, but that will be squarely within the
knowledge of the employee, director or credit representative. That
person will be in the best position to both know and establish that
their conduct has been authorised by their principal.
129. This offence has a criminal penalty of 200 penalty units, or
imprisonment for 2 years or both, and a civil penalty of 2,000
penalty units (so that ASIC may appropriately penalise any
contravention of the provision).
130. Consumers have specific remedies against persons where they engage
in credit activities while unlicensed, as there is a clear need to
deter this type of behaviour, and it is intended that consumers
should only deal with those who have demonstrated they meet the
entry requirements.
Division 3 - Other prohibitions relating to the requirement to be
licensed and to credit activities
131. A person will commit an offence where:
. they hold out that they are authorised to engage in a
credit activity when this is not the case (for example,
that they hold an ACL when this is not the case) [Part 2-
1, Division 3, subsections 30(1)];
. they hold out or advertise that they can engage in credit
activities when they would commit an offence if they
actually engaged in those credit activities [Part 2-1,
Division 3, subsections 30(2)];
. where although licensed themselves, they conduct business
with another person who is not licensed themselves but is
still engaging in a credit activity [Part 2-1, Division 3,
section 31]; and
. they demand or receive a fee from a consumer in relation
to a credit activity, when they are unable to engage in
the credit activity because they are not licensed [Part 2-
1, Division 3, section 32].
132. A person must not, in the course of engaging in a credit activity,
give information or a document to another person if they know, or
are reckless, as to whether the information or document is false or
misleading. The main purpose of this provision is to make it an
offence for a person to forward an application for a credit
contract or a lease that is false or misleading. [Part 2-1,
Division 3, section 33]
133. These offences all have a criminal penalty, and a civil penalty of
2,000 penalty units (so that ASIC may appropriately penalise any
contravention of the provision).
Part 2-2 - Australian credit licences
Division 2 - Australian credit licences
134. The holder of an ACL is only authorised to engage in the credit
activities which are expressly specified by ASIC in a condition of
the licence. [Part 2-2, Division 2, section 35]
Division 3 - How to get an Australian credit licence
135. A person applies for a licence by lodging their application with
ASIC. The latest date at which a registered person can lodge their
application is 30 June 2010. However, from 1 January 2010 a person
who is not registered must apply for a licence before engaging in
credit activities. [Part 2-2, Division 3, section 36]
136. ASIC must grant the licence if the following requirements are
satisfied:
. the application was made properly, that is, in the
approved form and with all supporting information;
. ASIC has no reason to believe that the applicant is likely
to breach the obligations that are imposed on a licensee
under section 47; and
. ASIC has no reason to believe that the applicant is not a
fit and proper person to engage in credit activities.
[Part 2-2, Division 3, subsection 37(1)]
137. Notwithstanding these requirements it is specifically provided that
ASIC must not grant a licence where:
. the person is subject to a banning or disqualification
order under Part 2-4 of the Credit Bill; or
. a prescribed State or Territory order is in effect:
- where the applicant is a natural person - against that
person;
- where the applicant is a body corporate - against a
director, secretary or senior manager who would perform
duties in relation to the credit activities to be
authorised by the licence; and
- where the applicant is a partnership or trustee -
against a partner or trustee who would perform duties in
relation to the credit activities to be authorised by
the licence.
[Part 2-2, Division 3, section 40]
138. In considering the latter two substantive grounds the onus of proof
is on ASIC to establish reasons why the licence should be refused.
ASIC is specifically directed to consider the following matters:
. whether a registration, licence or Australian financial
services licence of the person has ever been suspended or
cancelled;
. whether a banning order or disqualification order under
Part 2-4 has ever been made against the person;
. whether a banning order or disqualification order under
Division 8 of Part 7.6 of the Corporations Act has ever
been made against the person;
. whether the person has ever been banned from engaging in a
credit activity under a law of a State or Territory;
. whether the person has ever been insolvent (if they are
not the trustees of a trust);
. whether the person has ever been disqualified from
managing corporations under Part 2D.6 of the Corporations
Act;
. any criminal conviction of the person, within 10 years
before the application was made;
. any other matters that ASIC considers relevant; and
. any other matter prescribed by the regulations.
[Part 2-2, Division 3, subsection 37(2)]
139. ASIC is specifically directed to consider these matters in relation
to:
. where the applicant is a natural person - that person;
. where the applicant is a body corporate - every director,
secretary or senior manager who would perform duties in
relation to the credit activities to be authorised by the
licence; and
. where the applicant is a partnership or trustee - every
partner or trustee who performs duties in relation to the
credit activities to be authorised by the licence.
[Part 2-2, Division 3, paragraphs 37(2)(g) and (h) and subsection
37(3)]
140. The extent to which the conduct or characteristics of any of these
persons will mean that the applicant may not meet the fit and
proper requirement will depend on factors such as the background of
the individual and the level of day-to-day control and power they
exert over the credit activities engaged in by the applicant.
141. In the case of bodies corporate, the persons to be considered has
been extended beyond directors or secretaries to include senior
managers. A senior manager is defined as a person who:
. makes, or participates in making, decisions that affect
the whole, or a substantial part, of the business of the
corporation; or
. has the capacity to affect significantly the corporation's
financial standing.
[Part 1-2, Division 2, section 5]
142. The skills and character of senior managers is relevant to ASIC's
consideration of whether an application should be granted, as it is
expected that they would be involved in setting the policies and
procedures to be followed by those having direct contact with
clients, including employees or credit representatives. They are
also, in practice, usually responsible for ensuring that their
representatives comply with the law. Their credentials and
suitability are therefore critical to ASIC's assessment of the
applicant.
143. The matters identified in subsection 37(2) are relevant to
determining both whether or not the applicant is likely to
contravene the obligations in section 47 and whether the fit and
proper person requirement is met. Where present they will not
necessarily be grounds for refusing a licence but they will be
matters that always need to be considered by ASIC. For example,
where a person has been convicted of serious fraud, the
circumstances of the offence may show such a disregard for the
interests of other persons or so great an abuse of their confidence
or trust that ASIC can conclude the person is not a fit and proper
person. [Part 2-2, Division 3, subsection 37(2)]
144. Apart from the specific matters listed in subsection 37(2) ASIC may
also take into account any other matters it considers relevant, in
deciding whether or not to grant the applicant an ACL. The scope
of the information is only limited by the extent to which it is
relevant to this question. It would generally include the past
business practices of the applicant, as this can be seen as an
indicator of future behaviour. For example, a history of having
provided credit or financial services without holding a licence
when this would be required in law, would usually be relevant, and
may be more relevant than a breach of the law that can be
characterised as technical.
145. The first ground on which ASIC can refuse a licence is if it
believes that the applicant is likely to contravene the obligations
that are imposed on a licensee under section 47.
146. The statutory test is whether the person is likely to contravene
the obligations, rather than whether they will contravene the
obligations. On a restricted view of the latter phrase ASIC would
be required to believe, as a matter of certainty, that the
applicant will contravene the obligations in the future. Such a
standard would be so onerous that it could result, in practice, in
ASIC never being able to refuse a licence.
147. The test is whether they are likely to contravene the obligations
under section 47. ASIC may take into account any information
relevant to this question, such as:
. the extent of compliance by the applicant with analogous
obligations while a registered person (where applicable);
. a history of the applicant that exhibits a reluctance to
comply with State or Territory credit legislation prior to
applying for the licence or while it is being considered;
. conduct of the applicant that shows deliberation and
planning in wilfully disregarding the law; or
. any other conduct of the applicant that may lead ASIC to
conclude, on reasonable grounds, that the applicant is not
likely to comply (for example, where information from a
State or Territory as to the activities of the applicant
as a member of an organised criminal group warrants this
conclusion).
148. Secondly, ASIC must have no reason to believe that the applicant is
not a fit and proper person to engage in credit activities [Part 2-
2, Division 3, paragraph 37(1)(c)]. This may cover situations such
as where the person:
. lacks appropriate knowledge, skills, judgment or
character;
. has been subject to adverse findings in relevant criminal
or civil proceedings, reflecting on their character; or
. breached fiduciary obligations in a way that demonstrates
they are not a fit and proper person.
149. ASIC may also require the applicant to produce further information
before making a final decision (including a report by a suitably
qualified person). This might cover, for example, a report on a
serious or systematic breach of credit legislation by the
applicant, and the way in which it has addressed that conduct.
Providing for an independent expert view to be obtained in such
circumstances will allow ASIC to make a decision whether or not to
approve a licence using the best possible information. [Part 2-2,
Division 3, subsection 37(4)]
150. ASIC can also take into account information from other sources
where it is relevant to its consideration of the licence
application. This might include, for example:
. allegations of previous misconduct that ASIC or a State or
Territory regulator is aware of, including those received
through complaints by consumers;
. information received by ASIC or a State or Territory
regulator in the course of the exercise of their statutory
powers and functions;
. actions taken against the person by a relevant industry
body or association; or
. intelligence received by ASIC from other market
participants.
151. The transfer of information or documents to ASIC from State and
Territory regulators is authorised in Schedule 1 of the
Transitional Bill.
152. ASIC must provide the applicant with written notice of its decision
on the licence application. Where ASIC has decided to refuse the
licence this can only be done after giving the applicant an
opportunity to be heard. The reasons for refusing the decision
must be set out in the written notice. [Part 2-2, Division 3,
sections 41 and 42]
153. Where ASIC rejects a licence application the applicant has a right
to appeal that decision directly to the Administrative Appeals
Tribunal, rather than a review by ASIC. [Part 7-1, Division 3,
section 327]
154. On being licensed, ASIC must notify each licensee of their ACL
number. Where the licensee is also the holder of an Australian
Financial Services Licence they are to be allocated the same
number. [Part 2-2, Division 3, section 43]
155. Licensees will be required to cite their licence number on certain
documents (as specified in the regulations) after a two-year
transitional period. [Part 2-2, Division 5, section 52]
156. It will be an offence of strict liability if a licensee fails to
include their licence number in documents as required [Part 2-2,
Division 5, subsections 52(3) and (4)]. It is a strict liability
offence as it is considered important that consumers are made
aware, in a straightforward and consistent fashion, that they are
dealing with the holder of an ACL, and that they are also able to
accurately check the licensee's details on the register maintained
by ASIC.
157. This offence also has a civil penalty of 2,000 penalty units, so
that ASIC may appropriately penalise any contravention of the
provision.
Persons who can be streamlined to an Australian credit licence
158. A streamlined procedure for applying for an ACL is established for
ADIs. Given the level of existing government oversight, it is
considered that:
. there is no reason to believe that these lenders are
likely to contravene the obligations that are imposed on a
licensee under section 47; and
. there is no reason to believe that these lenders are not
fit and proper persons to engage in credit activities.
159. ADIs therefore will not need to independently satisfy ASIC as to
these requirements, and, as a result, they will only need to
provide a statement, in an approved form, that they will comply
with the obligations of a licensee. [Part 2-2, Division 3, section
38]
160. There is also provision for other classes of applicants to be
streamlined through the regulations [Part 2-2, Division 3, section
39]. It is expected that this power will be used to streamline
holders of 'A' or 'B' class licences under the Finance Brokers
Control Act 1975 (WA), as they have also been subject to robust
oversight..
161. It is explicitly provided that a licence can be subject to
conditions that, in turn, may be varied or revoked, or subject to
cancellation or suspension, and that no compensation is payable in
relation to any such action in respect of a licence. [Part 2-2,
Division 3, section 44]
Division 4 - Conditions on an Australian credit licence
162. ASIC must specify, as a licence condition, the types of credit
activities that the licensee is authorised to engage in, as an
applicant may only meet the criteria to engage in some, but not
all, credit activities. For example, a finance broker may not be
able to demonstrate the necessary competence or expertise to be
authorised to lend. [Part 2-2, Division 4, subsection 45(6)]
163. Once a person is licensed, ASIC may at any time impose, vary or
revoke conditions on a licence. ASIC must however first give the
licensee an opportunity to make submissions and give evidence at a
private hearing. [Part 2-2, Division 4, subsection 45(5)]
164. ASIC can use this power flexibly to, for example, address systemic
issues by imposing additional conditions on the way in which
representatives are trained or supervised.
165. ASIC's power to vary or revoke conditions does not extend to any
standard conditions prescribed by the regulations. [Part 2-2,
Division 4, subsection 45(7)]
166. Where the licensee is regulated by Australian Prudential Regulation
Authority (APRA), special procedures apply. If the licensee is an
ADI and the proposed condition would have the result of
significantly limiting or restricting the ADI's ability to carry on
all or any of its banking business, then the power to impose, vary
or revoke such a condition can only be exercised by the Minister,
and not ASIC. [Part 2-2, Division 4, subsection 46(2)]
167. The Minister refers to the Minister responsible for administering
the Transitional Bill, determined in accordance with section 19A of
the Acts Interpretation Act 1901.
168. If the licensee is not an ADI but still regulated by APRA, then
ASIC must consult with APRA in relation to any new conditions, or
varying existing conditions, where they would prevent the licensee
from carrying on all or any of its usual activities. This is
intended to allow for a consistency in approach by the two
regulators. [Part 2-2, Division 4, subsection 46(1)]
Division 5 - Obligations of licensees
General conduct obligations
169. Once licensed, the licensee must conduct their business in
accordance with a number of specific obligations. The obligations
build on and are more rigorous than those for registered persons
and, in particular, require the applicant to have in place systems
and procedures to meet these obligations. [Part 2-2, Division 5,
section 47]
170. The obligations are to:
. do all things necessary to ensure that the credit
activities authorised by the licence are engaged in
efficiently, honestly and fairly [Part 2-2, Division 5,
paragraph 47(1)(a)];
. have in place adequate arrangements to ensure that clients
of the licensee are not disadvantaged by any conflict of
interest that may arise wholly or partly in relation to
credit activities engaged in by the licensee or by its
representatives [Part 2-2, Division 5, paragraph
47(1)(b)];
. comply with any conditions imposed by ASIC on their
licence [Part 2-2, Division 5, paragraph 47(1)(c)];
. comply with the credit legislation [Part 2-2, Division 5,
paragraph 47(1)(d)];
. take reasonable steps to ensure that its representatives
comply with this legislation [Part 2-2, Division 5,
paragraph 47(1)(e)];
. maintain the competence to engage in the credit activities
authorised by the licence [Part 2-2, Division 5, paragraph
47(1)(f)];
. ensure that its representatives are adequately trained and
are competent to engage in the credit activities
authorised by the licence [Part 2-2, Division 5, paragraph
47(1)(g)];
. have an internal dispute resolution procedure that
complies with standards or requirements made or approved
by ASIC and covers disputes in relation to the credit
activities engaged in by the licensee or by its
representatives [Part 2-2, Division 5, paragraph
47(1)(h)];
. be a member of an approved EDR Scheme [Part 2-2, Division
5, paragraph 47(1)(i)];
. have compensation arrangements, for loss or damage, as a
result of breaches of their obligations, in accordance
with the regulations or as otherwise approved in writing
by ASIC [Part 2-2, Division 5, paragraph 47(1)(j) and
section 48];
. have adequate arrangements and systems to ensure
compliance with its obligations under this section, and a
written plan which documents those arrangements and
systems [Part 2-2, Division 5, paragraph 47(1)(k)];
. except where the licensee is a body regulated by APRA,
have adequate resources to engage in the credit activities
and have adequate risk management systems [Part 2-2,
Division 5, paragraph 47(1)(l)]; and
. comply with any additional obligations imposed by
regulation [Part 2-2, Division 5, paragraph 47(1)(m)].
171. These obligations are principle-based and it is intended that
licensees can be flexible in adopting practices that suit their
organisation. For example, if a licensee distributes credit
contracts where there is a significant risk of consumer detriment
if they are missold then this will need to be reflected in the way
in which it meets these obligations (for example, by training or
monitoring of its representatives that is consistent with the level
of risk).
172. These obligations are intended to ensure that licensees demonstrate
a necessary commitment to meeting the expected standards of conduct
of a licensee, and that persons who cannot do so, irrespective of
the reason, are excluded.
173. It is expressly provided that compliance with the obligations in
paragraphs 47(1), (b), (g), (k) and (l) is to be determined
according to the nature, scale and complexity of the credit
activities engaged in by the licensee.
174. The reference to 'nature, scale and complexity' enables a licensee
to tailor the way in which they comply with the obligations, taking
into account factors such as:
. the types of credit activities the licensee engages in;
. the diversity and structure of the licensee's operations
(including the geographical spread of the operations and
the extent to which the licensee outsources any of its
functions);
. the volume and size of the transactions the licensee is
responsible for; and
. the number of people in the licensee's organisation.
175. The obligations in section 47 continue as long as a person is
licensed. It is unlikely that a licensee can meet all the
obligations in the same way over time, and there is therefore a
need for licensees to monitor and review the way in which they
address these requirements, and to alter their practices in the
light of experience and changes in the operating environment.
176. The first requirement is that a licensee must do all things
necessary to ensure that the credit activities authorised by the
registration are engaged in efficiently, honestly and fairly [Part
2-2, Division 5, paragraph 47(1)(a)]. This requires the licensee
to conduct itself in a way that is consistent with, and reflects an
appreciation of, the need to meet community standards of
efficiency, honesty and fairness.
177. The efficiency criterion cannot be used to justify conduct that is
unfair or dishonest. For example, if a person consistently
arranges for consumers to sign contract documents without any
explanation that may be efficient but in all likelihood it would
not meet the required standard of honesty or fairness, both as to
the procedures adopted and the outcomes for consumers.
178. The licensee must also do all things necessary to meet this
requirement. This is a higher requirement than in relation to
other obligations, where the licensee must 'take reasonable steps
to ensure' it is meeting the obligation.
179. It is unlikely that the licensee will be complying with the
'efficiently, honestly and fairly' obligation if it is failing to
comply with the other obligations. However, the 'efficiently,
honestly and fairly' obligation is also a stand-alone obligation
that operates separately from the other obligations.
180. A licensee must have in place adequate arrangements to ensure that
their clients are not disadvantaged by any conflict of interest
that arises wholly or partly in relation to credit activities
engaged in by the licensee or by its representatives. [Part 2-2,
Division 5, paragraph 47(1)(b)]
181. This obligation only applies to conflicts of interests that arise
by operation of law. It does not require a licensee to take action
in respect of different interests of parties where they do not
constitute a conflict of interest at law.
1. : Conflict of interest
A finance broker also operates as a lender, providing loans
at significantly above market interest rates. The finance
broker would be expected to take reasonable steps to avoid
its clients being disadvantaged by a conflict of interest
arising out of the fiduciary relationship between the broker
and its clients, including by not lending the consumer money
at the higher rates where they were eligible for a loan with
a market rate.
2. : No disadvantage
A finance broker sells investment properties on behalf of a
third party. The finance broker has a discretion to set the
price for the property and earns higher commissions the
larger the amount of the loan. The finance broker's clients
are disadvantaged by this conduct as they are paying a
higher price for the property according to the commission
earnt by their broker. The broker must ensure takes steps
to prevent this disadvantage.
182. A licensee must comply with any conditions imposed by ASIC on their
licence, including any standard conditions included in the
regulations applying to all licensees. [Part 2-2, Division 5,
paragraph 47(1)(c)]
183. A licensee must comply with the credit legislation [Part 2-2,
Division 5, paragraph 47(1)(d)]. This requires the licensee to
conduct their business with an appreciation of the credit
legislation, and the need to conduct their business with respect
for the law. They need to consider their application to all
aspects of their operation, but especially in their dealings with
consumers as the regulation of this relationship is one of the main
areas addressed in the legislation.
184. Where the licensee may breach the credit legislation because of the
conduct of its representatives, rather than its own conduct, then
it will need to adopt procedures which reflect this. For example,
where the licensee has a number of credit representatives in a
range of different locations it will need to adopt different
procedures to ensure it is complying than a licensee with a single
retail outlet.
185. Where a breach of the legislation has occurred, whether as a result
of the conduct of a representative or otherwise, then the licensee
would need to consider whether the circumstances of the breach are
such that it is likely to reoccur, and, if so, to take action to
address this to ensure it complies in the future.
186. A licensee must take reasonable steps to ensure that its
representatives comply with the credit legislation [Part 2-2,
Division 5, paragraph 47(1)(e)]. Representatives refers to the
following classes of persons (but only to the extent their
activities or duties place them in a position where the licensee
must comply with the credit legislation as a consequence of their
conduct) [Part 1-2, Division 2, section 5]:
. any employees and directors of the licensee, or of a
related body corporate of the licensee; and
. any other person acting on behalf of the licensee,
including credit representatives.
187. A licensee must have and maintain the competence to engage in the
credit activities authorised by the licence [Part 2-2, Division 5,
paragraph 47(1)(f)]. This primarily requires the applicant to
demonstrate that they possess, through appropriate personnel, the
skills and experience relevant to all the credit activities
authorised by the licence. Where the applicant only engages in a
narrow range of credit activities then the requisite competence
will be correspondingly limited.
188. A licensee must ensure that its representatives are adequately
trained and are competent to engage in the credit activities
authorised by the licence [Part 2-2, Division 5, paragraph
47(1)(g)]. The licensee must ensure representatives understand and
adhere to compliance arrangements and that where they do not
display the knowledge or skills to meet this obligation an
appropriate response is provided, whether it be further training or
disciplinary action. It is expected that ASIC will provide
guidance on what it considers are the relevant competency
standards. Nevertheless, the obligation must still be met prior to
any guidance from ASIC.
189. The licensee must have an internal dispute resolution procedure
that complies with standards or requirements made or approved by
ASIC and covers disputes in relation to the credit activities
engaged in by the licensee [Part 2-2, Division 5, paragraph
47(1)(h)]. It is expected that these standards would cover matters
such as transparency, that is, the internal dispute resolution
procedures are in writing and known to its representatives where it
is relevant to their functions or duties. The standards will be
particularly relevant to small businesses and to those who do not
have previous experience of internal dispute resolution procedures.
190. The licensee must be a member of an approved EDR Scheme [Part 2-2,
Division 5, paragraph 47(1)(i)]. It is expected that a licensee
would use complaints, whether resolved internally or externally, as
part of its compliance program and that the licensee would
therefore address any structural weaknesses or actual or potential
non-compliance with the law identified through the complaints
handing process.
191. It is also important that, where a complaint cannot be resolved
internally, a licensee deals appropriately with the transfer of the
complaint to the EDR Scheme. The licensee is required to disclose
their membership of the EDR Scheme to consumers if the complaint
cannot be resolved internally (as well as in some of the documents
to be provided to the consumer by the licensee).
192. The licensee must have compensation arrangements, for loss or
damage, as a result of breaches of its obligations in accordance
with the regulations or as otherwise approved in writing by ASIC
[Part 2-2, Division 5, paragraph 47(1)(j) and section 48]. This
obligation only arises when compensation arrangements are
specified, either in the regulations or formally by ASIC.
193. The licensee must have adequate arrangements and systems to ensure
compliance with its obligations under this section, and a written
plan which documents those arrangements and systems. [Part 2-2,
Division 5, paragraph 47(1)(k)]
194. This requirement assists licensees to determine the scope of their
obligations, and to ensure they are complying with the other
general conduct obligations.
195. Except where the licensee is a body regulated by APRA, the licensee
must have adequate resources to engage in the credit activities and
have adequate risk management systems [Part 2-2, Division 5,
subparagraph 47(l)(i)]. This will require applicants to
demonstrate they have sufficient resources to be able to meet their
obligations; it is not sufficient for a person to have a commitment
to complying with the law if they fail, for example, to commit
sufficient resources to monitor changes to the law, and then fail
to implement modifications to their procedures as a result.
196. Except where the licensee is a body regulated by APRA, the licensee
must have adequate risk management systems [Part 2-2, Division 5,
subparagraph 47(l)(ii)]. This will require licensees to be able to
identify risks faced by its business, and develop appropriate
responses to effectively manage those risks.
Obligations to assist ASIC
197. The Credit Bill imposes specific obligations on licensees to assist
ASIC in gathering intelligence and information about licensees, in
order to assist it in its functions in regulating those engaging in
credit activities. [Part 2-2, Division 5, sections 49 to 51]
198. First, a licensee must provide ASIC with information about their
credit activities, whether in response to a written notice from
ASIC or where this is required by the regulations. [Part 2-2,
Division 5, sections 49 and 50]
199. ASIC may require the licensee to provide a report, prepared by a
suitably qualified person, covering matters specified by ASIC in
the written notice. [Part 2-2, Division 5, subsection 49(3)]
200. It will be an offence of strict liability if a licensee:
. fails to comply with a notice to provide information to
ASIC within the time specified in the notice [Part 2-2,
Division 5, subsections 49(7) and (8)]; or
. fails to provide information as prescribed by the
regulations [Part 2-2, Division 5, subsections 49(4) and
(5)].
201. These are strict liability offences as it crucial that ASIC is able
to obtain information about the conduct of a licensee in a timely
way, that allows it to effectively perform its regulatory role.
202. These offences also all have a criminal penalty, and a civil
penalty of 2,000 penalty units, so that ASIC may appropriately
penalise any contravention of these provisions.
203. A licensee must also give reasonable assistance to ASIC as
requested, in relation to whether the licensee and their
representatives are complying with credit legislation. [Part 2-2,
Division 5, section 51]
204. Reasonable assistance is not defined in the Credit Bill, but means
conduct such as making and keeping appointments with ASIC staff,
and cooperating in a reasonable way with requests by ASIC for
assistance.
205. If the request for reasonable assistance is in writing it is
expressly stated that it is not a legislative instrument. This
statement is declaratory of the existing position, consistent with
section 5 of the Legislative Instruments Act 2003. [Part 2-2,
Division 5, subsection 50(2)]
206. The assistance may include the licensee showing ASIC books of the
licensee. This requirement is not to be read as requiring the
licensee to show books where it would not otherwise be required to
do so as a result of the proper exercise of ASIC's powers. [Part 2-
2, Division 5, subsection 50(4)]
207. A licensee is required to lodge with ASIC, on an annual basis, a
compliance certificate. The certificate must:
. be in the form approved by ASIC - it is anticipated that
the form will require a licensee to certify that they are
complying with their obligations under the Credit Bill;
. be signed:
- by the licensee, where they are a natural person, or by
a partner or trustee (if the licensee is a partnership
or trust); or
- where the licensee is a body corporate, by a person of a
kind to be defined in the regulations; and
. be lodged within 45 days of the licensee's licensing
anniversary (that is, the anniversary of the day on which
the licence took effect).
[Part 2-2, Division 5, subsections 53(2), (3) and (7)]
208. It will be an offence of strict liability if a licensee fails to
lodge the compliance certificate with ASIC [Part 2-2, Division 5,
subsections 53(5) and (6)]. It is a strict liability offence as if
there is a reason why the licensee cannot make the necessary
certification it is crucial that ASIC is informed of this in
accordance with the law.
209. The licensee may be required to pay a fee on the lodgment of this
certificate in accordance with the requirements of the National
Consumer Credit Protection (Fees) Bill 2009.
Division 6 - When a licence can be suspended, cancelled or varied
Subdivision A - Suspensions and cancellations
210. ASIC may suspend or cancel a licence without a hearing in limited
circumstances only. First, it can do so where it receives a
request from the licensee in the approved form, or where the
licensee has ceased engaging in credit activities. [Part 2-2,
Division 5, paragraphs 54(1)(a) and (b) and subsection 54(3)]
211. Secondly, in a limited number of situations, ASIC can suspend or
cancel a licence without a hearing where there may be an urgent
need to do so. These circumstances are where a specified person
is:
. insolvent (where they are not the trustees of a trust);
. convicted of serious fraud;
. they are incapable of managing their affairs because of
physical or mental incapacity; or
. becomes subject to a prescribed State or Territory order.
[Part 2-2, Division 5, subsection 54(2)]
212. The persons specified for the purpose of deciding whether ASIC can
take action without a hearing are:
. where the applicant is a natural person - that person;
. where the applicant is a body corporate - every director,
secretary or senior manager who performs duties in
relation to the licence; and
. where the applicant is a partnership or trustee - every
partner or trustee who performs duties in relation to the
licence.
[Part 2-2, Division 5, paragraph 54(1)(c)]
213. ASIC can also suspend or cancel a licence after a hearing, on the
following grounds:
. the licensee has contravened its obligations in section
47, or ASIC has reason to believe that they are likely to
do so;
. the application for the licence contained information that
was false or materially misleading (including where it was
false or misleading because it failed to include relevant
information); or
. ASIC has reason to believe that the fit and proper person
requirement is no longer satisfied, taking into account
the same considerations as those relevant to the question
of whether an application for a licence should be granted.
[Part 2-2, Division 5, subsections 55(1) and (2)]
214. The requirement that the licensee is a fit and proper person is
therefore continuing in nature. Where the licensee engages in
conduct or otherwise demonstrates that they are no longer a fit and
proper person, then ASIC can take action.
215. Special procedures apply in relation to possible suspensions or
cancellations of a licence held by an APRA regulated body. ASIC is
required to consult with APRA as follows:
. where the licensee is an ADI or a related body corporate
of an ADI - where the proposed cancellation or suspension
would prevent the ADI from being able to carry on all or
any of its banking business, then:
- the power to cancel or suspend the licence can only be
exercised by the Minister;
- the Minister must not exercise the power until they have
considered advice from ASIC; and
- ASIC cannot give advice given until it has consulted
APRA about the proposed action; and
. in all other cases where the licensee is regulated by APRA
- ASIC must consult with APRA where the proposed
cancellation or suspension would prevent the body from
being able to carry on all or any of its usual activities.
[Part 2-2, Division 5, section 56]
Subdivision B - Variations
216. ASIC can vary a person's licence as a result of a change in the
name of the licensee. This is to ensure that where a licensee has
changed their name, consumers are able to search the register using
the new name. [Part 2-2, Division 5, section 57]
Subdivision C - Miscellaneous rules about suspensions,
cancellations and variations
217. Where ASIC suspends a licence, then the licence has no effect. The
person can therefore no longer engage in credit activities except
where ASIC specifically provides for this in the suspension.
218. Notwithstanding that ASIC has suspended or cancelled a licence, it
may specify that the licence continues for the purpose of specified
provisions of the Credit Bill in relation to either a specified
matter or for a specified period, or both these matters. [Part 2-
2, Division 5, sections 58 and 62]
219. This allows ASIC to deal flexibly with suspensions or cancellations
by requiring the person to comply with some of the obligations that
attach to licensees, rather than all these obligations ceasing with
the suspension. For example, ASIC could stipulate that obligations
in relation to representatives continue for a specified period.
220. ASIC can revoke any suspension of a licence at any time. [Part 2-
2, Division 5, section 59]
221. The date on which any change by ASIC takes effect is the date on
which the notice is given to the licensee. [Part 2-2, Division 5,
subsection 60(2)]
222. ASIC is required to give written notice of any suspension, or its
revocation, or the cancellation or variation of a licence to the
licensee. Where ASIC suspends or cancels a licence it is required
to specify the reasons for taking this action. [Part 2-2, Division
5, sections 60 and 61]
223. As soon as practicable after the notice is given to the licensee,
ASIC must publish a notice of the cancellation or suspension on its
website, specifying when it came into effect. [Part 2-2, Division
5, subsection 60(3)]
Part 2-3 -Credit representatives and other representatives of
licensees
Division 2 - Authorisation of credit representatives
224. In order to allow flexibility in the market a registered person or
licensee may authorise third parties to engage in credit activities
on its behalf. These persons are described as credit
representatives in the legislation. [Part 2-3, Division 2, section
64]
225. In paragraphs 2.162 to 2.190, the registered person or licensee who
appoints a credit representative is referred to as the principal.
226. This Division of the Credit Bill sets out:
. the circumstances and restrictions on the appointment of
credit representatives;
. the consequences of an appointment in breach of these
requirements; and
. the rules for determining the liability of the principal
for a credit representative.
227. For the avoidance of doubt it is expressly stated in this
explanatory memorandum that the Credit Bill does not seek to set
out prescriptive rules to, for example, the following effect:
. a broker is always only the agent of the consumer;
. a broker can be the agent of the lender or the agent of a
lenders mortgage insurer;
. a person cannot be an agent for more than one party
involved in a transaction; and
. a person who holds an ACL can be appointed as an
authorised representative by the holder of an Australian
financial services licence, and similarly a person who
holds an Australian financial services licence can be
appointed as a credit representative by the holder of an
ACL.
228. The principal must formally authorise a credit representative in
writing. The principal may authorise the credit representative to
either engage in the same activities as the principal, or to only
engage in some of those activities. [Part 2-3, Division 2,
subsections 64(1) and (3)]
229. An authorisation will be of no effect where it purports to
authorise:
. a credit representative to engage in a credit activity
beyond that allowed by the registration or licence;
. a person to engage in a credit activity where the person
is currently prevented from engaging in that credit
activity by a banning or disqualification order (whether
under this Commonwealth law or under a State or Territory
law);
. a person who is not a member of an EDR Scheme in their own
right; or
. a natural person who has been convicted, within the last
10 years, of serious fraud; or
. a person where a prescribed State or Territory order is in
effect against:
- against the proposed credit representative where they
are a natural person;
- any director, secretary or senior manager who would
perform duties in relation to the credit activities
specified in the authorisation, where the proposed
credit representative is a body corporate; or
- a partner or trustee who would perform duties in
relation to the credit activities specified in the
authorisation, where the proposed credit representative
is a partnership or the trustees of a trust.
[Part 2-3, Division 2, subsections 64(4) and (5)]
230. The intention is to require the principal, as part of their
obligations in relation to credit representatives, to make relevant
inquiries into their background, both before appointing a person as
a credit representative, and while they continue to so act. This
is consistent with the general principal that licensees are
responsible for their representatives.
231. Generally credit representatives cannot in turn authorise other
persons to act as either their own credit representatives or as a
credit representative of the principal. This is because the
principal is responsible for the conduct of its credit
representatives and should therefore be able to determine who can
act when cloaked in its authority.
232. The exception to this principle is where a body corporate is
appointed as a credit representative. In this case the credit
representative may, but with the consent of the licensee, appoint a
natural person or persons to engage in credit activities on behalf
of the principal. [Part 2-3, Division 2, section 65]
233. A sub-authorisation of a credit representative by a body corporate
will be of no effect where that authorisation purports to
authorise:
. an individual to engage in a credit activity where any of
the same matters set out in paragraph 2.163 apply to that
individual; or
. an individual to engage in a credit activity where the
principal has not given their written consent.
[Part 2-3, Division 2, subsections 64(5) and (6)]
234. In order to give effect to these restrictions on credit agents a
principal will commit an offence where they either:
. give an authorisation to a credit agent that is of no
effect under either section 64 or 65 [Part 2-3, Division
2, section 69]; or
. fail to revoke or vary, as soon as practicable, an
authorisation that is of no effect under either Section 64
or 65 [Part 2-3, Division 2, section 70].
235. Both of these offences have a criminal penalty, and a civil penalty
of 2,000 penalty units (so that ASIC may appropriately penalise any
contravention of the provision).
236. A credit representative may be authorised to act for more than one
principal. However, each principal must consent to the person also
being the credit representative of each of the other licensees
(except where the person is acting as the credit representative of
a number of related bodies corporate). [Part 2-3, Division 2,
section 66]
237. A licensee is prohibited from acting as the credit representative
of another licensee where the second licensee has a licence which
authorises it to engage in the same activities as the first
licensee. [Part 2-3, Division 2, section 67]
238. A principal may vary or revoke an authorisation at any time, by
written notice to the credit representative [Part 2-3, Division 2,
section 68]. The credit representative must then:
. in the case of a variation - act in accordance with the
written authority as varied; and
. in the case of a revocation - cease engaging in credit
activities.
239. A person who has authorised a credit representative, or has
purported to do so, is required to:
. where any such authorisation is or would be, either in
part or totally, of no effect - not authorise them [Part 2-
3, Division 2, section 69]; and
. where they become aware of a matter which means the
authorisation, either in part or totally, is of no effect
- either revoke the authorisation or vary it if possible
so that it continues to have effect [Part 2-3, Division 2,
section 70].
240. Once a licensee or a corporate credit representative has appointed
a person as a credit representative they are required to notify
ASIC within 15 business days of their appointment. The notice
provided to ASIC must include:
. the name and business address of the credit
representative;
. details of the authorisation, including the date on which
it was made and what the credit representative is
authorised to do on behalf of the principal;
. details of any other principal for whom the credit
representative is authorised to act; and
. details of the EDR Scheme the credit representative has
joined.
[Part 2-3, Division 2, subsections 71(1) to (3)]
241. A licensee or a corporate credit representative must advise ASIC
within 10 business days of the following matters:
. any changes to the information previously provided to ASIC
in respect of the credit representative; or
. the revocation of the authorisation.
[Part 2-3, Division 2, subsection 71(4)]
242. A person will commit an offence (and be liable to a criminal
penalty, and a civil penalty of 2,000 penalty units, so that ASIC
may appropriately penalise any contravention of the provision)
where they are subject to a requirement to give a notice to ASIC
and they fail to do so. [Part 2-3, Division 2, subsections 71(5)
and (6)]
243. This is also an offence of strict liability as it is important that
ASIC be advised of this information within a relatively short
period so that it can update its register, and maintain the
integrity of this database. The register will be used regularly by
both:
. consumers, to verify the status of the person they are
dealing with; and
. by other persons engaging in credit activities, to ensure,
for example, that they are not dealing with someone who is
not authorised, in breach of the law.
244. ASIC must allocate a unique credit representative number to each
authorised credit representative, and must give written notice of
this number to both the credit representative and the person who
authorised them. [Part 2-3, Division 2, section 72]
Division 3 - Information about representatives
245. ASIC is specifically authorised to give a licensee information
about its representatives, where this is relevant to their conduct
or continuing appointment. [Part 2-3, Division 3, section 73]
246. This enables ASIC, in specified circumstances, to provide a
licensee with information it has obtained about a current or
potential representative so that the licensee can decide whether to
employ them, or to terminate or vary their existing terms of
appointment.
247. The information provided by ASIC can only be used by the licensee,
or to any person who the licensee provides it to (such as its
lawyers), for the following purposes:
. making a decision about whether to take action against the
person; and
. taking any action as a result of that decision.
[Part 2-3, Division 3, subsection 73(2)]
248. In relation to information provided by ASIC a person:
. will commit an offence where they use it for a purpose
other than those specified in paragraph 2.181 [Part 2-3,
Division 3, subsections 73(4) and (5)]; and
. will have qualified privilege where they use it for those
purposes [Part 2-3, Division 3, subsection 73(7)].
249. This offence has a criminal penalty of 50 penalty units, or
imprisonment for 1 year or both, and a civil penalty of 2,000
penalty units (so that ASIC may appropriately penalise any
contravention of the provision).
250. The Credit Bill provides that where a person has qualified
privilege then the person:
. has qualified privilege in proceedings for defamation; or
. is not liable, in the absence of malice on the person's
part, to an action for defamation at the suit of a person.
[[Part 1-2, Division 4, section 16]
Division 4 - Liability of licensees for representatives
251. This Division deals with the liability of principals for the
conduct of their credit representatives, including where the credit
representative acts for more than one principal.
252. The Division applies to conduct on which a client could reasonably
be expected to rely and on which the client did rely in good faith.
Where there is reliance it would be unusual for it not to be in
good faith. [Part 2-3, Division 4, section 74]
253. Where a representative acts for only one principal, that principal
is responsible for the conduct of its credit representative,
whether or not the conduct is within the authority of the licensee.
[Part 2-3, Division 4, section 75]
254. Where a credit representative acts for several principals, then the
liability of these principals is to be determined in accordance
with the following principles:
. where the conduct relates to a particular class of credit
activity and the person is a credit representative of only
one of those principals in respect of that type of
activity - that principal is solely responsible;
. if the representative is the representative of more than
one of the principals in relation to a class of credit
activity then:
- where the conduct has only been authorised by one of the
principals - that principal is solely responsible; and
- where the conduct has been authorised by two or more of
the principals - those principals are jointly and
severally responsible to the client; and
. in all other cases - all of the principals are jointly and
severally responsible for the conduct, whether or not the
credit representative's conduct is within authority in
relation to any of them.
[Part 2-3, Division 4, section 76]
255. Where, as a result of the operation of these provisions, a licensee
is responsible for the conduct of a representative, the licensee
will be liable to a client for any loss or damage they suffered as
a result of the conduct of the representative. [Part 2-3, Division
4, section 77]
256. While this Division determines the liability of principals for the
conduct of representatives it does not:
. make a principal either civilly or criminally liable as a
result of the conduct of a representative, when they would
otherwise be liable [Part 2-3, Division 4, subsection
78(3)]; or
. relieve a representative of liability they have to a
client or the licensee [Part 2-3, Division 4, subsection
78(4)].
257. The Credit Bill provides that any agreement is void to the extent
it attempts to avoid the outcomes in paragraphs 2.187 to 2.188, or
change the liability of persons inconsistently with the Credit
Bill. However a principal can obtain an indemnity from the credit
representative or from another principal for any potential
liability arising under this Division. A principal may also
indemnify another principal in respect of the conduct of the credit
representative. This is to allow these parties to be flexible in
determining how to apportion liability amongst themselves. [Part 2-
3, Division 4, subsections 78(5) and (6)]
Part 2-4 - Banning or disqualification of persons from engaging in
credit activities
Division 2 - Banning orders
258. ASIC has the power to make an order banning any person from
engaging in credit activities. The power can be exercised against:
. any natural person, including a licensee, an employee, a
representative (including a credit representative), or a
registered person; or
. a corporate credit representative or other person within
the meaning of the Credit Bill.
[Part 2-4, Division 2, section 80]
259. The intention of a banning order is to protect the public, rather
than being an order to punish or impose a penalty (although this
will usually be a necessary consequence). However, even where the
individual is unlikely to commit an offence again, ASIC may decide
to ban them where it is necessary to protect the public, including
by deterring others who might otherwise be emboldened where
misconduct is perceived to not result in any sanction.
260. A person can be banned if:
. any credit registration or ACL held by the person is
suspended or cancelled;
. the person becomes insolvent (except for the trustees of a
trust);
. the person is convicted of fraud (if they are a natural
person);
. they have breached any credit legislation or are likely to
do so;
. they are involved in a contravention of any credit
legislation or are likely to be involved in a
contravention of any credit legislation;
. a prescribed State or Territory order is made against the
person; or
. ASIC has reason to believe that they are not a fit and
proper person to engage in credit activities.
[Part 2-4, Division 2, subsection 80(1)]
261. A person is 'involved in' a contravention of credit legislation if
the person:
. has aided, abetted, counselled or procured the
contravention;
. has induced the contravention, whether by threats or
promises or otherwise;
. has been in any way, by act or omission, directly or
indirectly, knowingly concerned in or party to the
contravention; or
. has conspired with others to effect the contravention.
[[Part 1-2, Division 2, section 5]
262. The extension of grounds to where the person is involved in a
contravention of credit legislation enables ASIC to take into
account conduct where the person is not under a legal
responsibility to comply with the legislation themselves but they
contributed to or caused another person to breach the legislation.
The Credit Bill primarily places obligations to comply with the law
on the holder of an ACL. Where the ACL is, for example, a body
corporate then any contravention of the law will necessarily be the
result of an act or omission by a natural person, such as a
director or employee. The Credit Bill specifically allows ASIC to
take into account the conduct of these persons where they have been
involved in a contravention of the credit legislation, in deciding
whether or not these individuals should be banned.
263. While fraud is not defined in the Credit Bill, it should, given the
context, be interpreted consistently with the definition of serious
fraud.
264. ASIC can ban a person where their conduct, while not falling into
any of the specific categories, gives ASIC reason to believe that
they are not a fit and proper person to engage in credit
activities.
265. In determining whether a person is not a fit and proper person to
engage in credit activities ASIC is authorised to take into
account:
. the matters listed in subsection 37(2) (as set out in
paragraph 2.72);
. any criminal convictions of the person, within 10 years
before the cancellation or suspension of the licence; and
. any other matters ASIC considers relevant.
[Part 2-4, Division 2, subsection 80(2)]
266. Given that it can be expected that ASIC will principally use this
power to ban individuals, this would enable ASIC to take into
account conduct such as where:
. ASIC believes the individual has committed a fraud, but
the individual has not been prosecuted for this or there
is a delay or uncertainty in any prosecution;
. the individual has engaged in conduct causing serious
detriment or financial loss to consumers, so that there is
a need to protect the public; or
. the individual has demonstrated a consistent failure to
comply with the law, or with directions from any licensee
or employer.
267. ASIC can ban a person without a hearing where:
. their licence was cancelled or suspended without a
hearing; or
. the person has been convicted of serious fraud.
[Part 2-4, Division 2, subsections 80(5) and (6)]
268. It is considered that an awareness by those engaging in credit
activities that misconduct can result in a banning, and potential
loss of livelihood, will act as an effective restraint or
deterrent.
269. A banning order is defined as a written order made by ASIC that
prohibits a person from engaging in credit activities. ASIC is
given flexibility in making orders so that a person can either be
banned from engaging in all activities permanently, or banned in
more limited ways (for example, for a specified period only, or in
relation to specified credit activities). [Part 2-4, Division 2,
section 81]
270. ASIC must give a copy of the banning order to the person against
whom it was made. [Part 2-4, Division 2, subsection 80(8)]
271. If a person engages in conduct in breach of a banning order they
will commit an offence. This offence has a criminal penalty of 100
penalty units, or imprisonment for 2 years, or both, and a civil
penalty of 2,000 penalty units (so that ASIC may appropriately
penalise any contravention of the provision). [Part 2-4, Division
2, section 82]
272. ASIC can vary or cancel a banning order, including a permanent
banning order, either on its own initiative or at the request of
the banned person, where the request is made in the approved form.
[Part 2-4, Division 2, subsections 83(2) and (3)]
273. Where the request is made by the banned person ASIC must consider
whether there has been a change in the circumstances on which the
banning order was based that makes it appropriate to vary or cancel
the banning order. [Part 2-4, Division 2, section 83]
274. Where ASIC proposes not to vary or cancel the banning order it must
give the banned person an opportunity to present their case, at a
private hearing and through written submissions. [Part 2-4,
Division 2, subsection 83(4)]
275. It is expressly stated that a banning order, or any variation or
cancellation of the order, is not a legislative instrument. This
statement is declaratory of the existing position, consistent with
section 5 of the Legislative Instruments Act 2003. [Part 2-4,
Division 2, subsection 81(4)]
276. ASIC must give written notice of any banning order, and any
subsequent variation or cancellation, to the person. [Part 2-4,
Division 2, subsection 83(5)]
277. A banning order, or any variation or cancellation of the order,
takes effect from the date on which the notice is given to the
person [Part 2-4, Division 2, subsections 84(1) and (2)]. ASIC
must also publish a notice of the banning order, or any variation
or cancellation, on its website [Part 2-4, Division 2, subsection
84(3)].
278. ASIC is required to specify in writing the reasons for any banning
and any subsequent variation. [Part 2-4, Division 2, section 85]
Division 3 - Disqualification by the Court
279. Where ASIC has cancelled a licence or has made a permanent banning
order against a person, it can apply to the Court for further
orders:
. an order disqualifying the person from engaging in credit
activities (in total or subject to conditions, or in
specified circumstances); or
. any other order the Court thinks appropriate.
[Part 2-4, Division 3, section 86]
Part 2-5 - Financial records, trust accounts and auditors
280. This part of the Credit Bill imposes obligations on licensees:
. to keep financial records that correctly record and
explain the credit activities the licensee engages in; and
. to keep a trust account, where they receive and hold money
on behalf of another person.
Division 2 - Financial records of licensees
281. Each licensee will be required to keep financial records that
correctly record and explain the transactions they enter into and
their financial position. A failure to keep records as required by
this Division will be an offence with a criminal penalty of 200
penalty units, or imprisonment for 5 years or both, and a civil
penalty of 2,000 penalty units (so that ASIC may appropriately
penalise any contravention of the provision). [Part 2-5, Division
2, section 88]
282. The definition of financial records includes the following types of
records:
. invoices, receipts, orders for the payment of money, bills
of exchange, cheques, promissory notes and vouchers;
. documents of prime entry; and
. where the licensee provides credit services, any trust
account statements or reports that the licensee is
required to keep under Division 3.
[Part 2-5, Division 2, subsection 88(2)]
283. The licensee must also comply with the following requirements in
relation to their financial records:
. the records must correctly record and explain the credit
activities in which the licensee engages [Part 2-5,
Division 2, paragraph 88(1)(a)];
. the records must be kept in a way that:
- enables accurate profit and loss statements and balance
sheets to be prepared; and
- allows this information to be properly audited [Part 2-
5, Division 2, section 89];
. the records must either be kept in English, or in a manner
that enables them to be easily translated into English
[Part 2-5, Division 2, section 90];
. the records must be accessible within this jurisdiction
[Part 2-5, Division 2, section 91]; and
. the records must be sufficiently detailed to show the
following information:
- particulars of money received or paid by the licensee
(which will include moneys paid into and out of any
trust accounts required to be maintained pursuant to
Division 2);
- the amount and date of all payments made by debtors,
lessees or guarantors, and the outstanding balance owing
under each credit contract or consumer lease;
- income received and expenses paid by the licensee; and
- the assets and liabilities of the licensee [Part 2-5,
Division 2, section 92].
284. The Credit Bill provides for regulations to be made to impose
additional requirements in relation to the financial records of
financial services licensees. [Part 2-5, Division 2, paragraph
88(g) and Part 2-5, Division 2, section 93]
285. Licensees are required to retain financial records for a period of
seven years after the transactions covered by the record have been
completed. The requirement applies even where the person has
stopped carrying on a business of engaging in credit activities to
which the records relate. This offence has a criminal penalty of
25 penalty units, or imprisonment for 6 months year or both, and a
civil penalty of 2,000 penalty units (so that ASIC may
appropriately penalise any contravention of the provision). [Part
2-5, Division 2, section 95]
286. It is expressly provided that:
. a financial record is admissible in Court as prima facie
evidence of a matter stated in the record; and
. a document purporting to be a financial record kept by a
licensee is presumed to be such a record, unless the
contrary is proved.
[Part 2-5, Division 2, subsections 96(1) and (2)]
Division 3 - Trust accounts of credit service licensees
287. This Division imposes requirements on licensees where they are
required to keep trust accounts. The obligation only applies to
licensees who:
. provide credit services (that is, they either provide
credit assistance or act as an intermediary); and
. in that capacity they receive money for or on behalf of
another person.
[Part 2-5, Division 3, section 97]
288. The statutory obligations in respect of trust accounts only apply
once a person is licensed. While a person is registered they are
subject to common law obligations where these arise in law.
289. The requirements in respect of trust accounts are:
. to keep trust accounts with an Australian ADI [Part 2-5,
Division 3, subsection 98(2)];
. to designate its title as the licensee's trust account
[Part 2-5, Division 3, subsection 98(3)];
. to pay into the trust account any money received by the
licensee for or on behalf of another person in their
capacity as a licensee [Part 2-5, Division 3, subsection
99(1)]; and
. to only withdraw money from the account to pay a person
who is lawfully entitled to that money [Part 2-5, Division
3, subsections 99(2) and (3)]. It is specifically
provided that the money cannot be used to pay debts of
other creditors of the licensee [Part 2-5, Division 3,
subsection 99(5)].
290. A failure to comply with either section 98 or section 99 will be an
offence with a criminal penalty of 25 penalty units, or
imprisonment for 6 months year or both, and a civil penalty of
2,000 penalty units (so that ASIC may appropriately penalise any
contravention of the provision).
291. The licensee is required to lodge on an annual basis with ASIC
[Part 2-5, Division 3, subsections 100(1) and (2)]:
. a trust account statement; and
. an auditor's report.
292. A breach of this requirement will be an offence with a criminal
penalty of 25 penalty units, or imprisonment for 6 months year or
both, and a civil penalty of 2,000 penalty units (so that ASIC may
appropriately penalise any contravention of the provision).
293. The annual statement and the auditor's report must be in the form
approved by ASIC and contain information and materials as specified
in the regulations [Part 2-5, Division 3, subsection 100(3)].
294. The licensee must lodge the report with ASIC [Part 2-5, Division 3,
section 101]:
. where the licensee is a body corporate - within two months
of the end of the financial year;
. where the licensee is not a body corporate in any other
case - within three months of the end of the financial
year; and
. where the licensee is granted an extension - within the
period of the extension.
295. A financial year is defined as meaning [Part 2-5, Division 3,
subsection 100(6)]:
. where the licensee is a body corporate - a financial year
of the body corporate within the meaning of section 323D
of the Corporations Act; and
. in any other case - a year ending on 30 June.
296. ASIC may grant an extension to the usual time limits where the
request is made by the licensee and the auditor before the end of
the period they would otherwise be required to provide the report
in [Part 2-5, Division 3, subsection 101(3)]. ASIC may impose any
conditions as it considers appropriate on the extension, and the
licensee must comply with those conditions [Part 2-5, Division 3,
subsections 101(4) and (5)].
Division 4 - Matters relating to audit reports
297. This Division regulates the relationship between auditors,
licensees and ASIC, in relation to the following audit reports:
. an audit report under subsection 49(3), in response to a
notice served by ASIC on an applicant for a licence, or a
licensee; and
. an audit report under subsection 100(2) of a licensee's
trust account.
298. In relation to these reports, the licensee or, if it is a body
corporate, a director, secretary or senior manager of the licensee,
is required to:
. provide the auditor with reasonable access to its records;
. assist the audit, or explain to them matters relevant to
the preparation of the report; and
. not fail to give assistance or otherwise hinder or delay
the auditor in the exercise of their duties.
[Part 2-5, Division 3, subsections 102(1)-(3)]
299. The licensee is liable to meet the reasonable fees and expenses of
the auditor, and, if necessary, the auditor can recover this amount
as a debt owing by the licensee. [Part 2-5, Division 3, section
103]
300. An auditor is required to advise ASIC where it becomes aware of any
of the following matters:
. a matter that adversely affects the ability of the
licensee to meet their obligations;
. a matters that contravenes or may contravene Divisions 2
and 3 (that is, the provisions in respect of financial
records and trust accounts); or
. an attempt to unduly influence, coerce, manipulate or
mislead the auditor in the preparation of their report.
[Part 2-5, Division 3, subsection 104(2)]
301. The auditor is only required to advise ASIC if it forms an opinion
that one of these matters has occurred. If it considers the
conduct does not satisfy the requirement in the law it is not
required to report it to ASIC. [Part 2-5, Division 3, subsection
104(2)]
302. An auditor is required, within seven days of becoming aware of such
a matter, to provide a written report to both ASIC and the
licensee. [Part 2-5, Division 3, subsection 104(1)]
303. The Credit Bill provides that qualified privilege will apply to the
following conduct by auditors (including a registered company
auditor on behalf of an audit company):
. statements, whether oral or in writing, made by the
auditor in the course of their duties relating to an audit
report; and
. giving a report as required under subsection 104(1),
either to ASIC or to the potential licensee.
[Part 2-5, Division 3, subsections 105(1) and (2)]
304. A person has qualified privilege where they publish:
. a document prepared by an auditor in the course of their
duties in relation to an audit report; and
. a statement, whether oral or in writing, made by an
auditor or a registered company auditor on behalf of an
audit company in the course of their duties relating to an
audit report.
[Part 2-5, Division 3, subsections 105(3) and (4)]
305. The Credit Bill provides that where a person has qualified
privilege then the person:
. has qualified privilege in proceedings for defamation; or
. is not liable, in the absence of malice on the person's
part, to an action for defamation at the suit of a person.
[Part 1-2, Division 4, section 16]
306. The Credit Bill includes a power to make regulations in respect of:
. audit reports required either under subsection 37(4) in
response to a notice served by ASIC on an applicant for a
licence, or a licensee, or under subsection 100(2) (in
respect of a licensee's trust account);
. auditors that prepare the reports; and
. the auditing standards that must be complied with in the
preparation of the reports.
[Part 2-5, Division 3, section 106]
Part 2-6 - Exemptions and modifications in relation to this Chapter
Division 2 - Exemptions and modifications in relation to this
Chapter
307. Exemptions and modifications can be effected both by ASIC and
through the regulations to the following provisions of the
legislation:
. Chapter 2 of the Credit Bill - dealing with licensing of
persons who engage in credit activities;
. the definitions in the Credit Bill, as they apply in
Chapter 2 of the Credit Bill; and
. instruments made for the purposes of Chapter 2 of the
Credit Bill.
[Part 2-6, Division 2, section 108]
308. There are three different ways in which the application of these
provisions can be modified or changed:
. by ASIC exempting or modifying their application to:
- a particular person; or
- a credit activity that is engaged in, in relation to a
specified credit contract, mortgage, guarantee or
consumer lease [Part 2-6, Division 2, subsection
108(1)];
. by ASIC exempting or modifying their application to:
- a class of persons; or
- a class of credit activities [Part 2-6, Division 2,
subsections 108(3) and (4)]; or
. by an exemption or modification of their application in
the regulations to:
- a class of persons; or
- a class of credit activities [Part 2-6, Division 2,
section 110].
309. An exemption by ASIC of a particular person or a credit activity
that is engaged in relation to a specified credit contract,
mortgage, guarantee or consumer lease is stated not to be a
legislative instrument. This statement is declaratory of the law,
consistent with section 5 of the Legislative Instruments Act 2003.
[Part 2-6, Division 2, subsection 109(2)]
310. An exemption by ASIC of a particular person or a credit activity
that is engaged in in relation to a specified credit contract,
mortgage, guarantee or consumer lease must be in writing and must
be published by ASIC on its website. [Part 2-6, Division 2,
subsection 109(5)]
311. A person will not commit an offence where their conduct:
. is only an offence because of the nature of the exemption
by ASIC (for example, where the exemption is conditional
and the condition is not met); and
. at the time of the conduct the person had not been given
notice of the exemption (either because they had not been
given written notice of it by ASIC or because it had not
been published by ASIC on its website).
[Part 2-6, Division 2, subsection 109(6)]
Chapter 3
Responsible lending conduct
Outline of chapter
312. Chapter 3 of this explanatory memorandum discusses the imposition
of responsible lending conduct obligations on all holders of
Australian credit licences. These obligations are contained in
Chapter 3 of the National Consumer Credit Protection Bill 2009
(Credit Bill).
313. The obligations arise in respect of certain conduct in relation to
contracts as defined in sections 4 and 5 of the National Credit
Code (Code) and consumer leases to which Part 11 of the Code
applies. Where the term 'credit contract' or 'contract' is used in
this Chapter, it includes both credit contract and consumer lease
(unless the contrary intention appears).
314. In addition to general conduct obligations for licensees to operate
efficiently, fairly and honestly, licensees who provide credit or
credit assistance will be required to meet specific conduct
obligations in relation to lending and leasing responsibly.
315. The responsible lending conduct obligations set in place expected
standards of conduct of licensees when they enter into a consumer
credit contract, where they suggest a credit contract to a consumer
or where they assist a consumer to apply for a credit contract.
316. The key obligation for licensees is to ensure they do not provide,
suggest, or assist with a credit contract that is unsuitable for
the consumer. This obligation requires licensees to reasonably
inquire and verify a customer's financial circumstances to make an
assessment that the credit contract will meet the consumer's
requirements and that the consumer has the capacity to repay the
contract.
317. Further, licensees must disclose key details about themselves that
will assist the consumer to understand who they are dealing with,
the dispute resolution services available to the consumer, an
indication of any costs the consumer may incur, and other matters.
318. The Australian Securities and Investments Commission (ASIC) and
consumers will be able to take action against a licensee for non-
performance of the responsible lending conduct obligations.
Context of new law
319. The May 2008 final Productivity Commission's report on the Review
of Australia's Consumer Policy Framework (the PC Report) noted an
increased use of credit in Australia over the last 20 years.
Increased use of credit has led to higher levels of household
indebtedness which impacts on household financial capacity and
ability to respond to changing circumstances such as interest rate
increases, a slowdown in economic conditions or rising
unemployment. Evidence suggests that these increases have come
about mostly as a result of the growth in the size of home loans
over the years.
320. In addition, the distribution channels for credit to consumers
(such as the use of various intermediaries) and the development of
products such as no and low documentation loans have often placed
the borrower at arm's length from the lender and have limited the
documentation and inquiries regarding a consumer's financial
position that lenders have before them, when deciding whether or
not to approve an application. The consumer is in a position where
they are dependent on the intermediary's skill and expertise. The
level of regulation of market participants providing such services
varies significantly from State to State.
321. In recognition of the need for national regulation of brokers the
Ministerial Council on Consumer Affairs (MCCA) released the draft
Finance Brokers Bill (NSW) in November 2007.
322. The regulation impact statement developed in the preparation of the
Finance Brokers Bill (NSW) documented in detail a number of
undesirable market practices, including:
. brokers recommending products that earned them higher
commissions but which are inappropriate, higher cost or
unaffordable for their clients;
. brokers misrepresenting the applicants' financial details
so that the loan is approved, and the broker receives
commissions, when, if the lender was aware of the
borrower's actual financial position, they would reject
the application;
. brokers 'upselling' loans to higher amounts to increase
commissions; and
. brokers and lenders engaging in 'equity stripping', that
is, arranging or providing high-cost loans for borrowers
in financial difficulty (particularly those facing
foreclosure of the family home), in the expectation that
the borrower will default with subsequent transfer of the
consumer's equity in their home to the broker and the
lender through fees, charges and default interest.
323. Before the draft Finance Brokers Bill (NSW) was finalised the
States agreed to the transfer of responsibility for credit to the
Commonwealth allowing for the introduction of a national approach
to licensing that extends to all persons engaging in credit
activities.
324. The Productivity Commission in its review of consumer protection
noted that poor lending practices have contributed to a growing
number of borrowers experiencing financial stress, and recommended
consideration, in the context of a national credit regime, of what,
if any, initiatives are required to promote 'responsible lending'.
325. The Productivity Commission commented that the purchase of
financial services can entail significant monetary commitments,
sometimes over long periods of time. Where imprudent lending
decisions are made, the consequences for consumers can be
particularly costly. Moreover, purchasing decisions will often
involve complex product comparisons, with consumers frequently
relying on intermediaries to make these comparisons on their
behalf. However, assessing the quality of such advice, even after
the event, can be problematic. Accordingly, effective consumer
protection measures are particularly important for these services.
326. Current regulation of credit for consumers, under the Uniform
Consumer Credit Code (UCCC), primarily regulates credit providers
(rather than credit assistants or intermediaries) in relation to
matters such as the disclosure requirements to be met in order to
provide consumers with credit contracts, or how to vary those
contracts in the event of hardship or default. It does not
comprehensively address the appropriateness of the initial
provision of the credit to the consumer. That is to say, it does
not regulate whether or not it was responsible to lend to the
consumer in the first place. However, most lending institutions
apply lending criteria to determine who they will lend to, which in
large part consider the borrower's circumstances and the risk the
loan poses to the lending institution.
327. Responsible lending conduct regulation encourages prudent lending
and leasing to continue and imposes sanctions in relation to
irresponsible lending and leasing.
328. The Code contains a provision that imposes 'up front' obligations
on any party to a credit transaction. These obligations set out
that 'a person must not a make a false or misleading representation
in relation to a matter that is material to entry into a credit
contract or a related transaction or in attempting to induce
another person to enter into a credit contract or related
transaction'. This places accountability on all parties to a
credit transaction, borrower, credit assistant and lender alike to
conduct themselves honestly and transparently.
329. Several Australian lending institutions have established
responsible lending charters and processes. The United Kingdom
introduced responsible lending laws in 2006.
Summary of new law
330. Chapter 3 of the Credit Bill includes the requirements and
obligations in relation to lending and leasing responsibly to
consumers.
331. These obligations are placed on licensees who:
. enter into credit contracts or consumer leases;
. suggest a consumer enter into a particular credit contract
or consumer lease with a particular credit provider or
lessor; or
. assist a consumer to apply for a particular credit
contract or consumer lease with a particular credit
provider or lessor.
332. Persons who lend or lease solely proprietary contracts are not
caught by the obligations applying to the provision of credit
assistance. In contrast, a credit provider or lessor who deals in
contracts from other providers, in addition to their proprietary
contracts, is required to meet the credit assistance requirements.
333. The obligations also apply when a relevant licensee increases an
existing credit limit, suggests a consumer increase the limit of a
credit contract or assists a consumer to apply for an increase in a
credit limit.
334. When a licensee suggests to a consumer that they remain in an
existing credit contract or consumer lease the obligations also
apply. This results in an equivalent regulatory treatment of a
suggestion to refinance to an alternative credit contract or remain
in an existing credit contract.
335. A particular credit contract with a particular credit provider or
lessor is key to when the responsible lending conduct obligations
are triggered. The obligations with regard to the suggestion of
credit are not triggered when, for example, a home loan generally,
or a credit card generally are suggested to a consumer.
336. The primary obligations in relation to the provision of credit (for
example, lending); or the provision of credit assistance (for
example, suggesting a particular credit contract or assisting with
a particular credit contract) are: to make an assessment that the
loan is not unsuitable for the consumer; and to assess that the
consumer has the capacity to meet the financial obligations under
the contract without substantial hardship.
337. The consumer will have the right to request a copy of an
assessment. However, there is no obligation to provide the
consumer with a copy of the assessment if the credit assistance or
contract is not provided to the consumer.
338. The assessment obligations are supplemented by disclosure
obligations. A licensee who triggers the responsible lending
obligations must disclose key details about themselves to:
. assist the consumer to understand who they are dealing
with;
. advise the consumer of their access to dispute resolution
services; and
. provide an indication of any costs the consumer may incur.
339. Licensees will also be obliged to ensure actual fees to be incurred
are known to the consumer before the credit or assistance is
provided. Many fee and commission disclosure obligations already
exist for credit providers in the Code (see section 17 of the
Code). The proposed legislation requires credit assistants to make
fee and commission disclosures.
340. Breaches of the responsible lending obligations can result in a
range of sanctions including:
. criminal penalties of up to two years imprisonment and/or
200 penalty units; and
. civil penalties up to 2,000 penalty units.
341. Details of the sanctions regime are in Chapter 4 (Remedies) of the
Credit Bill. Some civil penalties will attract the infringement
notice regime. The infringement notice regime is set out in
section 331 of Chapter 7 (Miscellaneous) of the Credit Bill.
Detailed explanation of new law
Part 3-1 - Licensees that provide credit assistance in relation to credit
contracts
342. This Part of the Credit Bill does not apply to licensees who deal
only with their proprietary credit contracts or proprietary
consumer leases. The responsible lending conduct obligations
applying to these licensees are different in some significant
respects, and are set out in Part 3-2.
343. Credit assistance is defined in section 8 of the Dictionary in
Chapter 1. In summary, a person provides credit assistance to a
consumer where they suggest that the consumer:
. apply for a provision of credit in respect of a particular
credit contract or lease;
. apply for an increase to the credit limit of a particular
credit contract or lease; or
. remain in a particular credit contract or lease. [Part 1-
2, Division 3, paragraphs 8(a), (b), (c), (f) and (g)]
344. A person also provides credit assistance where they assist the
consumer:
. in respect of a particular credit contract or lease, to
apply for a provision of credit in respect of a particular
credit contract or lease; or
. to apply for an increase to the credit limit of a
particular credit contract or lease. [Part 1-2, Division
3, paragraphs 8(d), (e) and (h)]
345. A person provides credit assistance whether they deal directly with
the consumer or with the consumer's agent. This is intended to
apply in situations where, for example, the person is assisting an
elderly parent to apply for a credit contract, but is dealing with
one or more of their children.
Division 2 - Credit guide of credit assistance providers
346. When a licensee, who is a credit assistance provider (credit
assistant), considers it likely they will be providing credit
assistance, they will be required to provide the consumer with a
credit guide. The credit guide must be provided to the consumer as
soon as practicable after it becomes apparent to the credit
assistant that they are likely to provide credit assistance to the
consumer. Failure to comply with this requirement attracts a civil
penalty, of a maximum of 2,000 penalty units. The maximum civil
penalty units are in line with the civil penalties regime in the
Corporations Act. [Part 3-1, Division 2, subsection 113(1)]
347. The purpose of the credit guide is to provide the consumer with key
information early in the credit transaction so that they are
informed and aware of necessary matters before deciding to use the
services of the credit assistant.
348. The credit guide gives the consumer some preliminary information
about the credit assistant and disclosure of key conduct
obligations of the credit assistant and key rights of the consumer
(such as the requirement not to suggest or assist with unsuitable
credit contracts, the consumer's right to request a copy of the
preliminary assessment and access to information about procedures
for resolving disputes).
349. The guide must also include information about the possible nature
and size of fees and charges that the consumer may incur if they
use the credit assistant's services. This is likely to include the
basis on which the consumer would pay the credit assistant, for
example, the fees information might set out the hourly rate that
the credit assistant charges or the percentage of the amount of
credit secured (if that is the basis on which the fee is charged to
the consumer). [Part 3-1, Division 2, paragraph 113(2)(e)]
350. The guide also includes information about the six credit providers
with whom the credit assistant conducts the most business. [Part 3-
1, Division 2, paragraph 113(2)(f)]
351. The guide must also set out an overview of the commission
arrangements between the credit assistant and the credit providers
with whom they deal for providing credit assistance.
. For example, this disclosure may set out that the credit
assistant receives upfront commission of a certain rate or
a range of rates and trailing commission of a certain rate
or range of rates upon the successful securing of the
credit contract.
. The reasonable estimate of the amounts may, for example,
be set out in percentage or dollars (for example, per
$1,000 of credit secured).
. The information about the method for working out these
amounts may, for example, state that it is a flat rate or
relates to a volume of sales.
[Part 3-1, Division 2, paragraph 113(2)(g)]
352. A regulation-making power is included in order to allow for the
content of the credit guide to be revised as necessary [Part 3-1,
Division 2, paragraph 113(2)(b)]. A further regulation-making
power is included to prescribe any information that need not be
included in the credit guide. The power also allows for further
specificity to be prescribed in relation to providing information
regarding commissions as required in subsection 113(2)(g) [Part 3-
1, Division 2, subsection 113(3)].
353. It is envisaged that the credit assistant could meet the
requirements of a credit guide through the provision of a
standardised document as the information is not generally tailored
to a specific contract.
354. The credit guide may be provided in the most suitable manner for
the circumstance, for example either in person, in writing, (for
example, by post or an email) or as a notice appearing on the
Internet website which is accepted by the consumer.
355. A regulation-making power is included in order to prescribe the
manner for giving the credit guide if prescription becomes
necessary. For example, regulations could be made that set out how
a credit guide may be given where the conduct takes place over the
telephone. [Part 3-1, Division 2, subsection 113(4)]
356. A breach of section 113 is also an offence of strict liability,
subject to a maximum penalty of 50 penalty units. The imposition
of a strict liability offence is considered appropriate in order to
encourage the relevant parties to put in place systems and policies
that minimise the risk of contraventions of the relevant
provisions. [Part 3-1, Division, subsections 113(5) and (6)]
Division 3 - Quote for providing credit assistance etc. in
relation to credit contracts
357. Before providing credit assistance to a consumer, a licensee must
provide a quote for the credit assistance that is to be provided
and any other services the quote covers. The quote advises the
consumer of the maximum cost to them in relation to using the
services of the credit assistant. It includes all costs that the
consumer will be likely to incur either out of their own pocket or
disbursed from the credit for the credit assistant's services. It
is possible that the final cost to the consumer may be less than
the quoted amount.
358. The quote must advise the consumer of whether or not the costs will
be incurred by the consumer irrespective of whether the credit is
successfully secured. It is envisaged that under the business
arrangements of some credit assistants, the consumer could possibly
still be required to pay the credit assistant for their services
and pay for services such as a property valuation (via the credit
assistant) despite the credit application not being successful.
359. The quote must be signed (or otherwise accepted) and dated by the
consumer and then a copy of the accepted quote must be provided to
the consumer before the credit assistance is provided. Failure to
comply with the requirement attracts a civil penalty, of a maximum
of 2,000 penalty units. The maximum civil penalty units are in
line with the civil penalties regime in the Corporations Act 2001
(Corporations Act). [Part 3-1, Division 3, subsection 114(1)]
360. The quote, in writing, must set out:
. information about the credit assistance and other services
that the quote covers, for example, this might include the
scope of the credit assistance to be provided such as the
consumer's requirements or the type of loan the consumer
is looking for and any other services that will incur a
cost to be paid to the credit assistant (either for their
services or for payment to another service provider, such
as a valuer);
. the maximum amount payable in relation to the credit
assistance set out in paragraph 114(2)(c), detailing:
- in dollars, the maximum fee payable by the consumer for
using the credit assistance;
- in dollars, the maximum of any other charges the
licensee will incur for providing the credit assistance
that they will pass on to the consumer (for example
postage or photocopying); and
- in dollars, the maximum of any other fees and charges
payable to the credit assistant that the consumer may
incur as a result of the licensee making payments to
another person on their behalf (such as valuation fees
or legal fees).
. whether the amount is payable if the credit contract is
not secured or the credit limit is not increased. [Part 3-
1, Division 3, subsection 114(2)]
361. A regulation-making power is included in order to allow for any
other requirements to be prescribed in relation to the quote.
[Part 3-1, Division 3, paragraph 114(2)(f)]
362. The quote may be given in the most appropriate manner for the
circumstances, for example, either in person, in writing (by post
or electronically, for example, as an attachment to an email).
363. A regulation-making power is included in order to prescribe the
manner for giving the quote if prescription becomes necessary.
[Part 3-1, Division 3, subsection 114(3)]
364. The credit assistant must neither request nor demand payment of the
quoted amount prior to providing the credit assistance nor demand
payment of an amount that exceeds the maximum amount set out in the
quote. Failure to comply with these requirements attracts a civil
penalty, of a maximum of 2,000 penalty units. The maximum civil
penalty units is in line with the civil penalties regime in the
Corporations Act. [Part 3-1, Division 3, subsections 114(4) and
(5)]
365. The credit assistant must not claim an estate or interest in any
land by lodging or threatening to lodge a caveat in order to induce
the consumer to pay any amounts the consumer may owe the credit
assistant. Failure to comply with the requirement attracts a civil
penalty, of a maximum of 2,000 penalty units. The maximum civil
penalty units is in line with the civil penalties regime in the
Corporations Act. [Part 3-1, Division 3, subsection 114(6)]
Division 4 - Obligations of credit assistance providers before
providing credit assistance for credit contracts
366. Before providing credit assistance, the credit assistant must make
a preliminary assessment as to whether the proposed contract will
be unsuitable for the consumer or the increased credit limit will
be unsuitable for the consumer.
367. The preliminary assessment must be made no more than 90 days before
the suggestion or assistance is given and must be an assessment
that relates to the period in which the consumer proposes to enter
the contract or increase the credit limit. Failure to comply with
the requirement attracts a civil penalty, of a maximum of 2,000
penalty units. The maximum civil penalty units are in line with
the civil penalties regime in the Corporations Act. [Part 3-1,
Division 4, subsection 115(1)]
368. For different types of credit it may be appropriate to provide for
a longer or shorter length of time in which the preliminary
assessment is to be made before the assistance day. This period
may be prescribed by the regulations.
369. The credit assistant must also have made the inquiries and
verification as set out in detail in section 117. Failure to make
an assessment as required incurs a civil penalty.
1.
A consumer visits a finance broker in January saying she
would like to buy a house later that year, probably around
June, as she is going to get a payrise and could the broker
suggest a loan that meets the consumer's requirements (not
discussed in this example). The broker makes the relevant
inquiries and a month later the consumer provides the broker
with the relevant documents in order to verify the
consumer's financial situation. With these matters
complete, the broker suggests a loan to the consumer on 15
February. This is the assistance day.
The preliminary assessment was completed earlier in
February, prior to the assistance day, and is therefore
compliant with the requirement to be no more than 90 days
old from the assistance day.
The assessment establishes that the proposed loan will be
suitable for the consumer in June, the period in which the
consumer is looking to enter the contract, and therefore
complies with the requirement to cover the period in which
the contract is proposed to be entered into.
If the consumer found a house earlier than June and seeks to
apply for the loan earlier, then the preliminary assessment
would not necessarily establish that the contract was not
unsuitable, as it was based on the contract being entered
into in June, to take into account a contemplated financial
circumstance (the payrise) that would only apply at that
time.
Suggestions to remain in a credit contract
370. A preliminary assessment must also be made by a credit assistant no
more than 90 days before providing credit assistance which suggests
that the consumer remain in a particular credit contract with a
particular credit provider and which assesses the time at which the
suggestion to remain is made (there is no period in which the
consumer could propose to enter the contract as there is not one
being suggested). Failure to comply with the requirement attracts
a civil penalty, of a maximum of 2,000 penalty units. The maximum
civil penalty units is in line with the civil penalties regime in
the Corporations Act. [Part 3-1, Division 4, subsection 115(2)]
371. For different types of credit it may be appropriate to provide for
a longer or shorter length of time in which the preliminary
assessment is to be made before the assistance day. This period
may be prescribed by the regulations.
372. The credit assistant must also have made the inquiries and
verification as set out in detail in section 117. Failure to make
an assessment as required incurs a civil penalty.
Preliminary assessment of unsuitability of the credit contract
373. In order to have made a compliant preliminary assessment for the
purposes of subsection 115(1), the credit assistant must specify
the period that the assessment covers (which is to be the period
that it is proposed that the contract be entered or the credit
limit to be increased). [Part 3-1, Division 4, paragraph
116(1)(a)]
374. In order to have made a compliant preliminary assessment for the
purposes of subsection 115(2), the credit assistant must specify
the period that the assessment covers (which is to be a period
which includes the assistance day). [Part 3-1, Division 4,
paragraph 116(2)(a)]
375. A compliant preliminary assessment must also assess whether the
credit contract will be unsuitable for the consumer if the contract
is entered or the credit limit is increased in that specified
period. [Part 3-1, Division 4, paragraphs 116(1)(b) and 116(2)(b)]
Reasonable inquiries etc. about the consumer
376. In order to appropriately meet the requirement to make an
assessment about the unsuitability of a suggested contract for the
consumer or of a contract application in relation to which they are
providing assistance, the credit assistant must:
. make reasonable inquiries about the consumer's
requirements and objectives for the credit contract;
. make reasonable inquiries about the consumer's financial
situation;
. take reasonable steps to verify the consumer's financial
situation; and
. make any inquiries or take any verification steps as
prescribed by the regulations.
Failure to comply with the requirement attracts a civil penalty, of
a maximum of 2,000 penalty units. The maximum civil penalty units
is in line with the civil penalties regime in the Corporations Act.
[Part 3-1, Division 4, subsection 117(1)]
377. The purpose of the credit assistant's preliminary assessment of
unsuitability is to ensure that credit assistants do not suggest to
consumers (or assist consumers to apply for) credit contracts that
they do not reasonably believe meet the consumer's requirements and
objectives and reasonably believe that the consumer has the
capacity to repay the contract without substantial hardship.
378. In contrast to an unsuitability assessment made by a credit
provider for the purposes of entering a consumer into a credit
contract, an unsuitability assessment made by a credit assistant is
considered to be a 'preliminary' assessment based on the
information available to a credit assistant. This does not
diminish the credit assistant's responsibilities with regard to
making reasonable inquiries and undertaking reasonable verification
of the information they can access. However, it recognises that
the credit assistant does not have access to some information that
is available to a credit provider (such as credit bureau data and
data arising from a banking relationship) and that a credit
assistant is not making an assessment that takes into consideration
the commercial risk of being the lender.
379. The minimum requirement for satisfying reasonable inquiries about
the consumer's requirements and objectives will be to understand
the purpose for which the credit is sought and determine if the
type, length, rate, terms, special conditions, charges and other
aspects of the proposed contract meet this purpose or put forward
credit contracts that do match the consumer's purpose.
380. The purpose for undertaking reasonable inquiries about the
consumer's financial situation is to ascertain a reasonable
understanding of the consumer's ability to meet all the repayments,
fees, charges and transaction costs of complying with the proposed
credit contract. The general position is that consumers should be
able to meet the contract's obligations from income rather than
equity in an asset. However, it is noted that there may be
circumstances where this may not be a reasonable position.
1.
Where interest is prepaid and capitalised into the loan
principal, consideration needs to be given to the consumer's
ability to meet the credit contract payments and any
associated transaction fee that will be incurred after the
'repayment free' period ends in determining whether the
proposed credit contract is not unsuitable for the consumer.
For example, if it is reasonably foreseeable the consumer
will be required to refinance the loan after the interest-
free period because they cannot meet the ongoing payments,
it is unlikely the loan would be not unsuitable.
381. Reasonable inquiries about the consumer's financial situation could
include: determining the amount and source of the consumer's
income; determining the extent of fixed expenses (such as rent or
contracted expenses such as insurance, other credit contracts and
associated information); and other variable expenses of the
consumer (and drivers of variable expenses such as number of
dependents and number of vehicles to run, and any particular or
unusual circumstances).
382. The significance of these inquiries will be dependent on
circumstances. For example, the credit assistant's knowledge of
expenses such as the monthly mobile phone expense may be a
proportionately significant expense for a low income earner,
therefore reasonable inquiries would seek to ensure, to the extent
possible, that such matters have been included in the consumer's
expenses. In contrast, the mobile phone expense may not be
significant to a high net worth individual and may require little
inquiry.
383. The possible range of factors that may need to be established in
relation to a consumer's capacity to repay credit could include:
. the consumer's current income and expenditure;
. the maximum amount the consumer is likely to have to pay
under the credit contract for the credit;
. the extent to which any existing credit contracts are to
be repaid, in full or in part, from the credit advanced;
. the consumer's credit history, including any existing or
previous defaults by the consumer in making payments under
a credit contract;
. the consumer's future prospects, including any significant
change in the consumer's financial circumstances that is
reasonably foreseeable (such as a change in the amount the
consumer has to pay under the credit contract for the
credit or under any other credit contract to which the
consumer is party).
384. The level of inquiries necessary to meet the level of 'reasonable
inquiries' is likely to be greater where the consumer is
refinancing, particularly where they are having difficulties
meeting the repayments, or are even in arrears, on their existing
credit contract. In this situation it will be possible to
determine that the consumer cannot meet the repayments of the
amount being charged under that contract, and a contract will prima
facie be unsuitable where the repayments are at the same or a
similar level. Where the current contract is no longer not
unsuitable and no alternative contract is considered to be not
unsuitable, there is a defence provided that allows the credit
assistant to suggest the consumer remain in the existing contract
without contravention of the responsible lending obligations (see
explanation at subsection 124(7)).
385. There are usually transaction costs associated with refinancing,
including any fees for using a credit assistant's services. All
costs of changing credit contracts are expected to be taken into
consideration when assessing the consumer's ability to meet the
obligations of the new credit contract over its entire term.
386. A regulation-making power is included in order to prescribe
particular inquiries or steps that must be made or taken, or do not
need to be made or taken in order to have made reasonable inquiries
or reasonable verification [Part 3-1, Division 4, subsection
117(2)]. ASIC also expects to provide guidance where appropriate
to set out further detail about reasonable inquiries and
verification in particular circumstances.
387. It is noted that there will be matters that will not be able to be
known to the credit assistant. This may arise where the consumer
may not disclose the matter, despite the credit assistant's
inquiry, and where there was no reasonable way of verifying the
information provided.
388. The Code contains a provision that imposes up front obligations on
any party to a credit transaction. Subsection 154(1) of the Code
says 'a person must not a make a false or misleading representation
in relation to a matter that is material to entry into a credit
contract or a related transaction or in attempting to induce
another person to enter into a credit contract or related
transaction'.
389. It is noted that this imposes an obligation on credit providers,
debtors, guarantors as well as any third party (such as a credit
assistant). A debtor who makes a false or misleading
representation to a credit provider or guarantor to induce them to
provide or guarantee the credit may be liable for any loss
suffered.
390. Any compensation to a consumer or an order in relation to loss or
damage can be mitigated (including limiting any compensation) if
the consumer has made a false or misleading representation in order
to obtain the credit. This is to take into account what is
practically just in the circumstances.
391. It is noted that where a credit assistant has performed a
preliminary assessment the credit provider may rely on the
verification of the information undertaken by the credit assistant
that was used for the purposes of making the preliminary
assessment, when certain preconditions are met. Details of this
are discussed at subsection 130(3).
When a credit contract must be assessed as unsuitable - entering
contract or increasing the credit limit
392. There is an obligation on a credit assistant to assess that the
credit contract will be unsuitable for the consumer if the contract
will be unsuitable (as defined below). However, this does not
limit the credit assistant from assessing that the contract will be
unsuitable for other reasons. Failure to comply with the
requirement attracts a civil penalty, of a maximum of 2,000 penalty
units. The maximum civil penalty units is in line with the civil
penalties regime in the Corporations Act. [Part 3-1, Division 4,
subsection 118(1)]
393. A credit contract must be assessed as unsuitable for the consumer
if at the time of making the preliminary assessment it is likely
that:
. the consumer will be unable to comply with the financial
obligations under the contract, or could only comply with
substantial hardship;
. the contract will not meet the consumer's requirements and
objectives; or
. prescribed circumstances that set out when the contract
must be assessed as unsuitable are present,
if the contract were entered in the period proposed or the credit
limit increased in the period proposed. [Part 3-1, Division 4,
subsection 118(2)]
394. For it to be likely that the consumer will be able to comply with
the financial obligations under the contract, the credit assistant
must take a future view of the reasonable foreseeability of that
compliance, given the financial obligations will arise into the
future.
395. It is presumed that if a consumer will only be able to comply with
their financial obligations under the contract by selling their
principal place of residence, then the consumer could only comply
with those obligations with substantial hardship, unless the
contrary is established. [Part 3-1, Division 4, subsection 118(3)]
396. The effect of this is that where a consumer establishes that they
could only meet the repayments by selling their home, then the onus
is on the credit assistant to establish that the contract was not
unsuitable.
397. The only information that must be taken into account by a credit
assistant when making the preliminary unsuitability assessment has
two elements.
398. The first is information that the credit assistant had reason to
believe to be true. That would include, for example, information
that has been provided by the consumer about their financial
circumstances that has been verified by the credit assistant or is
otherwise reasonably believed to be true.
399. The second is information that the credit assistant would have had
reason to believe if the reasonable steps to verify required had in
fact occurred, the intent of this part of the proposed provision is
to ensure that credit assistants, in making their assessments
regarding unsuitability, are required to take into consideration
information that they should have become aware of if the reasonable
steps to verify had been taken. Information that does not satisfy
these requirements (that is, information that is not reasonably
believed to be true) must not be taken into account. [Part 3-1,
Division 4, subsection 118(4)]
When the credit contract must be assessed as unsuitable - remaining
in credit contract
400. Similarly to the requirements in section 118, credit assistance
that suggests the consumer remain in a credit contract that they
are currently in, also needs to meet the requirement to not be an
unsuitable suggestion for the consumer based on the outcome of a
preliminary assessment. Failure to comply with the requirement
attracts a civil penalty, of a maximum of 2,000 penalty units. The
maximum civil penalty units is in line with the civil penalties
regime in the Corporations Act. [Part 3-1, Division 4, subsections
119(1) and (2)]
401. Further, it is presumed to be unsuitable to suggest a consumer
remain in a credit contract that could only be complied with by
selling the consumer's principal place of residence, unless the
contrary is established. [Part 3-1, Division 4, subsection 119(3)]
402. Finally, the credit assistant must only use information that it has
reason to believe was true or would have reason to believe was true
if it had undertaken the inquiries or verification required.
Information that does not satisfy these requirements must not be
taken into account. [Part 3-1, Division 4, subsection 119(4)]
Providing the consumer with the assessment
403. For the purposes of considering proceeding with a particular credit
contract or in the event of a dispute in relation to a suggested
credit contract or assisted credit application, a consumer may
request a copy of the preliminary assessment that sets out the
determination that the proposed or existing credit contract is not
unsuitable for them, and the grounds for that assessment.
404. A copy of the preliminary assessment may be requested by the
consumer within seven years of the date of the credit assistance
quote. It must be provided by the credit assistant within:
. seven business days of the credit assistant receiving the
request, if the request is made within two years of the
quote; or
. 21 business days thereafter.
There is no obligation on a credit assistant to provide a copy of
the assessment if the credit assistance is not provided to the
consumer. Failure to comply with the requirement attracts a civil
penalty, of a maximum of 2,000 penalty units. The maximum civil
penalty units is in line with the civil penalties regime in the
Corporations Act. [Part 3-1, Division 4, subsection 120(1)]
405. Regulations may prescribe the manner in which the licensee must
give the consumer the copy of the assessment if considered
necessary. [Part 3-1, Division 4, subsection 120(2)]
406. The consumer cannot be charged any costs for being provided a copy
of the assessment. Failure to comply with the requirement attracts
a civil penalty, of a maximum of 2,000 penalty units. The maximum
civil penalty units is in line with the civil penalties regime in
the Corporations Act. [Part 3-1, Division 4, subsection 120(3)]
407. A breach of either subsection 120(1) or (3) is also an offence of
strict liability, subject to a maximum penalty of 50 penalty units.
The imposition of a strict liability offence is considered
appropriate in order to:
. enhance the effectiveness of the regulatory regime dealing
with ASIC's enforcement powers; and
. encourage the relevant parties to put in place systems and
policies that minimise the risk of contraventions of the
relevant provisions. [Part 3-1, Division 4, subsections
120(4) and (5)]
Division 5 - Fees, commission etc. relating to credit contracts
408. The credit assistant must provide, at the same time as providing
credit assistance, a credit proposal disclosure in writing, to the
consumer. Failure to comply with the requirement attracts a civil
penalty, of a maximum of 2,000 penalty units. The maximum civil
penalty units is in line with the civil penalties regime in the
Corporations Act. [Part 3-1, Division 5, subsection 121(1)]
409. The credit proposal disclosure must contain the following:
Commissions
. A reasonable estimate of the total amount of any
commission that the credit assistant, their employee,
director or credit representative is likely to receive in
relation to the particular credit contract being suggested
or for which assistance to apply for the particular credit
contract is being provided [Part 3-1, Division 5,
paragraph 121(2)(b)].
Fees and charges
. Any fees or charges the consumer is liable to pay to the
credit assistant, in relation to applying for the credit
contract being suggested by the credit assistant (this
figure was foreshadowed in the quote) [Part 3-1, Division
5, paragraph 121(2)(a)].
. A reasonable estimate of any fees or charges the consumer
is liable to pay to the credit provider, in relation to
applying for the credit contract being suggested by the
credit assistant [Part 3-1, Division 5, paragraph
121(2)(c)].
. A reasonable estimate of any fees or charges the consumer
is liable to pay to any another person in relation to
applying for the credit contract (this figure was
foreshadowed in the quote). [Part 3-1, Division 5,
paragraph 121(2)(d)]
- Where any of these fees or charges are being disbursed
from the credit being applied for, the credit assistant
is to provide an estimate of the net amount of credit
that will be available to the consumer after those
payments are made [Part 3-1, Division 5, paragraph
121(2)(e)].
1.
Jesse Consumer is applying for a loan of $150,000 for a
housing mortgage with the assistance of a credit assistant.
The credit assistant previously quoted that his fees to
suggest and apply for a loan that met the consumer's
requirements (not discussed here) would be $225 plus an
estimated $500 for a property valuation and $800 for legal
fees.
The loan application fee to be charged by the credit
provider for the suggested loan is $100.
The credit assistant receives 2 per cent commission for
every $100,000 of credit secured from the suggested credit
provider.
The credit proposal disclosure document set out the required
information as follows:
|Credit proposal disclosure for Jesse |
|Consumer, 27 May 2009 |
|Provided by Rhys' Credit Assistance Services|
| |
|In relation to application for XYZ Mortgage |
|Product |
|Description |Amount |
|Amount of credit applied |$150,000 |
|for | |
|Costs to be disbursed from | |
|credit | |
|Credit assistant fees |$225 |
|Legal fees |$800 |
|Valuation fees |$500 |
|Credit provider charges |$100 |
|Total estimate of costs |$1,625 |
|Net credit available to |$148,375 |
|consumer | |
|Estimated total commissions|$3,000 |
|receivable by the credit | |
|assistant from the credit | |
|provider | |
|(This is estimated by a | |
|percentage of the credit | |
|secured) | |
410. A regulation-making power is included to allow for further
specificity to be prescribed in relation to providing information
regarding commissions as required in paragraph 121(2)(b). [Part 3-
1, Division 5, subsection 121(3)]
411. The credit proposal disclosure document may be given in the most
suitable manner for the circumstance, for example either in person,
in writing, (for example, by post or an attachment to an email).
412. A regulation-making power is included in order to prescribe the
manner for giving the quote if prescription becomes necessary.
[Part 3-1, Division 5, subsection 121(4)]
413. A credit assistant must not profit from payments made to another
person (third party) by the credit assistant on behalf of the
consumer made in the course of providing credit assistance.
Failure to comply with the requirement attracts a civil penalty, of
a maximum of 2,000 penalty units. The maximum civil penalty units
is in line with the civil penalties regime in the Corporations Act.
[Part 3-1, Division 5, subsection 122(1)]
Division 6 - Prohibition on suggesting, or assisting with,
unsuitable credit contracts
414. There is a prohibition on credit assistants from suggesting to
consumers or assisting consumers to apply for the provision of
credit under a particular credit contract with a particular credit
provider, if the contract will be unsuitable for the consumer.
Failure to comply with the requirement attracts a civil penalty, of
a maximum of 2,000 penalty units. The maximum civil penalty units
is in line with the civil penalties regime in the Corporations Act.
[Part 3-1, Division 6, subsection 123(1)]
415. Similarly, there is a prohibition on credit assistants from
suggesting that the consumer remain in a particular credit contract
with a particular credit provider if the contract is unsuitable for
the consumer at that time. Failure to comply with the requirement
attracts a civil penalty, of a maximum of 2,000 penalty units. The
maximum civil penalty units is in line with the civil penalties
regime in the Corporations Act. [Part 3-1, Division 6, subsection
124(1)]
416. A credit contract is unsuitable for a consumer if at the time the
credit assistant suggests it or assists the consumer to apply for
it, it is likely that the consumer will be unable to comply with
the consumer's financial obligations under the contract or could
only comply with substantial hardship at that time, or the contract
does not meet the consumer's requirements and objectives at the
time that the contract is proposed to be entered or the credit
limit is proposed to be increased. [Part 3-1, Division 6,
subsections 123(2) and 124(2)]
417. It is presumed that if a consumer will only be able to comply with
their financial obligations under the contract by selling their
principal place of residence, then the consumer could only comply
with those obligations with substantial hardship, unless the
contrary is established.
418. The effect of this is that there will be an onus on the credit
assistant to demonstrate that it was not unsuitable to suggest or
assist with a credit contract with a consumer that could only be
complied with as a result of the sale of the consumer's primary
place of residence. [Part 3-1, Division 6, subsections 123(3) and
124(3)]
419. The information that must be taken into account by a credit
assistant when determining if the contract will be unsuitable
includes two elements.
420. The first is information that the credit assistant had reason to
believe to be true. That would include, for example, information
that has been provided by the consumer about their financial
circumstances that has been verified by the credit assistant or is
otherwise reasonably believed to be true.
421. The second is information that the licensee would have had reason
to believe if the reasonable steps to verify required had in fact
occurred, the intent of this part of the proposed provision is to
ensure that credit assistants, in making their assessments
regarding unsuitability, are required to take into consideration
information that they should have become aware of if the reasonable
steps to verify had been taken. Information that does not satisfy
these requirements (that is, information that is not reasonably
believed to be true) must not be taken into account. [Part 3-1,
Division 6, subsections 123(4) and 124(4)]
422. Regulations may allow for specific situations in which a credit
contract is taken to be unsuitable or not unsuitable. [Part 3-1,
Division 6, subsections 123(5) and 124(5)]
423. Breach of the requirement in subsections 123(1) and 124(1) is an
offence, punishable by a maximum penalty of 100 penalty units, or 2
years imprisonment, or both. This reflects the importance of the
need to deter the most serious 'moral', economic and social harm in
relation to consumer credit, that is suggesting a consumer enter
into an unsuitable credit contract or assisting a consumer to enter
an unsuitable credit contract. ASIC and the courts will be able to
target the sanction in accordance with the seriousness of the
breach. [Part 3-1, Division 6, subsections 123(6) and 124(6)]
424. Where a credit assistant suggests that a consumer remain in an
unsuitable contract because there is no other credit contract that
is not unsuitable for the consumer, the credit assistant will have
a defence to this suggestion if the credit assistant informs the
consumer of the procedure for seeking a variation of their contract
with their credit provider or a stay of enforcement from their
credit provider. The credit assistant bears the burden to evidence
that there was no alternative contract that was not unsuitable and
that they informed the consumer of the procedures. [Part 3-1,
Division 6, subsection 124(7)]
425. Regulations may be made that prescribe the particular inquiries
that must be made, or do not need to be made, for determining that
no other credit contract was not unsuitable for the consumer.
[Part 3-1, Division 6, subsection 124(8)]
Part 3-2 - Licensees that are credit providers under credit contracts
Division 2 - Credit guide of credit providers
426. A licensee who considers it likely they will be entering into a
credit contract with a consumer will be required to provide the
consumer with the licensee's credit guide. The guide is required
be provided to the consumer as soon as practicable after it becomes
apparent to the credit provider that the consumer is likely to
enter into a credit contract with them. Failure to comply with the
requirement attracts a civil penalty, of a maximum of 2,000 penalty
units. The maximum civil penalty units is in line with the civil
penalties regime in the Corporations Act. [Part 3-2, Division 2,
subsection 126(1)]
427. The credit guide includes the following information about the
credit provider:
. key identification information;
. procedures for resolving disputes with a consumer; and
. a description of key obligations of the credit provider
(which relate to the requirement not to provide consumers
with an unsuitable loan and the consumer's right to
request a copy of the credit provider's assessment that
the loan is not unsuitable for the consumer).
[Part 3-2, Division 2, subsection 126(2)]
428. The purpose of the credit guide is to provide the consumer with key
information early in the credit transaction, so that they are
informed of relevant matters before deciding to enter a credit
contract with the particular credit provider.
429. It is envisaged that the credit provider could meet the
requirements of a credit guide through the provision of a
standardised document as the information is not generally tailored
to a specific contract.
430. When a credit application is received by a credit provider from a
credit assistant, it is anticipated that the credit guide
information will be provided to the consumer in the provider's
first communication with them, often this will be at the time the
pre-contractual disclosure is provided, as required by the Code as
it is likely at this time that the credit provider will be entering
into a credit contract with the consumer. If the provider's credit
guide has already been provided by the credit assistant (and met
the requirements of subsection 126(2)), there is no expectation to
provide it again.
431. A regulation-making power is included in order to allow for the
content of the credit guide to be revised and modified as
necessary. [Part 3-2, Division 2, subsection 126(3)]
432. The credit guide may be provided in the most suitable manner for
the circumstance, for example either in person, in writing, (for
example, by post or an email) or as an Internet notice accepted by
the consumer.
433. A regulation-making power is included that will permit prescription
regarding the manner for giving the credit guide. [Part 3-2,
Division 2, subsection 126(4)]
434. A breach of section 126 is also an offence of strict liability,
subject to a maximum penalty of 50 penalty units. The imposition
of a strict liability offence is considered appropriate in order to
encourage the relevant parties to put in place systems and policies
that minimise the risk of contraventions of the relevant
provisions. [Part 3-2, Division 2, subsections 126(5) and (6)]
Credit guide of credit providers who are assignees
435. When the rights or obligations of a consumer credit contract are
assigned to another licensee, the new credit provider will be
required to provide all debtors with their credit guide as soon as
practicable. The provision of this credit guide notifies the
debtor of the change in legal ownership of the credit contract, and
key information about the assignee's membership of external dispute
resolution and compensation arrangements. Failure to comply with
the requirement attracts a civil penalty, of a maximum of 2,000
penalty units. The maximum civil penalty units is in line with the
civil penalties regime in the Corporations Act. [Part 3-2,
Division 2, subsection 127(1)]
436. The credit guide includes some basic information about the
assignee, and the procedures for dealing with a dispute with the
consumer. [Part 3-2, Division 2, subsection 127(2)]
437. A regulation-making power is included in order to allow for the
required content of the credit guide to be revised or modified.
[Part 3-2, Division 2, subsection 127(3)]
438. The assignee's credit guide may be provided in the most suitable
manner for the circumstance, for example either in person, in
writing, (for example, by post or an email) or as an Internet
notice accepted by the consumer.
439. A regulation-making power is included that will permit prescription
regarding the manner for giving the credit guide. [Part 3-2,
Division 2, subsection 127(4)]
440. 1.121 A breach of section 127 is also an offence of strict
liability, subject to a maximum penalty of 50 penalty units. The
imposition of a strict liability offence is considered appropriate
in order to encourage the relevant parties to put in place systems
and policies that minimise the risk of contraventions of the
relevant provisions. [Part 3-2, Division 2, subsections 127(5) and
(6)]
Division 3 - Obligations of credit providers before entering credit
contracts or increasing credit limits
441. Before entering into a credit contract with a consumer, the credit
provider must make an assessment as to whether the contract will be
unsuitable for the consumer. Similarly, when a credit provider is
increasing the limit of an existing credit contract, the credit
provider must assess whether the new limit for the credit contract
will be unsuitable for the consumer before increasing the limit.
Failure to comply with the requirement attracts a civil penalty, of
a maximum of 2,000 penalty units. The maximum civil penalty units
is in line with the civil penalties regime in the Corporations Act.
[Part 3-2, Division 3, section 128]
442. The assessment must be made no more than 90 days before the credit
contract is entered (the critical day) and must be an assessment
that covers the day the contract is to be entered or the credit
limit increased.
443. For different types of credit contracts, it may be appropriate to
provide for a longer or shorter length of time in which the
assessment is to be made before the critical day. This period may
be prescribed by the regulations.
444. The credit provider must also have made the inquiries and
verification as set out in detail in section 130. Failure to make
an assessment as required incurs a civil penalty.
Assessment of unsuitability of the credit contract
445. In order to make a compliant assessment for the purposes of section
128, the credit provider must specify the period that the
assessment covers (which is to be a period which includes the
critical day). [Part 3-2, Division 3, section 129]
446. A compliant assessment must also assess whether the credit contract
will be unsuitable for the consumer if the contract is entered or
the credit limit is increased in that specified period. [Part 3-2,
Division 3, section 129]
Reasonable inquiries etc. about the consumer
447. In order to appropriately meet the requirement to make an
assessment about the unsuitability of the contract for the
consumer, the credit provider must:
. make reasonable inquiries about the consumer's
requirements and objectives for the credit contract;
. make reasonable inquiries about the consumer's financial
situation; and
. take reasonable steps to verify the consumer's financial
situation.
Failure to comply with the requirement attracts a civil penalty, of
a maximum of 2,000 penalty units. The maximum civil penalty units
is in line with the civil penalties regime in the Corporations Act.
[Part 3-2, Division 3, subsection 130(1)]
448. Regulation-making power allows for specific matters or steps to be
undertaken that are considered mandatory to meet the assessment
requirement. Regulations may also prescribe steps or particular
inquiries that do not need to be taken to meet the assessment
requirement. [Part 3-2, Division 3, subsection 130(2)]
449. ASIC also expects to provide guidance where appropriate to set out
further detail about reasonable inquiries and verification process
in particular circumstances.
450. Consideration of what is reasonable will depend on the
circumstances. Generally, the minimum requirement for satisfying
reasonable inquiries about the consumer's requirements and
objectives will be to understand the purpose for which the credit
is sought and determine if the type, length, rate, terms, special
conditions, charges and other aspects of the proposed contract meet
this purpose or put forward credit contracts that do match the
consumer's purpose.
1.
It could be unlikely that a small amount loan for the
purpose of meeting a living expense (such as fixing the car)
that had a high interest rate and a term of several years
would meet the consumer's requirements and not be
unsuitable.
2.
A consumer may apply directly to the credit provider for a
credit card. Often a credit card has no particular purpose
and therefore there would be limited requirement to
understand the consumer's requirements and objectives in
this case. However, there would remain the requirement to
assess the consumer's capacity to repay the contract and not
to offer the consumer more credit than they requested.
Where the credit provider knew the initial use of the credit
card (for example, a major purchase such as a car) it would
need to take that into account in considering whether or not
the credit contract was not unsuitable.
3.
A consumer applies for a short term, small amount loan to
meet an urgent expense. It is assumed that the consumer in
this situation does not have savings and therefore that the
ability to meet the repayments is entirely from future
income. The purpose of the loan (for example, to meet rent
or utilities bills) and the inquiries into the borrower's
financial circumstances indicate that there is very little
discretionary expenditure that could be reduced in order to
free-up income or meet high interest payments or fees.
Reasonable inquiries to make an assessment of the consumer's
capacity to repay the loan would include recent payslips and
bank statements confirming details of pay dates and amounts,
number of dependents, time employed, period at home address
and other factors that influence the consumer's capacity to
repay.
451. The purpose for undertaking reasonable inquiries about the
consumer's financial situation is to ascertain a reasonable
understanding of the consumer's ability to meet all the repayments,
fees, charges and transaction costs of complying with the proposed
credit contract. The general position is that consumers should be
able to meet the contract's obligations from income rather than
equity in an asset.
452. Reasonable inquiries about the consumer's financial situation could
ordinarily include inquiries about the amount and source of the
consumer's income, determining the extent of fixed expenses (such
as rent or contracted expenses such as insurance, other credit
contracts and associated information) and other variable expenses
of the consumer (and drivers of variable expenses such as the
number of dependents and the number of vehicles to run, particular
or unusual circumstances). The extent of inquiries will however
depend on the circumstances.
453. The possible range of factors that may need to be established in
relation to a consumer's capacity to repay credit could include:
. the consumer's current income and expenditure;
. the maximum amount the consumer is likely to have to pay
under the credit contract for the credit;
. the extent to which any existing credit contracts are to
be repaid, in full or in part, from the credit advanced;
. the consumer's credit history, including any existing or
previous defaults by the consumer in making payments under
a credit contract; and
. the consumer's future prospects, including any significant
change in the consumer's financial circumstances that is
reasonably foreseeable (such as a change in repayments for
an existing home loan, due to the ending of a honeymoon
interest rate period).
454. It is noted that there will be matters that will not be able to be
known to the credit provider. This may arise where the consumer
may not disclose the matter, despite the credit provider's inquiry,
and where there was no reasonable way of verifying the information
provided.
455. The Code contains a provision that imposes up front obligations on
any party to a credit transaction. Subsection 154(1) says 'a
person must not a make a false or misleading representation in
relation to a matter that is material to entry into a credit
contract or a related transaction or in attempting to induce
another person to enter into a credit contract or related
transaction'.
456. It is noted that this imposes an obligation on credit providers,
debtors, guarantors as well as any third party. A debtor who makes
a false or misleading representation to a credit provider or
guarantor to induce them to provide or guarantee the credit may be
liable for any loss suffered.
457. Any compensation to a consumer or an order in relation to loss or
damage can be mitigated (including limiting any compensation) if
the consumer has made a false or misleading representation in order
to obtain the credit. This is to take into account what is
practically just in the circumstances.
Reasonable steps to verify
458. In undertaking the assessment, credit providers are required to
take into account information about the client's financial
situation and other matters required by the regulations that they
either already possess, or which would be known to them if they
made reasonable inquiries and took reasonable steps to verify it.
This provision means that credit providers must ask the client
about their financial situation and the other matters prescribed in
the regulations, and must make such efforts to verify the
information provided by the client as would normally be undertaken
by a reasonable and prudent lender in those circumstances.
Conducting a credit reference check is, for instance, likely to be
an action that would be reasonable to undertake in most
transactions. Credit providers are not expected to take action
going beyond prudent business practice in verifying the information
they receive.
459. ASIC may also provide guidance, where appropriate, to set out
further detail about reasonable inquiries and verification in
particular circumstances.
When not required to take steps to verify
460. Where a preliminary assessment:
. has been performed in accordance with section 115;
. was performed no more than 90 days before the day the
contract is being entered or the limit increased;
. has determined the contract as not unsuitable for the
consumer; and
. contains the information that was used for the preliminary
assessment;
the credit provider is not required to verify the information used
in performing the preliminary assessment. [Part 3-2, Division 3,
subsection 130(3)]
Refinancing
461. The level of inquiries necessary to meet the level of 'reasonable
inquiries' is likely to be greater where the consumer is
refinancing, particularly where they are having difficulties
meeting the repayments, or even in arrears, on their existing
credit contract. In this situation it will usually be possible to
determine that the consumer cannot meet the repayments of the
amount being charged under that contract, and a contract will prima
facie be unsuitable where the repayments are at the same or a
similar level.
462. There are usually transaction costs associated with refinancing,
including any fees for using a credit assistant's services. All
costs of changing credit contracts are expected to be taken into
consideration when assessing the consumer's ability to meet the
obligations of the new credit contract over its entire term.
When a credit contract must be assessed as unsuitable
463. A credit provider must assess that the credit contract will be
unsuitable for the consumer if the contract will be unsuitable for
the consumer. [Part 3-2, Division 3, subsection 131(1)]
464. A credit contract must be assessed as unsuitable for the consumer
if it is likely that at the time of entering the contract it is
reasonably foreseeable that:
. the consumer will be unable to comply with the consumer's
financial obligations under the contract, including by not
being able to make payments, or could only comply with
substantial hardship;
. the contract will not meet the consumer's requirements and
objectives; or
. prescribed circumstances set out that the contract must be
assessed as unsuitable.
Failure to comply with the requirement attracts a civil penalty, of
a maximum of 2,000 penalty units. The maximum civil penalty units
is in line with the civil penalties regime in the Corporations Act.
[Part 3-2, Division 3, subsection 131(2)]
465. Even if the contract will not be unsuitable for the consumer as
assessed, the credit provider may still assess that the contract
will be unsuitable for other reasons.
466. The standard for the consumer being likely to meet the financial
obligations in the contract is an objective one. It is not
directly linked to the credit provider's own internal standards and
guidelines regarding assessing a capacity to repay. Such internal
standards and guidelines would be expected to factor in the credit
provider's own policies on risk exposures and may vary from time to
time, in line with changes to the risk appetite of the credit
provider, and the commercial and economic environment.
Accordingly, the fact that an application for credit satisfied a
credit provider's own policies for affordability does not
necessarily mean that it met the standard in the legislation.
However, it is expected that the types of inquiries made and
assessments conducted for the purposes of the credit provider's
internal standards and guidelines on affordability would, in most
cases, be very similar to those that are required in order to
assess the likelihood that a consumer can meet the financial
obligations under the proposed contract.
467. The concept of substantial hardship is used in paragraph 76(2)(l)
of the Code and is applied similarly for responsible lending.
468. It is presumed that if a consumer will only be able to comply with
their financial obligations under the contract by selling their
principal place of residence, the consumer could only comply with
those obligations with substantial hardship, unless the contrary is
established.
469. The effect of this that there will be an onus on the credit
provider to demonstrate that it was not unsuitable to enter into a
credit contract with a consumer that could only be complied with as
a result of the sale of the consumer's primary place of residence.
[Part 3-2, Division 3, subsection 131(3)]
470. The information that must be taken into account by a credit
provider for determining if the credit contract is unsuitable
includes two elements.
471. The first is information that the credit provider had reason to
believe to be true. That would include, for example, information
that has been provided by the consumer about their financial
circumstances that has been verified by the credit provider or is
otherwise reasonably believed to be true.
472. The second is information that the licensee would have had reason
to believe if the required reasonable steps to verify had in fact
occurred, the intent of this part of the proposed provision is to
ensure that credit providers, in making their assessments regarding
unsuitability, are required to take into consideration information
that they should have become aware of if the reasonable steps to
verify had been taken. Information that does not satisfy these
requirements (that is, information that is not reasonably believed
to be true) must not be taken into account. [Part 3-2, Division 3,
subsection 131(4)]
Giving the consumer the assessment
473. For the purposes of considering entering a particular credit
contract or in the event of a dispute in relation to an existing
credit contract, a consumer may request a copy of the assessment
that sets out determination that the proposed or existing credit
contract is not unsuitable for them and the grounds for that
assessment. Failure to comply with the requirement attracts a
civil penalty, of a maximum of 2,000 penalty units. The maximum
civil penalty units are in line with the civil penalties regime in
the Corporations Act. [Part 3-2, Division 3, subsection 132(1)]
474. The consumer has the right to request this assessment up to seven
years after the critical day (ordinarily, the day the credit
contract is entered or increased). A copy of the assessment must
be provided to the consumer within seven business days of the
credit provider receiving a request made within two years of the
critical day and within 21 business days of the credit provider
receiving a request made thereafter. There is no obligation on a
credit provider to provide a copy of the assessment if the credit
contract is not entered into or the credit limit is not increased.
Failure to comply with the requirement attracts a civil penalty, of
a maximum of 2,000 penalty units. The maximum civil penalty units
are in line with the civil penalties regime in the Corporations
Act. [Part 3-2, Division 3, subsection 132(2)]
475. The consumer cannot be charged any costs for being provided a copy
of the assessment. [Part 3-2, Division 3, subsection 132(4)]
476. Regulations may prescribe the manner in which the licensee must
give the consumer the copy of the assessment if considered
necessary. [Part 3-2, Division 3, subsection 132(3)]
477. A breach of either subsection 132(1), (2) or (4) is also an offence
of strict liability, subject to a maximum penalty of 50 penalty
units. The imposition of a strict liability offence is considered
appropriate in order to:
. enhance the effectiveness of the regulatory regime dealing
with ASIC's enforcement powers; and
. encourage the relevant parties to put in place systems and
policies that minimise the risk of contraventions of the
relevant provisions. [Part 3-2, Division 2, subsections
126(5) and (6)]
Division 4 - Prohibition on entering , or increasing the credit
limit of, unsuitable credit contracts
478. There is a prohibition on credit providers from entering into a
consumer credit contract or increasing the limit of an existing
credit contract if the contract is unsuitable for the consumer at
the time the contract is entered into or the limit is increased.
479. A credit contract is unsuitable for a consumer if at the time it is
entered or the credit limit is increased it is likely that the
consumer will be unable to comply with the consumer's financial
obligations under the contract, or could only comply with
substantial hardship at that time or the contract does not meet the
consumer's requirements and objectives at that time. Failure to
comply with the requirement attracts a civil penalty, of a maximum
of 2,000 penalty units. The maximum civil penalty units is in line
with the civil penalties regime in the Corporations Act. [Part 3-
2, Division 4, subsections 133(1) and (2)]
480. For it to be likely that the consumer will be able to comply with
the financial obligations under the contract, the credit provider
must take a future view of the reasonable foreseeability of that
compliance, given the financial obligations will arise into the
future.
481. It is presumed that if a consumer will only be able to comply with
their financial obligations under the contract by selling their
principal place of residence, then the consumer could only comply
with those obligations with substantial hardship, unless the
contrary is established.
482. The effect of this that there will be an onus on the credit
provider to demonstrate that it was not unsuitable to enter into a
credit contract with a consumer that could only be complied with as
a result of the sale of the consumer's primary place of residence.
[Part 3-2, Division 4, subsection 133(3)]
483. The information that must be taken into account by a credit
provider when determining the contract is unsuitable includes two
elements.
484. The first is information that the credit provider had reason to
believe to be true. That would include, for example, information
that has been provided by the consumer about their financial
circumstances that has been verified by the credit provider or is
otherwise reasonably believed to be true.
485. The second is information that the credit provider would have had
reason to believe if the required reasonable steps to verify had in
fact occurred, the intent of this part of the proposed provision is
to ensure that credit providers, in making their assessments
regarding unsuitability, are required to take into consideration
information that they should have become aware of if the reasonable
steps to verify had been taken. Information that does not satisfy
these requirements (that is, information that is reasonably
believed to be true) must not be taken into account. [Part 3-2,
Division 4, subsection 133(4)]
486. Regulations may allow for specific situations in which a credit
contract is taken to be unsuitable or not unsuitable. [Part 3-2,
Division 4, subsection 133(5)]
487. Breach of the requirement in subsection 133(1) is an offence,
punishable by a maximum penalty of 100 penalty units, or 2 years
imprisonment, or both. This reflects the importance of the need to
deter the most serious 'moral', economic and social harm in
relation to consumer credit; that is entering into an unsuitable
credit contract with a consumer. ASIC and the courts will be able
to target the enforcement action and sanction in accordance with
the seriousness of the breach. [Part 3-2, Division 4, subsection
133(6)]
Part 3-3 - Licensees that provide credit assistance in relation to consumer
leases
488. Divisions 2 to 6 largely replicate the same requirements on
licensees where they are providing credit assistance in respect of
a consumer lease, as those applying in respect of a credit
contract. [Part 3-3, sections 136 to 147]
Part 3-4 - Licensees that are lessors under consumer leases
489. Divisions 2 to 4 largely replicate the same requirements on
licensees where they enter into consumer leases as lessors, as
those applying where they enter into credit contracts. [Part 3-4,
sections 149 to 156]
Part 3-5 - Credit representatives
Division 2 - Credit guide of credit representatives
490. A registered person or a licensee can authorise third parties to
engage in credit activities on its behalf, without these persons
having to hold a licence in their own right. These persons are
known as 'credit representatives'. The registered person or
licensee has responsibility for supervising these persons, and must
specify in writing the credit activities they can engage in. A
credit representative may be authorised to act for more than one
principal.
491. As a result of this arrangement, that allows for the representative
to be authorised to act for more than one principal, a credit
representative is required to provide in its credit guide
information that sets out the credit representative's separate
identity and information about the parties for which they act, and
other relevant information.
492. The credit representative must provide this information in their
own credit guide, which they must give to a consumer at the same
time they provide a consumer a licensee's credit guide. Failure to
comply with the requirement attracts a civil penalty, of a maximum
of 2,000 penalty units. The maximum civil penalty units is in line
with the civil penalties regime in the Corporations Act. [Part 3-
5, Division 2, subsection 158(1)]
493. The credit representative's guide gives the consumer some basic
information about the credit representative, the six licensees with
whom they conduct the most business, commissions the credit
representative is likely to receive from those licensees,
disclosure of the authorised services of the credit assistant and
information that flags the possible nature and size of fees and
charges that the consumer may incur if they use the credit
representative's services. [Part 3-5, Division 2, subsection
158(2)]
494. A regulation-making power is included in order to allow for the
content of the credit guide to be revised as necessary. [Part 3-5,
Division 2, subsection 158(3)]
495. The credit guide may be provided in the most suitable manner for
the circumstance, for example either in person, in writing, (for
example, by post or an email) or as an Internet notice accepted by
the consumer.
496. A regulation-making power is included in order to prescribe the
manner for giving the credit guide if prescription becomes
necessary. [Part 3-5, Division 2, subsection 158(4)]
497. A breach of section 158 is also an offence of strict liability,
subject to a maximum penalty of 50 penalty units. The imposition
of a strict liability offence is considered appropriate in order to
encourage the relevant parties to put in place systems and policies
that minimise the risk of contraventions of the relevant
provisions. [Part 3-5, Division 2, subsections 158(5) and (6)]
Part 3-6 - Debt collectors
Division 2 - Credit guide of debt collectors
498. When a debt collector is authorised to collect, on the credit
provider's behalf, repayments made by a debtor under a credit
contract, the person authorised to do so will be required to
provide the debtor with their credit guide as soon as practicable.
Failure to comply with the requirement attracts a civil penalty, of
a maximum of 2,000 penalty units. The maximum civil penalty units
are in line with the civil penalties regime in the Corporations
Act. [Part 3-6, Division 2, subsection 160(1)]
499. When a debt collector is authorised to collect, on the lessor's
behalf, payments made by a lessee under a lease, the person
authorised to do so will be required to provide the debtor with
their credit guide as soon as practicable. Failure to comply with
the requirement attracts a civil penalty, of a maximum of 2,000
penalty units. The maximum civil penalty units is in line with the
civil penalties regime in the Corporations Act. [Part 3-6,
Division 2, subsection 160(2)]
500. The provision of this credit guide notifies the debtor of the
identity of the person collecting the debt and key information
about the collector's membership of external dispute resolution and
compensation arrangements. [Part 3-6, Division 2, subsection
160(3)]
501. A regulation-making power is included in order to allow for the
content of the credit guide to be revised as necessary. [Part 3-6,
Division 2, subsection 160(4)]
502. The credit guide may be provided in the most suitable manner for
the circumstance, for example either in person, in writing, (for
example, by post or an email) or as an Internet notice accepted by
the consumer.
503. A regulation-making power is included in order to prescribe the
manner for giving the credit guide if prescription becomes
necessary. [Part 3-6, Division 2, subsection 160(5)]
504. The requirement will only apply to debt collectors who are not
exempt from this obligation.
505. A breach of section 160 is also an offence of strict liability,
subject to a maximum penalty of 50 penalty units. The imposition
of a strict liability offence is considered appropriate in order to
encourage the relevant parties to put in place systems and policies
that minimise the risk of contraventions of the relevant
provisions. [Part 3-6, Division 2, subsections 161(6) and (7)]
Part 3-7 - Exemptions and modifications relating to this Chapter
Division 2 - Exemptions and modifications relating to this chapter
506. Exemptions and modifications can be effected both by ASIC and
through the regulations to the following provisions:
. this chapter;
. the definitions in the Credit Bill, as they apply to
references in this chapter; and
. instruments made for the purposes of this chapter.
[Part 3-7, Division 2, section 162]
507. There are three different ways in which the application of these
provisions can be modified or changed:
. by ASIC exempting or modifying their application to a
particular person, credit contract or consumer lease [Part
3-7, Division 2, subsection 163(1)];
. by ASIC exempting or modifying their application to a
class of persons, credit contracts or consumer leases
[Part 3-7, Division 2, subsection 163(3)]; or
. by an exemption or modification of their application in
the regulations to [Part 3-7, Division 2, section 164]:
- a person or class of persons;
- a credit contract or class of credit contracts; or
- a consumer lease or class of consumer leases.
508. An exemption or modification by ASIC in respect of a particular
person, credit contract or consumer lease is stated not to be a
legislative instrument. This statement is declaratory of the
position, consistent with section 5 of the Legislative Instruments
Act 2003. [Part 3-7, Division 2, subsection 163(2)]
509. An exemption by ASIC of a particular person or a credit activity
that is engaged in relation to a specified credit contract,
mortgage, guarantee or consumer lease must be in writing and must
be published by ASIC on its website. [Part 3-7, Division 2,
subsection 163(5)]
510. A person will not commit an offence where their conduct:
. is only an offence because of the nature of the exemption
by ASIC (for example, where the exemption is conditional
and the condition is not met); and
. at the time of the conduct the person had not been given
notice of the exemption (either because they had not been
given written notice of it by ASIC or because it had not
been published by ASIC on its website).
[Part 3-7, Division 2, subsections 163(6) and (7)]
Chapter 4
Remedies
Outline of chapter
511. Chapter 4 of this explanatory memorandum outlines the remedies and
sanctions regime, the dispute resolution and court framework
administered by the Australian Securities and Investments
Commission (ASIC) to support the National Consumer Credit
Protection Bill 2009 (Credit Bill), established in Chapter 4 of the
Credit Bill.
512. It also sets out the remedies available to consumers, including
remedies in relation to unlicensed conduct.
513. It sets out the jurisdiction and procedure of the courts, and the
dispute resolution mechanisms available to consumers.
Context of new law
Background
514. In transferring the regulation of consumer credit from the States
and Territories to the Commonwealth, some of the bodies providing
dispute resolution services and exercising jurisdiction under the
new legislation will change.
515. Currently:
. Some providers of credit and credit services have
voluntarily joined an external dispute resolution scheme
(EDR Scheme) in relation to credit matters. Membership of
an EDR Scheme is often a key component of being a
signatory to an industry code, for example the Banking
Code of Conduct, or to achieve membership of an industry
body.
. As part of being a member of an EDR Scheme or signatory to
an industry code of conduct, some credit and credit
service providers are also expected to provide appropriate
internal dispute resolution schemes.
. Relevant State and Territory Fair Trading or Consumer
Affairs bodies provide dispute resolution and conciliation
functions between lenders and consumers.
. Consumers may raise a dispute or seek court intervention
under the Uniform Consumer Credit Code (UCCC) in the
relevant State or Territory tribunal, specialist court or
local court.
516. As part of the transfer of consumer credit regulation, the
Commonwealth cannot confer federal jurisdiction upon State and
Territory tribunals which are not courts within the meaning of
Chapter III of the Constitution. In addition, the relevant State
and Territory Fair Trading and Consumer Affairs bodies will no
longer provide official dispute resolution services for credit
matters.
517. Some concerns have been raised about the potential gaps between
what matters can be heard by federal courts and, State courts and
tribunals. Concerns have also been raised about the relative
accessibility of the federal courts compared to the relevant State
courts and tribunals, particularly in relation to costs and ease of
access.
518. The dispute resolution framework seeks to address these concerns.
519. Consequently, wherever possible, parties will be encouraged to
resolve disputes without resorting to litigation. It is expected
that courts would generally only be utilised where IDR and EDR
processes have not resolved the matter, or where EDR is considered
inappropriate.
520. This arrangement is in line with trends to provide accessible,
timely and cost effective dispute resolution processes. For
example, as reported in its 2007-08 Annual Report, the Victorian
Civil and Administrative Tribunal (VCAT) resolved 48 per cent of
credit disputes via VCAT's Mediation Services or through settlement
agreements reached at or before a hearing. This figure does not
include mediations which resulted in debtors and lenders trying new
repayment arrangements before finally settling, or matters that
were settled during a hearing.
521. This also recognises that in cases of hardship or other consumer
credit issues, a facilitated or negotiated outcome can be more
favourable to a debtor than if it had been formally heard and
determined under law.
522. The key policy objective of the amendments is to maintain
accessibility to dispute resolution in terms of location,
procedural simplicity and costs, taking into account the different
jurisdictional context when transferring the regulation of credit
from the States and Territories to the Commonwealth.
Summary of new law
523. The key provisions establish a civil penalty and consumer remedy
framework that promotes strong consumer protections, including a
civil enforcement regime and broad civil remedies.
524. The key provisions:
. enable ASIC to seek a court declaration of contravention
for a civil penalty and seek a pecuniary penalty;
. set out the administrative provisions in relation to a
civil penalty;
. enable the court to grant remedies to consumers and other
relevant parties for loss and damage suffered as a result
of a contravention of the Credit Bill, including through
varying the contract as well as monetary redress;
. enable the court to grant relief to consumers and other
relevant parties for unlicensed conduct; and
. permit infringement notices to be issued by ASIC for
strict liability offences and civil penalties as provided
by regulations.
525. In addition, they facilitate the transfer of consumer credit to the
Commonwealth and promote accessibility in terms of location,
procedural simplicity and costs of dispute resolution. This
includes:
. access to all relevant Commonwealth, State and Territory
courts;
. delineation of civil and criminal jurisdiction, including
transfer and appeal arrangements;
. 'opt in' streamlined court procedures for certain consumer
remedies; and
. a presumption that a court may not impose an adverse cost
order in certain circumstances.
Sanctions and remedies regime
526. As part of the implementation of a national consumer credit
regulation framework, it was agreed that ASIC would have enhanced
enforcement powers. These enhanced powers have been partly
achieved by extending the range of penalties and sanctions
available to ASIC that can be responsive to the tenor and magnitude
of a contravention.
527. The overall structure includes a tiered approach to sanctions in
the Credit Bill, which reflect considerations of the Review of
Sanctions in Corporate Law (Treasury, 2007), the Commonwealth Guide
to Framing Commonwealth Offences, Civil Penalties and Enforcement
Powers (Attorney-General's Department, 2007). It also seeks to
maintain consistency with the Corporations Act 2001 (Corporations
Act) and other Commonwealth consumer protection law, where there
are offences in respect of similar conduct.
528. The tiered approach to the sanctions regime includes:
. criminal offences, including strict liability offences;
. civil penalties;
. infringement notices; and
. administrative sanctions to be exercised by ASIC as the
consumer credit regulator, including banning orders
against individuals, and the power to cancel or suspend an
Australian credit licence (ACL), further explained in
Chapter 2 of this explanatory memorandum.
529. Further, ASIC's current regulatory powers under the Australian
Securities and Investments Commission Act 2001 will be largely
replicated for credit matters, further explained in Chapter 6 of
this explanatory memorandum.
530. Consumer remedies are an important element of the enforcement
package as it enables consumers to take direct action against a
licensee who breaches the law and causes them loss or damage.
Private suits are considered a useful way of influencing and
curbing market behaviour, particularly in relation to the National
Credit Code (Code).
Criminal sanctions
531. Criminal sanctions will apply to breaches of law where:
. the objectives of the offence suggest that such an outcome
would be warranted; or
. the offence is analogous to similar provisions in the
Corporations Act, to ensure consistency of application of
'like' offences.
532. Where the credit licensing regime is similar to the existing
financial services licensing regime in the Corporations Act,
creating offences in respect of the same type of conduct, the
offences and penalties in the Credit Bill have generally been made
consistent with those in the Corporations Act.
533. Some breaches that are procedural in nature (record-keeping,
lodgment of documents or disclosing information) have criminal
sanctions, including indictable offences, attached. This is
necessary because:
. criminal sanctions play an important role in deterring
inappropriate corporate behaviour and ensuring that ASIC
can prevent or minimise losses to investors, consumers and
the Government;
. a failure of a licensee to comply with provisions, such as
maintaining records, audit, and lodgment of documents can
seriously jeopardise ASIC's ability to investigate
questionable behaviour and mitigate any losses or
potential losses; and
. the disclosure of information in documents to consumers is
a significant policy component of financial services
regulation to address the particular economic 'harm' of
information asymmetry in the market.
534. Generally the activities that attract the strongest criminal
sanctions are those that address what is considered to be the most
serious 'moral' culpability in relation to the credit contract;
acting unlicensed and entering, or suggesting or assisting a person
to enter, an 'unsuitable' credit contract. For example, the jail
terms available for putting someone into an 'unsuitable' contract
is intended to target 'equity stripping' and predatory lending.
535. The criminal procedures in relation to criminal offences are
consistent with the provisions in Part 9.6A, Division 2 of the
Corporations Act.
Civil penalties
536. Civil penalty sanctions apply in the Credit Bill where the
misconduct affects or potentially affects the integrity of the
credit market and where there may be an absence of malicious or
reckless intention. Civil sanctions have a lower burden of proof
than criminal sanctions and are an alternative source of imposing
legal obligations and deterring conduct.
537. It is also recognised that civil penalties play a useful role for
regulating corporate wrongdoing as the amount of the penalty is a
disincentive for corporate misbehaviour. They are also used as
alternatives to criminal penalties.
538. For example, civil penalties are utilised instead of criminal
sanctions in some responsible lending requirements, noting that the
main 'harm' (entering or suggesting an unsuitable credit contract)
is being rectified as both an indictable offence and civil penalty.
Often breaches of these laws adversely affect the consumer where
they have been placed in an 'unsuitable' credit product.
539. The maximum civil penalty for all relevant offences is 2,000
penalty units. This equates to $1,100,000 for corporations and
$220,000 for individuals.
540. The administration and procedural provisions for civil penalties
are consistent with Part 9.4B of the Corporations Act. This
includes the application of civil pecuniary orders in section 1317G
of the Corporations Act.
Infringement notices
541. Infringement notices are employed for breaches, where a higher
volume of contraventions are expected, or where a penalty is more
effective where it is imposed immediately, and the person
committing the breach still has a fresh memory of their conduct,
and may be more inclined to remedy it in the future. They will
apply automatically to all strict liability offences, but will also
apply to civil penalties where specified in the regulations.
542. The issuing of infringement notices is at the discretion of ASIC.
543. The legislation and regulations allow for infringement notices to
be issued to persons alleged to have committed certain strict
liability or civil offences. This allows ASIC to deal with
suspected minor offenders without the need to summons a person to
appear in court.
544. In addition, systemic breaches may be grounds for administrative
action in relation to a licence and/or a relevant civil and
criminal penalty.
Tiered approach
545. The tiered approach enables ASIC to target the penalty to the
nature and type of contravention. For example, in addition to a
'fault' based criminal offence, a strict liability penalty may also
be included, with an associated infringement notice attached.
546. A tiered approach also recognises that when regulating a broad
range of credit providers and credit service providers, different
types of sanctions may be appropriate.
547. For example, an infringement notice may not be a significant
deterrent for a large financial institution, but it is likely to be
a deterrent for a small broker. Alternatively, it recognises that
imprisonment may not be appropriate for an administrative
oversight, but would be useful against a person involved in a
contravention where the licensee has deliberately not complied with
the law (for example, predatory lending and equity stripping).
548. It is recognised that most credit providers and credit service
providers are ordinarily inclined to comply with the law. However
the tiered approach enables a targeting of the most appropriate
sanctions.
1. : Licensing
Section 49 requires a licensee to comply with a written
direction by ASIC to provide a written statement about the
credit activities they have engaged in, within the time they
have specified. Failure to comply can result in an
indictable offence, a strict liability offence, a civil
penalty and/or an infringement notice.
. For a failure to submit a suitable statement on time (some
defects), ASIC may issue a licensee with a $220 infringement
notice.
. If this statement is grossly late, ASIC may consider a
strict liability offence more appropriate (maximum penalty
of $1,100).
. If the statement is significantly defective and does not
meet ASIC's direction, ASIC may consider pursuing a civil
penalty. The civil penalty amount sought would reflect the
level of defect. A civil penalty may also be pursued
against a larger financial institution against which a
strict liability offence or an infringement notice may not
be a sufficient future deterrent (the maximum penalty will
be $220,000 for an individual and $1,100,000 for a
corporation).
. If ASIC's requests are deliberately avoided or purposefully
not complied with (particularly where it is suspected that
compliance with the direction to provide information may
reveal unlawful or inappropriate behaviour), ASIC may choose
to pursue an indictable offence against the licensee
(maximum 25 penalty units and/or a jail term of six months).
Consumer remedies
549. Consumer remedies are an important element of the enforcement
package as it enables consumers to take direct action against a
provider who breaches the law and causes them loss or damage.
These actions can provide sufficient deterrent against breaches of
the law. Private actions are considered an important way of
influencing and curbing market behaviour.
550. Consumer remedies also enable consumers to obtain redress from
illegal behaviour or misconduct, such as predatory lending or
equity stripping, and the opportunity to receive just and equitable
outcomes, particularly where they have experienced loss and damage
from the unlawful conduct.
551. Consumers will have a range of remedies available to them where
they experience loss or damage from the misconduct of a credit
provider or credit service provider.
552. Consumers will also have remedies available to them where the
credit provider or credit service provider is acting unlicensed.
The consumer can, among other things, prevent an unlicensed
provider from obtaining profit or gain from them for their credit
activity.
Dispute resolution framework
553. The sanctions and penalties regime is supported by a dispute
resolution framework that facilitates the enforcement of the Credit
Bill and assists consumers to obtain redress.
554. The Credit Bill provides for a three-tier dispute resolution system
for consumer credit issues:
. First, consumers are able to access the licensee's
internal dispute resolution (IDR) process.
. Secondly, if they are dissatisfied with the outcome of the
IDR process, consumers may access the licensee's EDR
Scheme. Membership of an ASIC-approved EDR Scheme is a
compulsory requirement for registration and licensing.
. Thirdly, consumers retain access to the courts to seek
redress. Neither IDR nor EDR processes will remove a
consumer's right to seek redress directly from a court.
555. The purpose of these provisions is to establish a dispute
resolution framework that enables a commensurate level of rights to
be retained and address key transitional issues relating to
consumer credit dispute resolution.
EDR Schemes
556. EDR Schemes provide consumers with an independent, informal and no-
cost alternative to going to court. EDR Scheme members (licensees)
are bound by a decision of an EDR Scheme. Consumers retain their
right to access the courts following a decision or outcome by an
EDR Scheme.
557. EDR Schemes are required to take measures to deal with the privacy
of personal information in accordance with the Privacy Act 1988
(where it is applicable) and this may include making contractual
arrangements with members about dealing with privacy matters.
558. The application of section 131 of the Evidence Act 1995 would apply
so that evidence of a communication made or a document prepared in
connection with settlement negotiations undertaken through EDR
proceedings is not admissible in subsequent court proceedings.
That is, materials prepared in connection with a negotiation are
generally inadmissible in court unless, for example, both parties'
consent if given, where communication between parties includes a
statement it was not to be confidential, or the proceedings are to
enforce the agreement made through EDR.
1. : Overview of interaction between the Civil Penalty, Criminal
Offence and Consumer Remedy Framework
[pic]
Comparison of key features of new law and current law
|New law |Current law |
|Streamlined court |Consumers in Victoria, |
|proceedings can be |New South Wales, |
|adopted for credit |Australian Capital |
|disputes for claims under|Territory and Western |
|$40,000 or for hardship |Australia currently have |
|to ensure that consumers |access to tribunals with |
|have access to simpler |streamlined, low cost |
|forms of dispute |options for redress. |
|resolution. | |
|There will be a |Generally State and |
|presumption against |Territory tribunals do |
|adverse cost orders for |not issue adverse cost |
|small claims proceedings,|orders. |
|hardship and postponement| |
|matters. | |
|Jurisdiction for civil |Some States and |
|matters will be extended |Territories permit credit|
|to the Federal Court, the|matters to only be heard |
|Federal Magistrate Court |in Tribunals. |
|and all State and | |
|Territory Courts. | |
|Jurisdiction for criminal|Criminal matters were |
|matters will remain in |heard in State and |
|State and Territory |Territory Courts. |
|Courts. | |
|Additional consumer |No consumer remedies |
|remedies are available |exist in relation to the |
|for loss and damages for |licensing of credit |
|breaches of the Credit |providers and credit |
|Bill (other than the |service providers or |
|Code). |responsible lending. |
Detailed explanation of new law
Part 4.1 - Civil penalty provisions
559. The administration and procedural provisions of civil penalties are
consistent with the provisions of the Corporations Act (see Part
9.4B - Civil consequences of contravening civil penalty
provisions). This includes the application of civil pecuniary
orders (see section 1317G of the Corporations Act).
Division 1 - Declarations and pecuniary penalty orders for
contraventions of civil penalty provisions
560. ASIC may seek a declaration of contravention of a civil penalty
provision against a person that contravened that provision. [Part
4-1, Division 2, section 166]
561. The declaration of a contravention is conclusive evidence of the
civil penalty breach [Part 4-1, Division 2, subsection 166(4)].
This enables ASIC to seek a pecuniary penalty against a person for
contravening the civil penalty [Part 4-1, Division 2, section 167].
It also enables a consumer to rely on the declaration of
contravention when seeking compensation for loss or damage. [Part
4-2, Division 2, section 178, Part 4-2, Division 2, section 179]
562. ASIC may also apply for an order that a person pay a pecuniary
penalty once a declaration has been made. [Part 4-1, Division 2,
section 167]
563. ASIC can only seek a declaration and pecuniary penalty order within
six years of a person contravening the provision. This is
consistent with section 1317K of the Corporations Act, and section
77 of the Trade Practices Act 1974.
564. Civil penalties attract a maximum penalty of 2,000 penalty units on
all civil penalties. This amounts to a maximum of $220,000 for
individuals and $1,100,000 for corporations, partnerships or
multiple trustees [Part 4-1, Division 2, paragraph 167(3)(b)]. A
'penalty unit' has the meaning given by section 4AA of the Crimes
Act 1914.
565. The civil penalty limit was adopted to maintain general consistency
with the Corporations Act (a maximum of $200,000 for individuals
and $1,000,000 for corporations). However, it is expressed as a
penalty unit and not in dollar terms. These amounts are broadly
familiar to the financial services industry. It is recognised that
these amounts need to be substantial to sufficiently deter
inappropriate corporate or business behaviour.
566. The pecuniary penalty may be recoverable as a debt due to the
Commonwealth, and therefore goes to the consolidated revenue fund
as required by section 81 of the Constitution.
General provisions relating to civil penalty provisions
567. A contravention of a civil penalty is not a criminal offence.
[Part 4-1, Division 3, section 168]
568. A person who is involved in the contravention of a civil penalty
provision is taken to have contravened that provision [Part 4-1,
Division 3, section 169]. This would include, among other things,
where the person has:
. aided, abetted, counselled or procured the contravention;
. induced the contravention, whether by threats or promises
or otherwise;
. been in any way, by act or omission, directly or
indirectly, knowingly concerned in or party to effect the
contravention; or
. conspired with others to effect the contravention.
569. The court must apply the rules of evidence and procedures for civil
matters when hearing proceedings for a declaration of
contravention. This replicates section 1317L of the Corporations
Act to ensure that the court applies the rules of evidence and
procedures for civil matters when hearing proceedings for a
declaration of contravention. As discussed in the Australian Law
Reform Commission Principled Regulation Report: Federal Civil and
Administrative Penalties in Australia, December 2002, the court
should retain the flexibility to ensure that there is procedural
fairness in each case. [Part 4-1, Division 3, section 170]
570. The court is not allowed to make a declaration or contravention
where the civil proceeding occurs after a criminal proceeding for
substantially the same conduct. [Part 4-1, Division 3, section
171]
571. This provision ensures that an order is not made against a person
where the person has been convicted of an offence that is
substantially the same as the conduct that constituted the
contravention. This is analogous to the 'double jeopardy' rule
applicable to criminal offences.
572. Proceedings for a civil penalty are to be stayed where criminal
proceedings are commenced against the person for an offence
constituted by substantially similar conduct to the conduct
constituting the contravention. [Part 4-1, Division 3, subsection
172(1)]
573. The civil proceeding may be resumed if the person is not convicted
of the offence. Otherwise, proceedings for the declaration or
order are dismissed. [Part 4-1, Division 3, subsection 172(2)]
574. ASIC may still reserve the right to commence criminal proceedings
notwithstanding the imposition of a civil penalty order. [Part 4-
1, Division 3, section 173]
575. The admissibility of evidence given in proceedings for a civil
penalty order is not admissible in a criminal proceeding. [Part 4-
1, Division 3, section 174]
576. There is also a provision to protect a person from civil double
jeopardy, where a person is not liable to pay a penalty under
another provision of the law for the same conduct. [Part 4-1,
Division 3, section 175]
577. A person in contravention of a civil penalty provision can get
relief from liability where it appears to the court that:
. the person acted honestly; and
. having regard to all the circumstances of the case the
person ought fairly to be excused from the contravention.
[Part 4-2, Division 2, section 183]
578. This acts as a defence to a contravention of the civil penalty.
The court may relieve the person either wholly or partly from
liability.
579. Section 183 is modelled on section 1317S of the Corporations Act.
Consumer remedies - Overview
580. A consumer and other affected parties have a number of remedies
available to them under the Credit Bill.
581. For example, a consumer may have suffered loss or damage as a
result of being entered into or suggested an unsuitable credit
contract (see Chapter 3 of this explanatory memorandum). If a
consumer is put into or suggested an unsuitable credit contract by
a licensed credit provider, they can:
. seek an injunction against the provider from collecting
more interest payments [Part 4-2, Division 2, section
177];
. seek compensation for the loss or damage, with the maximum
amount payable determined according to the limits in
quantum of the selected court [Part 4-2, Division 2,
section 178]; and
. seek an order to compensate, prevent or reduce the loss or
damage suffered by, among other things, varying the
contract, enforcing some, or part of the contract, or
declaring the contract void [Part 4-2, Division 2, section
179].
582. A consumer also has remedies against an unlicensed provider. If a
consumer was put into or suggested an unsuitable credit contract by
an unlicensed credit provider they will be able to obtain an order
from the court to, among other things:
. prevent the non-licensed credit provider from profiting
from a credit contract;
. seek compensation for loss or damage suffered as a result
of the person having engaged in the credit activity; and
. prevent or reduce any loss or damage suffered or likely to
be suffered.
[Part 4-2, Division 2, section 180]
Part 4.2 - Power of the courts to grant remedies
Injunctions
583. To maximise remedies available to consumers and the enforcement
powers of ASIC, the court may grant injunctive relief where there
is a contravention, or is a proposed contravention of the Credit
Bill. [Part 4-2, Division 2, section 177]
584. On application by ASIC or a person, a court can issue an injunction
on such terms as it considers appropriate, if it is satisfied that
a person is engaged or is proposing to engage in conduct that would
contravene or attempt to contravene the Credit Bill (including an
offence or a civil penalty). [Part 4-2, Division 2, subsection
177(1)]
585. The court may grant an injunction with the consent of all relevant
parties to the proceeding, whether or not the court is satisfied
that the person has engaged or is engaging in the relevant
contravening conduct. [Part 4-2, Division 2, subsection 177(2)]
586. The court may also:
. grant an interim injunction [Part 4-2, Division 2,
subsection 177(3)];
. revoke or vary an injunction or interim injunction [Part 4-
2, Division 2, subsection 177(4)];
. grant an injunction restraining a person from engaging in
conduct, as necessary [Part 4-2, Division 2, subsection
177(5)]; or
. grant an injunction to require a person to do an act or
thing, as necessary [Part 4-2, Division 2, subsection
177(6)].
587. Where ASIC applies for an injunction, the court cannot make an
undertaking as to damages a condition of obtaining an interim
injunction [Part 4-2, Division 2, subsection 177(7)]. This is to
ensure ASIC is not financially constrained from acting when seeking
an interim injunction.
588. However, the court has the power to award damages in addition to,
or in substitution for, the granting of an injunction [Part 4-2,
Division 2, subsection 177(8)]. For example, where a guarantor
seeks an injunction against a lender for a property being re-
possessed and sold, the court may grant damages to the debtor who
might otherwise have benefited from the sale of the property, if
not for the injunction.
Compensation orders for loss or damage
589. Where a licensee has contravened a civil penalty or committed an
offence, and a consumer has suffered loss or damage from that
contravention, the consumer can seek compensation in two ways:
. through a specific order for a compensation amount for
loss and damage [Part 4-2, Division 2, section 178]; or
. through a general order to compensate loss or damage or
prevent or reduce the loss or damage suffered or is likely
to suffer, through a broader range of remedies [Part 4-2,
Division 2, section 179].
590. ASIC may make an application on behalf of the consumer with their
consent for both types of orders.
591. The primary reason for the two separate orders is to enable access
to streamlined court procedures in section 199 for straightforward
compensation matters. It is recognised that more complex claims
warrant a more formal assessment under the law. However,
straightforward and small claims could be addressed in simpler
court proceedings. Consequently, a separate remedy for only
monetary compensation in provided in section 178.
592. If the amount of compensation sought under section 178 is less than
$40,000, a consumer can 'opt-in' to a streamlined court procedure
at their local court, Magistrate's Court, or the Federal
Magistrates Court. This procedure permits more streamlined and
informal proceedings, including not having to regard legal forms
and technicalities and a presumption against legal representation
(see below).
593. An order can be made under this provision; whether or not a
declaration of contravention under section 166 has been made.
594. Both types of compensation orders are limited to offences or
contraventions of the Credit Bill other than the Code. This is
because the Code contains self-contained civil remedies that are
currently known to industry and consumers. These provisions would
likely be in conflict with provisions in the Code.
595. The compensation orders may only be made within six years of the
day the cause of action (that is, the loss or damage to the
consumer) that relates to the contravention or offence accrued.
This is to capture the situation where the contravention (for
example, putting a consumer into an unsuitable contract) does not
result in loss or damage to the consumer until a later time.
596. Section 179 is modelled on section 1325 of the Corporations Act.
597. A court may make an order as it thinks appropriate to compensate a
consumer or any other affected party (the plaintiff), or prevent or
reduce that loss or damage suffered where the loss or damage is the
result of a contravention of a civil penalty provision or a
commission of an offence under the Credit Bill [Part 4-2, Division
2, subsection 179(1)]. The defendant is the person who committed
the contravention or offence [Part 4-2, Division 2, paragraph
179(1)(b)].
598. The type of orders the court can make include:
. voiding or partially voiding the contract, deed or
arrangement;
. varying the contract, deed or arrangement;
. refusing to enforce some or all of the terms of such a
contract, deed or arrangement; and/or
. directing the contravener to pay an amount of
compensation.
599. This remedy is particularly important where precise restitution or
compensation is not possible. It enables the court to do what is
practically or equitably just between the parties.
600. The flexibility given to the courts to rewrite the credit contract
is due to the way in which credit contracts operate. The consumer
may have utilised the credit in a way that does not allow the court
to void the contract (for example, due to the purchase of a home or
where the principal is used to purchase goods or services that
cannot be sold, such as travel).
601. An award of money may not be the most effective way of providing
compensation, compared with varying the terms of the contract.
Cancelling the contract (rescission) may also give a consumer an
unfair benefit in the use of the principal of the loan.
1. : Responsible lending
Samuel was an electrician who earned $1,200 a week. He
spent $600 a week on expenses. He went to a lender to get a
home loan of $200,000. Samuel needed a loan with an average
interest rate that he could pay off over the medium term.
Instead, he was offered a loan for $500,000 with a high
fixed interest rate and therefore repayments that he could
not readily afford.
As he was experiencing hardship, Samuel sought an injunction
against the lender collecting his mortgage repayments.
Samuel then sought compensation for the loss and damage he
had suffered for being put into an unsuitable loan. The
court, under section 179, ordered the lender to reduce the
overall debt Samuel owed to the lender commensurate with
what he would have owed if he had been provided with a loan
that was not unsuitable minus:
. the amount he had already paid to the lender; and
. the amount in compensation for any loss and damages he
suffered as a result of getting the unsuitable product.
This recognised that Samuel received a benefit from the
initial credit provided, but that he experienced loss and
damage from being put into the unsuitable loan.
602. Any compensation to a consumer or an order in relation to loss or
damage can be mitigated (including limiting the amount of
compensation) if the consumer has made a false or misleading
representations in order to obtain the credit. This is to take
into account what is practically just in the circumstances.
1. Consumer False and Misleading Representation
In order to obtain a credit card with a $3,000 limit, Flower
claimed that she had an income of $50,000 and had one
personal loan valued at $5,000. In fact, Flower only had an
income of $18,000 and also had another personal loan of
$3,000 plus a credit card with a credit limit of $4,000 from
other credit providers.
The credit provider offered her the credit card.
The credit provider relied on the information provided by
Flower and made some reasonable steps to verify her
financial circumstances in order to provide the loan.
However, the credit provider did not suitably verify her
income. If the credit provider had known of her true
financial circumstances, they would not have offered her the
credit.
When Flower could no longer meet the repayments, she sought
compensation for being placed into an unsuitable credit
contract.
In this instance, the court considered that Flower was
entitled to a lower amount compensation for loss and damage,
even if the credit provider did not suitably verify her
income. This is because she made false and misleading
representations to the credit provider about her financial
circumstances.
Preference for compensation
603. A person who contravenes the Credit Bill may be required to both
pay a fine and compensate those who have suffered loss or damage as
a result of the contravention. Where the person who has
contravened the Credit Bill has insufficient financial resources
for both, section 181 will require the court to give preference to
making a compensation order to compensate those who have suffered
loss or damage. [Part 4-2, Division 2, section 181]
604. This is not directed at allowing the court to waive or reduce the
fine where it considers that the defendant does not have sufficient
financial resources, thereby allowing the defendant to avoid
punishment. The court may still impose a fine. The provision
allows the court to order that a person who has suffered loss or
damage will be compensated first, that is, before the fine is paid
into consolidated revenue. Where a fine is not paid, proceedings
for enforcement and recovery may be commenced.
Orders in relation to unlicensed conduct
605. A consumer also has remedies against an unlicensed provider. [Part
4-2, Division 2, section 180]
606. An unlicensed provider is someone who acts in contravention of
section 29; that is, acts without holding a licence.
607. For example, if a consumer was put into or suggested an unsuitable
credit contract by an unlicensed credit provider, the consumer will
be able to obtain an order from the court to:
. prevent the non-licensed person from profiting from the
credit contract;
. seek compensation for loss or damage suffered as a result
of the person having engaged in the credit activity;
and/or
. reduce or prevent any loss or damage suffered or likely to
be suffered.
[Part 4-2, Division 2, section 180(1)]
608. ASIC can make an application on behalf of the consumer, only if it
has obtained written consent from them. [Part 4-2, Division 2,
subsections 180(3) and (4)]
609. The provision suggests that dealing with an unlicensed credit
provider is equivalent to a criminal offender profiting from their
crime. As a result, they should not be able to profit or gain from
their unlawful credit activity.
610. The person engaging in unlawful credit activity should not be able
to retain fees, charges, interest, commissions, interest payments
and other monetary benefits or profits from the contract while
acting unlicensed (including where their licence has been
suspended).
611. In addition, the consumer should be able to recover or prevent any
loss and damage they have suffered.
612. Therefore, the court should be able to vary a contract to take into
account any benefits the lender may have received from the contract
created when acting unlicensed, taking into account any benefit the
consumer had from the use of the principal amount.
613. The Credit Bill provides that these orders can be made against a
credit provider or credit service provider irrespective of whether
they notified the customer that they were not licensed.
614. It is considered that the need to deter persons who engage in
credit activities when unlicensed means that they should not be
able to avoid the civil consequences of that conduct through a
simple form of disclosure. It is also considered that disclosure
of the person's unlicensed status will not result in consumers
reconsidering their decision to enter into the loan where they are
particularly vulnerable (for example, because they have an urgent
need for money to purchase medication).
Other remedies
615. ASIC may seek an adverse publicity order against a person who has
contravened or committed an offence against the Credit Bill. Under
a publicity order, a court may require a person to disclose certain
information in a specified way and to publish the information at
their own expense. [Part 4-2, Division 2, section 182]
616. They would be required to publicise the fact that they have
breached the Credit Bill, along with details of any remedial action
they have been required to undertake. For example, a corporation
may be ordered to publicise the fact that it has breached the
Credit Bill and details of what it has been ordered to do to
rectify the breach.
617. Similar provisions occur in section 12GLB in the Australian
Securities and Investments Commission Act 2001.
618. Section 184 enables the court to make multiple orders, that is, one
or more remedies in relation to the same breach.
Infringement notices
619. Section 331 allows regulations to be made for infringement notices
to be issued to persons alleged to have committed:
. strict liability; or
. civil penalty contraventions as provided in the
regulations.
620. This allows ASIC to deal with suspected minor offenders without the
need to summons a person to appear in court.
621. In relation to strict liability offences, the maximum fine must not
exceed one-fifth of the maximum penalty that a court could impose
on the person for that offence.
622. In relation to civil penalties, the maximum fine must not exceed
one-twentieth of the maximum penalty.
623. The infringement notice power will be supported by regulations that
establish the form and manner in which they are issued.
624. This provision is modelled on section 799 of the Fair Work
Act 2009.
625. The following provisions which attract a civil penalty may have an
infringement notice attached in regulations at a later stage:
sections 113, 114, 115, 117, 118, 120, 121, 128, 130, 131, 132.
(This list is indicative only.)
Part 4.3 - Jurisdiction and procedure of courts
626. Generally under the Credit Bill:
. Civil jurisdiction is conferred upon all Federal and State
Courts (except Family Courts) subject to their general
jurisdictional limits.
. Criminal jurisdiction is conferred upon all State Courts,
subject to their general jurisdictional limits.
627. More broadly, the jurisdiction, appeal, transfer and procedural
arrangements are intended to be consistent with the Corporations
Act, where appropriate, to ensure that ASIC can administer and
enforce its obligations consistently.
628. The law establishes the rules that restrict cross-jurisdictional
appeals and manage the transfer of proceedings under the Credit
Bill between those courts. These rules are intended to produce
many of the same outcomes as Division 1 of Part 9.66A of the
Corporations Act.
629. These arrangements also apply to the Code.
630. A number of measures have been introduced to maintain current
rights and obligations in relation to dispute resolution and to
transition jurisdiction into the Commonwealth sphere.
Civil Proceedings - Division 2
631. Division 2 of Part 4-3 deals with civil proceedings. It also
contains rules about the transfer of civil proceedings between
courts and other matters, such as when proceedings may be dealt
with as small claims proceedings and when a cost order can be made.
632. The Division applies to the exclusion of the Jurisdiction of Courts
(Cross-vesting) Act 1987 and section 39B of the Judiciary Act 1903.
This does not limit the application of the other provisions in the
Judiciary Act 1903. [Part 4-3, Division 2, section 186]
633. This approach is consistent with the operation of the Corporations
Act and reflects the agreed court structure as part of the National
Credit Law Agreement 2009.
Conferral of civil jurisdiction
634. Under the new law, credit jurisdiction for civil proceedings will
be conferred to the:
. Federal Court;
. Federal Magistrates Court, but the court does not have
jurisdiction to award an amount for loss or damage that
exceeds $750,000 or another amount prescribed by
regulation; and
. courts of the States and Territories (including the
magistrates or local courts), subject to their general
jurisdictional limits, including (but not limited to)
limits as to locality and subject matter.
[Part 4-3, Division 2, section 187]
635. This will ensure continuity with current arrangements under the
Uniform Consumer Credit Code (UCCC), and allows matters which are
currently being handled by State courts to continue to be heard.
Courts in Queensland, South Australia, Tasmania and the Northern
Territory can continue to deal with consumer credit matters.
636. It also ensures that lower cost and accessible court options (such
as the local and magistrate's courts) remain available. This
facilitates access to the court process for parties wishing to
enforce their rights in a court regardless of the value of the
credit contract or lease in dispute. This reflects that such
matters will range in value and should be heard in different courts
for cost and expediency.
637. The Family Courts will continue to exercise their general and
accrued jurisdiction in relation to credit matters where
appropriate. As the arrangements being regulated under the Credit
Bill relate to the provision of credit in the course of business
activities, it was not considered necessary to confer direct
jurisdiction on the Family Courts.
Other civil proceedings relating to criminal prosecution
638. The civil jurisdiction of the Federal Court and Federal Magistrates
Court is restricted in certain circumstances.
639. The Federal Court and the Federal Magistrates Court is prevented
from exercising jurisdiction in relation to particular types of
civil proceedings (proceedings where a person is seeking a writ of
mandamus or prohibition or an injunction) that relate to a
prosecution of an offence under the Credit Bill [Part 4-3, Division
2, section 188]. This limitation reflects that the Federal Courts
do not have criminal jurisdiction under the Credit Bill.
640. The Federal Court or the Federal Magistrates Court cannot exercise
jurisdiction where a person seeks these types of civil proceedings
against an officer or officers of the Commonwealth in relation to:
. a decision to prosecute a person for an offence under the
Credit Bill, where the prosecution is proposed to be
conducted in a State or Territory court [Part 4-3,
Division 2, subsection 188(1)]; and
. for a 'related criminal justice process decision' where a
prosecution for an offence of the Credit Bill or an appeal
arising out of such a prosecution, is before a State or
Territory court [Part 4-3, Division 2, subsection 188(2)].
641. This does not apply if the 'related criminal justice process
decision' occurred after the relevant civil proceeding [Part 4-3,
Division 2, subsection 188(4)]. However, in such a situation a
prosecutor may apply for a permanent stay of proceedings, if such a
matter is better dealt with in the criminal justice process or will
not substantially prejudice the person [Part 4-3, Division 2,
subsection 188(5)].
642. A related criminal justice process decision is a decision made in
the criminal justice process in relation to an offence (other than
a decision to prosecute). [Part 4-3, Division 2, subsection
188(3)]
643. In this section, appeal includes an application for a new trial and
a proceeding to review or call in question the proceedings,
decision or jurisdiction of a court or judge. [Part 1-2, Division
2, section 5]
644. This provision has effect, despite anything else in the Credit Bill
or any other law. [Part 4-3, Division 2, subsection 188(6)]
645. This provision is consistent with section 1337D of the Corporations
Act.
Cross-jurisdictional appeals
646. The process of cross-jurisdictional appeals is set out to take into
account the cross-jurisdictional application of the Credit Bill in
a referral context.
647. Despite the national nature of the credit reforms, cross-
jurisdictional appeals will not be permitted. This is consistent
with section 1337F of the Corporations Act. That is:
. the Federal Court cannot appeal to a court of a State, a
court of a Territory, or the Federal Magistrates Court
[Part 4-3, Division 2, item 1 in the table in section
189];
. the Federal Magistrates Court cannot appeal to a court of
a State or Territory [Part 4-3, Division 2, item 2 in the
table in section 189];
. a court of a State cannot appeal to the Federal Court,
Federal Magistrates Court, or a court of a Territory or
another State [Part 4-3, Division 2, item 3 in the table
in section 189]; and
. a court of the Australian Capital Territory or Northern
Territory cannot appeal to the Federal Court, the Federal
Magistrates Court, or a court of a State or another
Territory [Part 4-3, Division 2, items 3 and 4 in the
table in section 189].
648. However, all courts are expected to act to support and be in aid of
one another in relation to civil matters arising under the Credit
Bill. [Part 4-3, Division 2, section 190]
Transfers between courts - Jurisdiction of proceedings
649. Part 4-3, Division 2, Subdivision C of sets out the transfer
arrangements between the courts that have jurisdiction for civil
matters under the Credit Bill.
650. The transfer and cross-vesting procedures are consistent with the
model in Part 9.6A, Subdivision C of the Corporations Act. It was
considered important to maintain consistency with the Corporations
Act where possible, to ensure that ASIC can address credit
activities and matters arising from the Corporations Act together
where appropriate.
651. This arrangement operates to the exclusion of the Jurisdiction of
Courts (Cross-vesting) Act 1987. [Part 4-3, Division 2, section
186]
652. Among other things, the Jurisdiction of Courts (Cross-vesting) Act
1987 does not achieve the objectives of the Credit Bill because it
only addresses the transfer of proceedings between the State
Supreme Courts and the Federal and Family Courts. It does not
address the transfer of proceedings in relation to State lower
courts, as is necessary under the Credit Bill.
653. In addition, the transfer arrangements assist in ensuring that
legal proceedings for credit occur in the most appropriate
jurisdiction.
654. The UCCC requires that debtors must be a natural person ordinarily
resident in the UCCC's jurisdiction (the relevant State or
Territory). By operation of this, a legal proceeding against a
debtor was brought in the State or Territory the debtor was
ordinarily resident in at the time the contract was made.
655. In adopting the UCCC in the Commonwealth context as the National
Credit Code (Code), the Code's jurisdiction is no longer limited to
the State and Territory where the contract was made. This could
make it difficult for consumers in another jurisdiction to respond
to or engage with those proceedings. This may cause particular
vulnerabilities for debtors who could not afford or have the
capacity to challenge a proceeding in another jurisdiction.
656. The court transfer arrangements work in conjunction with section
330 to address these specific issues that arise from regulating
credit matters in the Commonwealth context.
When a transfer can occur
657. A court (the transferring court) can transfer a proceeding
(transfer matter) to another court (the receiving court) that:
. exercises jurisdiction under the Credit Bill; and
. has the power to grant the remedies being sought.
[Part 4-3, Division 2, section 191]
658. A transfer can only occur at the instigation of a party to the
proceedings or the court itself if it appears to the transferring
court that the transfer matter:
. arises or relates to another proceeding that has come or
is about to come before a receiving court; or
. is otherwise in the interests of justice for proceedings
to be bought in another court.
[Part 4-3, Division 2, section 194]
659. Generally, it would not be in the interests of justice for a party
to commence legal proceedings that did not comply with the
requirements set out under section 330 regarding where legal
proceedings must be brought. [Part 4-3, Division 2, paragraph
193(1)(b)]
660. When considering the transfer, the regulations may provide for a
person who is alleged to have contravened a civil penalty provision
to pay a penalty to the Commonwealth as an alternative to civil
proceedings; and that the penalty must not exceed one fortieth of
the maximum penalty that a court could impose [Part 7-1, Division
4, subsections 331(1) and (2)]. The transferring court must take
into account a number of criteria, including the principal location
or business of the parties, where the event took place and if it
involves real property, and the jurisdiction where the real
property is located [Part 4-3, Division 2, subsection 193(2)].
1. : Criteria for transfer in the credit context
In examining whether a transfer was appropriate in the
credit context the transferring court could take into
account, among other things:
. the debtor's current location or place of residence [Part 4-
3, Division 2, paragraph 193(2)(a)];
. the jurisdiction in which the credit contract was entered
into [Part 4-3, Division 2, paragraph 193(2)(b)];
. the location of the mortgaged real estate [Part 4-3,
Division 2, paragraph 193(2)(c)];
. whether an enforcement proceeding against a credit contract
should be heard in the same jurisdiction as where an
application of hardship is made [Part 4-3, Division 2,
paragraph 193(2)(d)];
. when bringing an enforcement proceeding against a debtor for
a credit contract, the credit provider was acting in good
faith and was not bringing proceedings against a debtor in a
different jurisdiction to which they reside in order to
frustrate or limit the debtors ability to challenge the
proceedings [Part 4-3, Division 2, paragraph 193(1)(b)]; and
. if a matter was referred by a lower court to another court
in a different jurisdiction [Part 4-3, Division 2, paragraph
193(1)(e)].
661. These transfer arrangements do not apply to Federal Court or the
Federal Magistrates Court which are subject to the transfer
arrangements set out in section 32AB of the Federal Court of
Australia Act 1976 and section 39 of the Federal Magistrates Act
1999. [Part 4-3, Division 2, subsection 191(2)]
662. There are separate transfer procedures in relation to the lower
courts, that is, the Federal Magistrates Court, or a District
court, County court, Magistrates Court or Local court of a State or
Territory. A superior court is the Federal Court or the Supreme
Court of a State or Territory. [Part 1-2, Division 2, section 5]
663. A 'lower court' may transfer matters to the Supreme Court in their
jurisdiction, with a recommendation that the matter be transferred
to another superior court in another jurisdiction. [Part 4-3,
Division 2, subsection 192(2)]
664. The transfer arrangements also set out the documents and procedure,
the conduct requirements and the rights of legal practitioners,
where such a transfer occurs. [Part 4-3, Division 2, sections 195
to 197]
665. A decision by a 'transferring court' to transfer the matter to
another court is not subject to appeal. [Part 4-3, Division 2,
section 198]
Small claims proceedings
666. Section 199 enables 'opt-in' streamlined court proceedings to be
adopted for consumer actions for:
. matters arising for compensation for loss or damage up to
$40,000 under the Credit Bill, including the Code [Part 4-
3, Division 2, items 1,10, 11, and 13 in subsection
199(2)];
. some court orders available under the Code, where the
value of credit contract, mortgage, guarantee or consumer
lease is no more than $40,000 [Part 4-3, Division 2, items
2, 3, 6, 7, 9, and 12 in the table in subsection 199(2)];
and
. requests in relation to a hardship variation (under
Schedule 1, Part 4, Division 3, sections 72 and 73 of the
Code) and postponements of enforcement proceedings (under
section 96 of the Code) [Part 4-3, Division 2, items 4, 5
and 8 in the table in subsection 199(2)].
667. The procedure is designed to expedite proceedings for small claims
matters and replicate some of the advantages that State tribunals
offered. It addresses some of the concerns arising from the
inability to continue to access State tribunals, where they were
available. It also improves consumer access to dispute resolution
in jurisdictions where tribunals are not utilised.
668. Once a small claims procedure is triggered, the court can make
ancillary or consequential orders in relation to the proceedings,
even if those orders are not listed in section 199. [Part 4-3,
Division 2, subsection 199(4)]
1. : Ancillary or consequential orders
Premjit, a mortgagor had his $3,000 fridge repossessed by
the credit provider.
Premjit applied to the court under section 108 of the Code
to have his mortgaged fridge returned and uses the
streamlined court proceedings. The court duly orders the
return of the fridge to Premjit, but also:
. makes an order under section 109 of the Code for the fridge
be delivered to the mortgagor's home on Thursday at 8 am;
and
. a separate order under section 110 of the Code for $2,000 to
compensate the mortgagor for the food that was spoiled and
lost when the credit provider repossessed his fridge.
Compensation for loss or damage up to $40,000
669. A person may 'opt-in' to a small claims procedure where they are
seeking compensation under sections 178 and 106, subsection 107(3)
and section 118 of the Code.
670. The monetary limit on amounts that may be awarded under the small
claims procedure is $40,000 with the regulations allowing a higher
amount to be set, if considered appropriate. This amount is
greater than the limit of $20,000 under the Fair Work Act 2009, but
is consistent with its arrangements for small claims proceedings.
671. The monetary limit recognises that matters over $40,000 are likely
to be more complex and should attract more formal consideration of
the Court. This procedure should cover most claims under the Code.
For example, the Victorian Civil and Administration Tribunal noted
in its 2007-08 Annual Report that claims under $10,000 comprised 87
per cent of all its general civil applications, including credit
matters.
672. The monetary limit is also consistent with the current
jurisdictional limits for the award of damages in State and
Territory magistrate and local courts.
673. An applicant may opt for the small claims procedures in relation to
a credit contract that exceeds the monetary amount or where they
may be entitled to amounts greater than $40,000. However, the
maximum amount a court could award under this procedure is $40,000.
1. Small Claims Compensation Limit
Regina believes she is entitled to $50,000 in compensation
for loss and damage from her credit provider. She decides
to use the opt-in small claims procedures since she believes
this will be easier, reduce any upfront costs of obtaining
legal representation, and will allow her to settle her claim
faster.
However, in deciding to use the opt in small claims
procedure, the court may only be able to award her
compensation of up to $40,000. Regina considers it is worth
forfeiting this extra $10,000 of her claim, for the benefit
of having her claim considered under the small claims
procedure.
Other orders
674. A number of orders that are available under the Code have been
included where they would benefit from a streamlined court
procedure. Access to this procedure is restricted to matters where
the value of the credit contract, mortgage guarantee or consumer
lease is less than $40,000.
675. The value of the credit contract, mortgage or guarantee is
determined by the amount of credit that has been or may be provided
under a credit contract to which it relates [Part 4-3, Division 2,
subsection 199(3)]. An eligible credit contract would include, for
example, a credit card with a maximum credit limit of $30,000,
where the credit limit had been reached and paid out a number of
times.
676. In relation to consumer leases, the value is based on the amount
payable under the consumer lease, including fees and charges.
[Part 4-3, Division 2, paragraph 199(3)(b)(iv)]
677. Orders in relation to unjust transactions (section 76 of the Code)
and unconscionable fees and charges (section 78 of the Code) were
included to facilitate such complaints. However, it is considered
that more complex and serious cases may benefit from more formal
consideration by the court. These include matters that relate to a
person's residential property.
678. Some court orders in relation to the Code have been included to
facilitate cases involving the repossession of goods (section 108).
These orders are considered to be commonly used by consumers.
679. In such a situation, the borrower may be able to apply for hardship
variation, stay or postponement of enforcement and also have access
to the provisions in relation to getting their goods returned, or
payment of compensation for repossession in breach of the Code.
These cases are considered to involve relatively small amounts of
money.
680. In addition, orders in relation to statement of accounts and
dispute accounts (sections 37 and 38 of the Code) were included as
a straightforward matter that would benefit from streamlined
procedures.
Hardship variations and postponements of enforcement
681. Requests for hardship variations (section 74) and postponements
(section 96) under the Code are also eligible for streamlined court
proceedings, in recognition that consumers seeking these requests
may already be suffering hardship and are likely to be in need of
an expedited and lower cost avenue for redress.
682. There is no monetary threshold to accessing the small claims
procedure in relation to a hardship variation or postponement of
enforcement proceeding.
Court procedures for small claims
683. This procedure is consistent with procedures already available in
State magistrates and local courts for workplace relations matters.
Under the Workplace Relations Act 1996, the small claims procedure
currently applies to proceedings in a State magistrates or local
court. The Fair Work Act 2009 extends the small claims procedure
to the Federal Magistrates Court.
684. When dealing with a matter under the small claims procedure, the
Federal Magistrates Court (or a State or Territory magistrates or
local court) may act in an informal manner. It will not be bound
by formal rules of evidence and it may act without regard to legal
forms and technicalities. This is intended to ensure that claims
for a relatively small amount of money, or that need to be heard
quickly, such as hardship, are dealt with efficiently and
expeditiously by the courts. [Part 4-3, Division 2, subsection
199(5)]
685. At any stage of the small claims procedure, the court may amend the
papers commencing the proceeding so long as sufficient notice is
given to any party adversely affected by the amendment. This is
intended to ensure that small claims procedures are not subject to
onerous procedural requirements and to clarify the nature of the
legal issues in dispute. [Part 4-3, Division 2, subsection 199(6)]
686. There is also a presumption against legal representation. A person
may only be represented by a 'lawyer' with the leave of a court.
The term lawyer is defined in the Credit Bill as a person admitted
to the legal profession by the High Court, Federal Court or Supreme
Court of a State or Territory. The definition of 'lawyer' is
intended to have the same or a similar meaning to the legislation
regulating the legal profession in most States and Territories. It
extends to all admitted lawyers. [Part 4-3, Division 2, subsection
199(7)]
687. That person is not taken to be represented by a lawyer if the
lawyer is an employee or officer of the person. [Part 4-3,
Division 2, subsection 199(9)]
688. Where a court has given permission for a person to be represented
by a lawyer, it may do so subject to conditions designed to ensure
that no other party is unfairly disadvantaged. [Part 4-3, Division
2, subsection 199(8)]
689. For example, if one party is a company and represented by an
employee who is legally qualified (as permitted, under the
exemption in subsection 199(9)), the court may consider it
appropriate for the other party to be represented by a person who
is a lawyer.
Costs - adverse cost orders
690. Costs in relation to court proceedings may include fees,
disbursements, and other expenses. The standard position is that
costs follow the event; that is, an award of costs will generally
flow with the result of litigation with the successful party being
entitled to an order for costs against the unsuccessful party.
691. Adverse cost orders are seen as a disincentive for a consumer to
raise a dispute in court. In particular, they are seen as a
disincentive for debtors seeking a hardship variation under the
Code, due to the potential of experiencing large costs.
692. The removal of adverse cost orders in tribunal proceedings were
seen as an advantage of a tribunal compared to the courts.
693. A presumption against issuing adverse cost orders apply to
applications:
. that occur under the small claims proceeding in section
199; or
. section 72 (hardship variation) or section 94
(postponement of enforcement proceedings) of the Code
(regardless of whether the matter is heard in a small
claims proceeding).
694. This presumption can be rebutted if the proceedings were vexatious
or without reasonable cause or where a party's unreasonable act or
omission caused the other party to incur costs. [Part 4-3,
Division 2, section 200]
Criminal proceedings - Division 3
695. Division 3 deals with criminal proceedings and sets out the laws
that are to be applied in relation to criminal proceedings.
696. This Division is intended to be consistent with Part 9.6A, Division
2 of the Corporations Act.
697. It does not limit the operation of the Judiciary Act 1903, except
in relation to sections 68, 70 and 70A. [Part 4-3, Division 3,
section 203]
Criminal jurisdiction
698. Jurisdiction for criminal matters, including summary and indictable
convictions, is conferred to the courts of each State and Territory
where they have jurisdiction to deal with such matters. [Part 4-3,
Division 3, section 204] This also extends to, among other things:
. the examination and commitment for trial on indictment;
. an offender's sentencing punishment and release; and
. any appeals arising from proceedings connected with such
matters.
[Part 4-3, Division 3, section 204(2)]
699. Section 204 has the same legal effect as section 1338B of the
Corporations Act. This provision has been amended to improve its
readability.
700. In addition, the jurisdiction conferred onto the courts of the
Northern Territory and Australian Capital Territory is restricted
by its constitutional limits. [Part 4-3, Division 3, subsection
203(3)]
701. The Federal Courts do not exercise criminal jurisdiction under the
Credit Bill. This is because the Federal Courts generally do not
exercise criminal jurisdiction, particularly in relation to
indictable offences. This is consistent with the operation of the
Corporations Act.
Summary Offences
702. The jurisdiction in relation to summary offences is unlimited,
despite any limits as to locality of the jurisdiction of that court
under the law of the State or Territory [Part 4-3, Division 3,
subsection 204(7)].
703. Only a magistrate can exercise criminal jurisdiction for a summary
conviction, or examination or commitment for trial. [Part 4-3,
Division 3, subsection 204(3)]
704. Further, a court may decline to exercise their jurisdiction in
relation to a summary offence if, having regard to all the
circumstances (including the public interest), the court is
satisfied that it is appropriate. [Part 4-3, Division 3,
subsection 204(9)]
Indictable offences
705. However, indictable offences can only be heard in a court if:
. the offence was committed (begun or completed) in its
jurisdiction, that is, it was committed in the
jurisdiction of the relevant State or Territory; or
. if the offence was committed outside of Australia.
[Part 4-3, Division 3, subsection 204(10)]
706. A person who pleads guilty to an indictable offence may be
sentenced or otherwise dealt with without trial. [Part 4-3,
Division 3, subsection 204(4)]
707. Reference to 'any such trial or conviction' in the criminal
jurisdiction conferred to the courts includes jurisdiction in
relation to the relevant criminal law of a State or Territory.
[Part 4-3, Division 3, subsection 204(4) and (5)]
708. 'Relevant criminal law', includes criminal law relating to the
conviction or sentencing of an indictable offence. [Part 4-3,
Division 3, subsection 204(7)]
709. A person may be dealt with in accordance with the relevant criminal
law even if, apart from the operation of this section, the offence
is required to be prosecuted by indictment or either summarily or
on indictment. [Part 4-3, Division 3, subsection 204(6)]
Criminal proceedings
710. The laws of a State or Territory apply to a person who is charged
under the Credit Bill in relation to the arrest, custody, criminal
procedure and the rules of evidence applied to criminal procedure.
[Part 4-3, Division 3, subsection 205(1)]
711. 'Criminal procedure' relates to the procedure in relation to
examining and obtaining a conviction, including the hearing and
determination of appeals or any related proceedings. [Part 4-3,
Division 3, subsection 205(2)]
712. ASIC, or a delegate of ASIC, or a representative authorised by the
Minister may lay or make a charge in relation to an offence against
the Credit Bill. This does not affect the operation of the
Director of Public Prosecutions Act 1983. [Part 4-3, Division 3,
section 206]
713. When ASIC is undertaking a prosecution, ASIC may seek assistance
from certain persons in relation to the defendant, to give all
assistance in connection with the prosecution that they are
reasonably able to give. [Part 4-3, Division 3, section 207]
714. These persons are:
. if the defendant is a natural person, a person who is or
was a partner, employee or agent of the defendant; or
. if the defendant is a body corporate, a person who is or
was an officer, employee or agent of the defendant.
715. Failure to comply with a reasonable request for assistance from
ASIC gives rise to an offence of strict liability [Part 4-3,
Division 3, subsection 207(3)]. This is consistent with the
equivalent requirements in section 1317 of the Corporations Act and
will enable ASIC to properly discharge its investigative and
prosecution functions.
716. Any person who is or is likely to be a defendant to the proceeding
in relation to which ASIC is seeking assistance, or such a person's
lawyer, is not required to assist and has a defence to any action
taken against them under subsection 207(2) [Part 4-3, Division 3,
subsection 207(4)]. This is similar to the equivalent provisions
in section 49 of the ASIC Act.
717. This provision operates in conjunction with the rules of evidence
or common law that applies in the relevant jurisdiction. The
privilege against self-incrimination and legal client privilege
only apply as permitted by the rules of evidence or the common law
of the relevant jurisdictions. [Part 4-3, Division 3, subsection
205(1)]
718. These procedures work in conjunction with ASIC's powers to bringing
criminal proceedings for an offence against the Credit Bill when
relying on evidence gathered from a formal investigation under
section 247. [Part 6-4, Division 2, section 274]
719. ASIC may seek a court order to obtain compliance with such a
request. [Part 4-3, Division 3, subsection 207(5)]
720. A body corporate does not have a privilege against self-
incrimination. This reflects current common law principles [Part 4-
3, Division 3, section 208]. This is consistent with section 1316
of the Corporations Act.
Proceedings generally - Division 4
721. Division 4 contains rules about proceedings generally, such as
ASIC's power to intervene in proceedings and the standard of proof
to be applied.
722. ASIC has the power to intervene in proceedings relating to a matter
arising under the Credit Bill. This power is based on section 1330
of the Corporations Act. It enables ASIC to make submissions to a
Court for any purpose (not just to secure a civil penalty), for
example, to make submissions on the way legislation should be
interpreted. [Part 4-3, Division 4, section 20]
723. A Registrar, or another proper officer of an Australian Court, may
make a certificate that states that a person was convicted by that
court of an offence, including that a person was found to have
committed that offence, but that court did not proceed to convict
that person of an offence, for the purposes of the Credit Bill.
[Part 4-3, Division 3, section 210]
724. This certificate is considered conclusive evidence, unless it is
proven that offence was quashed or set aside, or that the finding
was set aside or reversed.
725. This has the effect, among other things, of assisting a person or a
corporation to rely on earlier proceedings when making an
application for compensation without having to 'reprove' all the
matters that were decided in the earlier proceedings. This has a
similar effect to obtaining a declaration that a person has
contravened a civil penalty provision, for obtaining a civil
penalty order or compensation.
726. This replicates section 1333 of the Corporations Act.
727. Nothing in the Credit Bill restricts or affects the court from
punishing contempt of court when a person contravenes an order of
the court and commits an offence. [Part 4-3, Division 3, section
211]
Application and transitional provisions
728. Federal jurisdiction commences for claims that arise under the new
legislation from the commencement of the Credit Bill.
729. The Federal Court, Federal Magistrates Court and State and
Territory courts would all be able to exercise federal jurisdiction
in relation to claims that arise under the new legislation from
commencement.
730. The Credit Bill will provide a provision about the preservation of
rights to enable persons to pursue a remedy or court action in the
Federal Court, Federal Magistrates Court and State and Territory
courts for matters that arose before the commencement of the Credit
Bill, in relation to laws referred to the Commonwealth, such as the
Code.
731. The State courts retain jurisdiction over credit laws not referred
to the Commonwealth. These arrangements more specifically are set
out in the National Consumer Credit Protection (Transitional and
Consequential Provisions) Bill 2009.
Chapter 5
Administration
Outline of chapter
732. Chapter 5 of this explanatory memorandum outlines the
administrative measures established in the National Consumer Credit
Protection Bill 2009 (Credit Bill). These measures provide the
Australian Securities and Investments Commission (ASIC) with the
ability to perform elements of its role as the national regulator
of consumer credit. Chapter 5 also outlines the effects of the
imposition of certain fees under the National Consumer Credit
Protection (Fees) Bill 2009 (Fees Bill).
733. The key elements of ASIC's role as detailed in this chapter are:
. the requirement to create and maintain registers relating
to credit activities and documents lodged with it under
the Credit Bill, and the inspection and public
availability of those registers;
. ASIC's ability to deal with documents submitted for
lodgment with it under the Credit Bill;
. requirements relating to the concealment or falsification
of credit books; and
. the effect of payment of fees under the Fees Bill.
734. These provisions are designed to allow ASIC to have sufficient
administrative powers for the efficient operation of the
legislative scheme.
Summary of new law
735. The content of the administrative provisions in Chapter 5 of the
Credit Bill include (but are not limited to) the following:
. ASIC's creation and maintenance of registers relating to
credit activities and documents lodged with it under the
Credit Bill;
. documents lodged with ASIC, approved forms and details
relating to how these documents may need to be lodged with
ASIC, or when ASIC may refuse to receive them;
. matters relating to documents lodged with ASIC;
. offences relating to:
- the concealing or falsification of credit books; and
- obstructing or hindering ASIC;
. details regarding the effect of fees payable to the
Commonwealth under the Fees Bill; and
. administrative matters relating to functions of ASIC.
Detailed explanation of new law
Part 5-1 - Registers relating to credit activities
Division 1 - Introduction
736. Part 5-1 deals with registers relating to credit activities that
must be established and maintained by ASIC. [Part 5-1, Division 1,
section 212]
Division 2 - Registers relating to credit activities
737. Division 2 requires ASIC to establish and maintain one or more
registers relating to credit activities. It also deals with how
those registers are to be maintained, and the inspection and public
availability of those registers.
738. As part of ASIC's role as the national regulator of the Australian
credit regime, ASIC must establish and maintain one or more
registers relating to credit activities. [Part 5-1, Division 2,
subsection 213(1)]
739. Regulations may prescribe the way in which ASIC's credit register
can be established and maintained. These may include details that
ASIC must enter in the credit registers in relation to:
. persons, including licensees and their credit
representatives;
. those persons registered to engage in credit activities
and their credit representatives;
. persons banned or disqualified from engaging in a credit
activity under State or Territory law or under an order
made under Part 2-4 (Part 2-4 is about the banning or
disqualification of persons from engaging in credit
activities); and
. any other persons prescribed by the regulations.
[Part 5-1, Division 2, subsection 213(2)]
740. ASIC's credit register may be maintained in electronic form and may
be maintained as part of, or together with any register in relation
to financial services maintained under section 922A of the
Corporations Act 2001 (Corporations Act). [Part 5-1, Division 2,
subsection 213(3)]
741. ASIC registers are not a legislative instrument. This statement is
merely declaratory of the law, consistent with section 5 of the
Legislative Instruments Act 2003. [Part 5-1, Division 2,
subsection 213(4)]
742. A person may inspect, make copies of or take extracts from the
credit registers that ASIC may make available to the public on its
own website or by other means. [Part 5-1, Division 2, section 214]
Part 5-2 - Documents lodged with ASIC or required by the Credit Bill
Division 1 - Introduction
743. Part 5-2 deals with the lodging of documents with ASIC. It also
has offences related to making false statements in documents.
[Part 5-2, Division 1, section 215]
Division 2 - Lodgment of documents with ASIC
744. Division 2 deals with how documents should be lodged with ASIC,
approved forms, and ASIC's power to refuse to receive documents
submitted for lodgment.
745. In order to maintain its registers and perform its functions under
the Credit Bill, ASIC can require information be provided to it.
This may be done through the lodgment of certain documents.
746. A document required to be lodged with ASIC under the Credit Bill is
considered to be lodged if it is transmitted to ASIC by an
electronic format approved by ASIC. ASIC is also able to approve
another (non-electronic) manner for lodgment of a document if, for
example, a person has no access to a computer. If ASIC refuses to
receive a document submitted for lodgment, that document is
considered as having not been lodged with ASIC. [Part 5-2,
Division 2, section 216]
747. If a document is lodged with ASIC, then any other material that is
lodged with the document as required by the Credit Bill or an
approved form is taken to be included in that document. [Part 5-2,
Division 2, subsection 216(3)]
748. If ASIC has approved a form for a particular document (for example,
the Australian credit licence application form), the document must
be submitted to ASIC in the approved form; include the information
statements or any other matters required by that form; and be
accompanied by any other material required by the form. [Part 5-2,
Division 2, section 217]
749. ASIC may refuse to receive a document submitted to it for lodgment
if ASIC considers the document contains a matter contrary to law,
is false or misleading, incomplete or contains an error, alteration
or erasure. [Part 5-2, Division 2, subsection 218(1)]
750. ASIC may request that a refused document be amended or completed
and resubmitted, or that a fresh document be submitted in its
place, or that an incomplete document have a supplementary document
lodged. [Part 5-2, Division 2, subsection 218(2)]
751. ASIC may give written notice to a person who submits a document for
lodgment to give ASIC any other document or information ASIC
considers necessary to form an opinion whether it should refuse the
person's lodged document. [Part 5-2, Division 2, subsection
218(3)]
752. ASIC's written notice must specify the day the person must comply
with the notice. The time ASIC gives for the person to comply must
be a reasonable time after the notice is given. ASIC may also
extend the day by giving a written notice to the person. [Part 5-
2, Division 2, subsection 218(4)]
753. A person must comply with a written notice from ASIC. The civil
penalty for non-compliance is a maximum of 2,000 penalty units
[Part 5-2, Division 2, subsection 218(5)]. The criminal penalty
for non-compliance is a maximum of 50 penalty units or 1 year
imprisonment, or both and is consistent with section 1274 of the
Corporations Act. [Part 5-2, Division 2, subsections 218(5) and
(6)]
754. The offence is strict liability. Strict liability will
significantly enhance the role of ASIC in administering the
enforcement regime. [Part 5-2, Division 2, subsections 218(5), (6)
and (7)]
Division 3 - ASIC's register of documents
755. Division 3 deals with ASIC's register of documents that have been
lodged with it.
756. To facilitate ASIC's role as the regulator of the Australian credit
regime, ASIC may establish and maintain one or more document
registers in any form ASIC considers appropriate. [Part 5-2,
Division 3, subsections 219(1) and (2)]
757. ASIC document registers may be maintained in an electronic form.
[Part 5-2, Division 3, subsection 219(3)]
758. ASIC is not required to make any part of a document register
public, nor is it required to permit any person to inspect or make
copies of, or take extracts from a document register. [Part 5-2,
Division 3, subsection 219(4)]
759. An ASIC document register is not a legislative instrument. This
statement is merely declaratory of the law, consistent with section
5 of the Legislative Instruments Act 2003. [Part 5-2, Division 3,
subsection 219(5)]
760. Where information about a person is included in a document
register, ASIC may give that person a written notice requiring them
to give ASIC information about themselves, being information of the
kind included on the document register. For example, where the
information included in the register is a business address, the
person can be given a written notice requiring them to give ASIC
information about their current business address. The notice must
specify the day that the person must comply with the notice. This
must be a reasonable period after the notice is given by ASIC.
[Part 5-2, Division 3, subsections 220(1) and (2)]
761. A person must comply with a written notice from ASIC. The civil
penalty for non-compliance is a maximum of 2,000 penalty units
[Part 5-2, Division 3, subsection 220(3)]. The criminal penalty
for non-compliance is a maximum of 50 penalty units or 1 year
imprisonment, or both and is consistent with section 1274 of the
Corporations Act. [Part 5-2, Division 3, subsection 220(4)]
762. The offence is strict liability. Strict liability will
significantly enhance the role of ASIC in administering the
enforcement regime. [Part 5-2, Division 3, subsection 220(5)]
763. ASIC may prepare a written document that sets out information
obtained from its document register [Part 5-2, Division 3,
subsection 221(1)]. The document is admissible as prima facie
evidence of the matters in the document (meaning that in a court
proceeding, the court will take the written document as factually
representing the matters in the document, unless the contrary is
established) [Part 5-2, Division 3, subsection 221(2)]. The
document need not be certified by ASIC, or signed, in order to
purport to have been prepared by ASIC [Part 5-2, Division 3,
subsection 221(3)].
Division 4 - Other provisions relating to documents lodged with
ASIC or required under the Credit Bill
764. Division 4 deals with further provisions relating to the lodging of
documents with ASIC.
765. In court proceedings, a copy or extract of any document lodged with
and certified by ASIC is admissible in evidence as of equal
validity with the original document [Part 5-2, Division 4, section
222]. This allows ASIC to convert original documents into
electronic format and provide to the court copies or extracts with
equal status as the originals.
766. ASIC may destroy or dispose of a document if it considers that it
is no longer necessary or desirable to retain the document and the
document has been in ASIC's possession for a period prescribed by
the regulations or a copy of the document has been included in the
document register. This allows ASIC to destroy the original
documents lodged with it where they have been included in the
document register. [Part 5-2, Division 4, section 223]
767. ASIC may give a person written notice requiring them to comply with
any provision of the Credit Bill that requires that they lodge a
document with ASIC or comply with any request of ASIC to resubmit a
document under Part 5-2, Division 2, subsection 218(2) (a lodgment
notice). The notice may require the person to comply within 14
days. [Part 5-2, Division 4, subsection 224(1)]
768. If a person fails to comply with a lodgment notice within 14 days,
ASIC may apply to a court for an order directing the person to
comply with the requirement or request. [Part 5-2, Division 4,
subsection 224(2)]
769. The court may order that costs incidental to ASIC's application be
borne by certain persons. For example, the cost may be borne by
the person, or if the person is a body corporate, by the director,
secretary or senior manager, or if the person is a partnership or
trustee, by a partner or trustee who is responsible for the failure
to comply. [Part 5-2, Division 4, subsection 224(3)]
770. There are various offences relating to documents required to be
lodged or already lodged with ASIC under the Credit Bill. [Part 5-
2, Division 4, section 225]
771. A person must not either:
. make, or authorise the making of, a statement or an
omission in a document; or
. omit, or authorise the omission of a matter from a
document if:
- the person knows that the statement is false or
misleading, or based on information that is false or
misleading, or omits matters that makes the documents
misleading, or
- the person knows that without the matter that has been
omitted the document is misleading, or
- is reckless as to whether this is the case.
772. The civil penalty for this offence is a maximum of 2,000 penalty
units. The criminal penalty for the offence is a maximum of 200
penalty units, or 5 years imprisonment, or both and is consistent
with subsection 1308(2) of the Corporations Act. [Part 5-2,
Division 4, subsections 225(2) to (4)]
1.
Brigitte's Home Loans Pty Ltd's application for a licence to
engage in credit activities recklessly fails to disclose
details of a director who will perform duties in relation to
those credit activities if the registration is granted.
Without inclusion of this information, the application is
false in a material particular or materially misleading.
ASIC may therefore seek a civil penalty from the court
against Brigitte's Home Loans Pty Ltd of up to $1.1 million.
In addition, ASIC may reject the application for a licence.
773. A person must take reasonable steps to ensure that they do not
make, or authorise the making of, a statement, or an omission in a
document under certain circumstances [Part 5-2, Division 4,
subsection 225(5)]. These circumstances are:
. that the person knows or is reckless as to whether the
statement is false or misleading; or
. has omitted something that makes it misleading or is based
on information that is false or misleading.
774. The civil penalty for this offence is a maximum of 2,000 penalty
units.
775. The criminal penalty for the offence is a maximum of 5 penalty
units and is consistent with subsection 1308(4) of the Corporations
Act. [Part 5-2, Division 4, subsections 225(5) and (6)]
776. This offence also carries strict liability [Part 5-2, Division 4,
subsection 225(7)]. This strict liability will significantly
enhance the role of ASIC in administering the enforcement regime.
777. A person is taken to have authorised the making of a statement or
omission relevant to a document if they vote in favour of a
resolution approving the document or otherwise approves the
document. [Part 5-2, Division 4, subsection 225(8)]
Part 5-3 - Concealment or falsification of credit books
Division 1 - Introduction
778. Part 5-3 deals with the concealment or falsification of credit
books. [Part 5-3, Division 1, section 226]
Division 2 - Prohibitions relating to the concealment or
falsification of credit books
779. Division 2 deals with requirements not to conceal or falsify credit
books, and a requirement to take precautions against the
falsification of credit books. A definition for the term credit
book is provided. [Part 5-3, Division 2, subsection 227(4)]
780. It is an offence for a person to conceal, destroy, mutilate, alter
or send a credit book out of the jurisdiction of the Credit Bill
[Part 5-3, Division 2, subsection 227(1)]. The civil penalty for
this offence is a maximum of 2,000 penalty units. The criminal
penalty for the offence is a maximum of 50 penalty units, or
6 months imprisonment, or both and is consistent with section 1101E
of the Corporations Act [Part 5-3, Division 2, subsections 227(1)
and (2)].
781. A defence to this offence is that the person did not intend to
defraud or prevent, delay or obstruct the carrying out an
examination, investigation or audit, or the exercise of a power
under the Credit Bill [Part 5-3, Division 2, subsection 227(3)].
The defendant bears the evidentiary burden in relation to this
defence since these are matters which will be peculiarly within the
knowledge of the defendant, and it would be significantly more
difficult and costly for the prosecution to disprove than for the
defendant to establish.
1.
Jane is taken to court for concealing a credit book from
ASIC that was pertinent to an investigation ASIC was
conducting in performing a function under the Credit Bill.
She wants to make the defence that she did not conceal the
credit book because she did not intend to obstruct ASIC's
investigation.
Because she bears the evidentiary burden in relation to the
defence, she will need to establish to the satisfaction of
the court that she did not have the intention to obstruct
ASIC's investigation for the defence to apply.
782. It is an offence for a person to engage in conduct that results in
the falsification of a credit book [Part 5-3, Division 2, section
228]. The civil penalty for this offence is a maximum of 2,000
penalty units. The criminal penalty for the offence is a maximum
of 50 penalty units, or 6 months imprisonment, or both and is
consistent with section 1101F of the Corporations Act [Part 5-3,
Division 2, subsections 228(1) and (2)].
783. A defence to this offence is that the person acted honestly and in
all the circumstances, the act or omission constituting the offence
should be excused. [Part 5-3, Division 2, subsection 228(3)]
784. The defendant bears the evidentiary burden in relation to this
defence since these are matters which will be peculiarly within the
knowledge of the defendant, and it would be significantly more
difficult and costly for the prosecution to disprove than for the
defendant to establish.
785. It is an offence for a person required by the Credit Bill to keep a
credit book not to take reasonable steps to guard against the
falsification of the credit book and facilitate the discovery of
any falsification of the credit book [Part 5-3, Division 2, section
229]. The civil penalty for this offence is a maximum of 2,000
penalty units. The criminal penalty for the offence is a maximum
of 50 penalty units, or 6 months imprisonment, or both and is
consistent with section 1101G of the Corporations Act [Part 5-3,
Division 2, subsections 229(1) and (2)].
Part 5-4 - Fees imposed by the National Consumer Credit Protection (Fees)
Bill 2009
Division 1 - Introduction
786. Part 5-4 deals with fees imposed by the Fees Bill. [Part 5-4,
Division 1, section 230]
Division 2 - Fees imposed by the Fees Bill
787. Division 2 deals with fees, including the payment of fees, the
lodging of documents or doing of acts without the payment of fees,
and the waiver or refund of fees.
788. Fees imposed under the Fees Bill are payable to the Commonwealth.
[Part 5-4, Division 2, section 231]
789. Generally, if a fee for the lodgment of a document is payable under
the Fees Bill and the document is submitted without the payment,
the document is still taken to have been lodged despite the non-
payment of the fee. [Part 5-4, Division 2, section 232]
790. However, a compliance certificate required to be lodged under Part
2-2, Division 5, section 53 is not taken to have been lodged until
the fee is paid. This has effect despite any other Part of the
Credit Bill. [Part 5-4, Division 2, section 232]
791. If a fee is payable under the Fees Bill for a matter involving the
doing of an act by the Minister or ASIC, they may refuse to do the
act until the fee is paid [Part 5-4, Division 2, section 233].
This has effect despite any other Part of the Credit Bill [Part 5-
4, Division 2, section 234]. This means, for example, that an
application for a licence or registration may be accepted for
lodgment by ASIC but that ASIC may refuse to grant the licence or
registration if the fee is not paid.
792. Nothing in Division 2 or in the Fees Bill prevents the Commonwealth
from waiving or reducing fees that would otherwise be payable, or
refunding in whole or in part fees paid under the Credit Bill. The
Commonwealth may do this either in a particular case or in a
particular class of cases. [Part 5-4, Division 2, section 235]
793. ASIC may recover a debt due under Division 2 on behalf of the
Commonwealth. [Part 5-4, Division 2, section 236]
794. Nothing in, or done under Division 2 imposes on ASIC a duty to:
. allow the inspection or search of a register or document;
. make available information; or
. confer a right to inspect or search a register or document
or to have information made available except so far as
such a duty or right would, but for the effect of Part 5-
4, Division 2, section 233, exist under a provision of
another Part of the Credit Bill or under some other law.
[Part 5-4, Division 2, section 237]
Part 5-5 - Other administrative matters
Division 1
795. Part 5-5 deals with miscellaneous provisions relating to
administrative matters. [Part 5-5, Division 1, section 238]
Division 2 - Other administrative matters
796. Division 2 deals with miscellaneous provisions relating to
administrative matters.
797. Subject to the Australian Securities and Investments Commission Act
2001 (ASIC Act), ASIC has the general administration of the Credit
Bill. [Part 5-5, Division 2, section 239]
798. It is an offence for a person to engage in conduct that results in
the obstruction or hindering of ASIC, or any other person, in the
performance of a function or power under the Credit Bill [Part 5-5,
Division 2, section 240]. The civil penalty for this offence is a
maximum of 2,000 penalty units. The criminal penalty for the
offence is a maximum of 100 penalty units, or 2 years imprisonment,
or both and is consistent with section 65 of the ASIC Act [Part 5-
5, Division 2, subsections 240(1) and (2)]. Sections 292 and 293
also contain other offences relating to the obstruction or
hindrance of ASIC.
799. A defence to this offence is that the person has a reasonable
excuse [Part 5-5, Division 2, subsection 240(3)]. The defendant
bears the evidentiary burden in relation to this defence since
these are matters which will be peculiarly within the knowledge of
the defendant, and it would be significantly more difficult and
costly for the prosecution to disprove than for the defendant to
establish.
800. ASIC may, on application, approve in writing codes of conduct, or
variations to codes of conducts for the activities of licensees, or
credit representatives; or activities in relation to which ASIC has
a regulatory responsibility. Such an approval must be in writing.
[Part 5-5, Division 2, subsections 241(1) and (2)]
801. ASIC must not approve a code of conduct, or a variation, unless it
is satisfied that the code is not inconsistent with the Credit Bill
or any other law of the Commonwealth under which ASIC has
regulatory responsibilities. [Part 5-5, Division 2, paragraph
241(3)(a)]
802. Further, it must be appropriate to approve the code of conduct or
variation, having regard to the following:
. the ability of the applicant to ensure that persons who
hold out that they comply with the code of conduct will
comply with that code as in force from time to time;
. the desirability of codes being harmonised to the greatest
possible extent; or
. any other matter ASIC considers relevant.
[Part 5-5, Division 2, paragraph 241(3)(b)]
803. ASIC may revoke an approval of a code of conduct on application by
the person who applied for the approval, or if ASIC is no longer
satisfied as mentioned in subsection 241(3). Such a revocation
must be in writing. [Part 5-5, Division 2, subsection 241(4)]
804. A code of conduct approved under subsection 241(1), or an approval
of such a code of conduct, an approval of a variation of a code of
conduct under subsection 241(2), or a revocation of a code of
conduct under subsection 241(4) are all legislative instruments.
[Part 5-5, Division 2, subsection 241(5)]
805. ASIC may arrange for the use of computer programs which are under
their control for any purposes relating to making decisions under
the Credit Bill [Part 5-5, Division 2, subsection 242(1)]. A
decision made by such a computer program is taken to be a decision
of ASIC. [Part 5-5, Division 2, subsection 242(2)]
806. A person has qualified privilege in relation to giving any
information to ASIC under certain circumstances [Part 5-5, Division
2, section 243]. These circumstances are matters that:
. a person is required or expressly permitted to give under
the Credit Bill [Part 5-5, Division 2, paragraph
243(1)(a)];
. relates to a contravention, or possible contravention, of
the credit legislation [Part 5-5, Division 2, paragraph
243(1)(b)]; or
. relates to a matter that is relevant to a decision made by
ASIC under:
- section 37 (when ASIC may grant a licence); or
- sections 54 and 55 (ASIC's powers to suspend or cancel
licences); or
- subsection 80(1) (ASIC's power to make banning orders).
[Part 5-5, Division 2, subparagraphs 243(c)(i), (ii) and (iii)]
807. This type of intelligence from third parties is a significant
source of detailed and time-sensitive information which assists
ASIC in the performance of its oversight of the industry and can be
used to take action against persons involved in misconduct.
808. A person that has qualified privilege under subsection 243(1) or
(2) in relation to conduct is also not liable for any action based
on breach of confidence in relation to that conduct.
1.
Bank ABC informs ASIC that they have detected what may be
fraudulent statements in an application for credit which
they have received from Joker Broker Inc.
On this basis of this, ASIC commences an investigation and
determines that the application from Joker Broker Inc is in
fact fraudulent.
Joker Broker Inc sues Bank ABC for breach of confidence.
However, Bank ABC has qualified privilege under section 243
as the information relates to a contravention, or possible
contravention, of the credit legislation.
809. ASIC may issue a certificate stating that a requirement of the
Credit Bill specified in the certificate :
. had or had not been complied with at a particular date or
within a period specified in the certificate [Part 5-5,
Division 2, paragraph 244(1)(a)]; or
. had been complied with at a date specified in the
certificate but not before that date [Part 5-5, Division
2, paragraph 244(1)(b)].
810. In proceedings in a court, a certificate issued by ASIC under
subsection 244(1) is admissible as prima facie evidence of the
matters stated in the certificate. [Part 5-5, Division 2, section
244]
811. The operator of an approved External Dispute Resolution Scheme (EDR
Scheme) may give information to ASIC in relation to a person
becoming, or ceasing to be, a member of the EDR Scheme [Part 5-5,
Division 2, section 245]. This information will enable ASIC to
monitor the licence condition that all licensees must remain an EDR
member at all times [Part 2-2, Division 5, paragraph 47(1)(i)].
Chapter 6
Compliance and enforcement
Outline of chapter
812. Chapter 6 of this explanatory memorandum outlines the powers
Australian Securities and Investments Commission (ASIC) may
exercise in relation to the investigation and enforcement of credit
legislation, including the National Consumer Credit Protection Bill
2009 (Credit Bill) and the National Consumer Credit Protection
(Transitional and Consequential Provisions) Bill 2009 (Transitional
Bill).
Context of amendments
813. ASIC generally exercises its compliance and enforcement powers
under the Australian Securities and Investments Commission Act 2001
(ASIC Act).
814. The ASIC Act is based on a separate referral of State powers.
Relevant enforcement provisions have been included in the Credit
Bill in order to cover credit matters.
815. The provisions in Chapter 6 largely replicate the relevant ASIC Act
provisions, subject to changes to ensure they work effectively in
the context of regulating credit activities.
816. Consistency with the provisions from the ASIC Act ensures that ASIC
retains similar levels of enforcement rights, obligations, and
capacity to administer and discharge its duties under the ASIC Act,
Corporations Act 2001 (Corporations Act) and the Credit Bill.
817. Certain provisions of the ASIC Act have not been replicated in the
Credit Bill. This is because either:
. those provisions are not relevant in the context of credit
activities and the Credit Bill; or
. the provisions in the ASIC Act will apply appropriately
without replication in the Credit Bill. This includes
matters relating to the general function and operation of
ASIC.
818. For example, section 127 of the ASIC Act has not been replicated in
the Credit Bill. This section of the ASIC Act will apply
appropriately because the Commonwealth credit legislation is
'protected information' for the purposes of paragraph 127(1)(b) of
the ASIC Act by reason of the inclusion of this legislation in
section 12A of the ASIC Act.
819. Some provisions in the ASIC Act that are being replicated limit the
use of certain immunities from prosecution and impact on the
privilege against self-incrimination.
820. The inclusion of more limited immunities in relation to ASIC powers
was the result of extensive inquiries and empirical research into
the difficulties of corporate regulation. The limiting of
immunities was recommended by the Joint Standing Committee on
Companies and Securities (1992) and by the 'Review of the
Derivative Use Immunity Reforms' by John Kluver (1997). It was
accepted that a full 'use' and 'derivative use' immunity would
unacceptably fetter investigation and prosecution of corporate
misconduct offences. Comparable issues would arise in relation to
credit matters.
821. ASIC is given broad powers to obtain information about suspected
contraventions of the credit legislation, as the most effective way
of regulating credit activities and maintaining public confidence
in the integrity of the credit industry.
822. The use of ASIC's powers under the Credit Bill is subject to
Parliamentary scrutiny by the Parliamentary Joint Committee on
Corporations and Financial Services.
Summary of new law
823. Chapter 6 of the Credit Bill outlines the powers that ASIC may
exercise for the purpose of administering and enforcing the
Commonwealth credit legislation.
824. The phrase Commonwealth credit legislation is defined as the Credit
Bill (when enacted), any instrument made under the Credit Bill
(when enacted), the Transitional Bill (when enacted) and any
instrument made under it. [Part 1-2, Division 2, section 5]
825. These powers supplement the powers that are already available to
ASIC under the ASIC Act, and replicate the powers contained in the
ASIC Act as far as is possible and as necessary in the context of
the Commonwealth credit legislation.
826. ASIC is given power to:
. gather information about credit activities and persons who
engage in credit activities, including:
- the examination or questioning of persons where relevant
to an ASIC investigation;
- inspection of books; and
- obtaining information about audits;
. undertake investigations for the effective administration
of the Commonwealth credit legislation, such as
investigating suspected contraventions of the credit
legislation;
. use in proceedings information obtained under its
information-gathering and investigation powers; and
. conduct administrative hearings as authorised by the
Commonwealth credit legislation (for example, to make
decisions about whether to cancel or suspend a licence).
827. This Chapter also sets out requirements in relation to the
following matters:
. reports relating to ASIC investigations;
. procedures for examination of persons;
. procedures in relation to the production or seizure of
books; and
. rules and procedures in relation to the conduct of
hearings.
828. Further, the provisions establish offences for non-compliance with
the requirements of this Chapter, the rules relating to self-
incrimination and legal professional privilege and the evidentiary
use and value of certain materials.
Detailed explanation of new law
Part 6-1 - Investigations
829. Division 2 of Part 6-1 of the Credit Bill provides that ASIC may
make investigations either on its own initiative, or if it is
directed to do so by the Minister. The powers to commence an
investigation are consistent with the powers of investigation in
sections 13 and 14 of the ASIC Act.
830. Consistent with existing ASIC powers, ASIC's powers of
investigation under the Credit Bill include procedures that enable
ASIC to respond effectively to suspected contraventions of credit
legislation. As a result, ASIC can require potential defendants to
present their positions to it promptly where delay would be
contrary to the public interest.
831. ASIC's investigation powers assist in maintaining the integrity of
the credit industry and promote consumer protection in relation to
the provision of credit.
832. ASIC has a general power to make such investigation as it thinks
expedient for the due administration of the Commonwealth credit
legislation if it has reason to suspect that there may have been
committed:
. a contravention of the credit legislation;
. a contravention of a law of the Commonwealth, or of a law
of a referring State or Territory, that concerns the
management, conduct or affairs of a licensee, a credit
representative or other person who engages, or has
engaged, in credit activities. In relation to a body
corporate, affairs has the same meaning as in section 232
of the Corporations Act [Part 1-2, Division 2, section 5].
In relation to other persons, a definition has not been
included and the natural meaning of the term applies; or
. a contravention of a law of the Commonwealth, or of a law
of a referring State or Territory, that involves fraud or
dishonesty and relates to a credit activity or a credit
contract, mortgage, guarantee or consumer lease.
[Part 6-1, Division 2, section 247]
833. The term credit legislation is defined as the Credit Bill (when
enacted), the Transitional Bill (when enacted), the ASIC Act and
any other Commonwealth, State or Territory legislation that covers
conduct relating to credit activities (whether or not it also
covers other conduct), but only in so far as it covers conduct
relating to credit activities. [Part 1-2, Division 2, section 5]
834. This definition is necessarily broader than the definition of
Commonwealth credit legislation, which is defined as the Credit
Bill (when enacted), any instrument made under the Credit Bill, the
Transitional Bill (when enacted) and any instrument made under it.
[Part 1-2, Division 2, section 5]
835. For ASIC to have a reason to suspect a contravention requires more
than mere speculation, but less than having reasonable grounds to
believe that a contravention has occurred.
836. ASIC's decision to commence an investigation is not a reviewable
decision under the Administrative Appeals Tribunal Act 1975 (AAT
Act) or the Administrative Decisions (Judicial Review) Act 1977
(AD(JR) Act).
837. ASIC can also be directed by the Minister to investigate a
particular matter if the Minister is of the opinion that it is in
the public interest to do so. [Part 6-1, Division 2, section 248]
838. ASIC can be directed by the Minister to investigate a matter
relating to:
. an alleged or suspected contravention of the Commonwealth
credit legislation;
. an alleged or suspected contravention of a law of the
Commonwealth or of a referring State or Territory that
concerns the management, conduct or affairs of a licensee,
a credit representative or other person who engages in, or
has engaged in, credit activities, or that involves fraud
or dishonesty and relates to a credit activity or a credit
contract, mortgage, guarantee or consumer lease; or
. a credit activity engaged in by a person.
839. The Minister also has power to direct ASIC to investigate a credit
activity even if it does not involve an alleged or suspected
contravention of a law. [Part 6-1, Division 2, section 248]
Reports of investigations
840. ASIC may prepare a report - either an interim report or a final
report - that sets out certain findings and opinions arising out of
an investigation. In some cases, ASIC is required to prepare a
report and give a copy to the Minister. The powers to prepare
reports are consistent with the powers in sections 16 and 17 of the
ASIC Act.
841. ASIC must prepare an interim report if, in the course of an
investigation under Part 6-1, it forms the opinion that:
. a contravention of a law of the Commonwealth, or of a
referring State or Territory, has been committed, and that
contravention is serious; or
. the preparation of an interim report would enable or
assist the protection, preservation or prompt recovery of
property; or
. there is an urgent need for the Commonwealth credit
legislation to be amended.
[Part 6-1, Division 2, subsection 249(1)]
842. An interim report that ASIC is required to prepare must contain, as
relevant, ASIC's finding about contraventions and material on which
the findings are based, matters that will enable or assist the
protection, preservation or prompt recovery of property, or ASIC's
opinion and reasons for its opinion about the amendment of the
legislation.
843. The requirement to prepare an interim report is intended to apply
in circumstances where it is in the public interest for findings of
facts to be made at an early stage of an investigation to assist a
decision to be made about whether to commence civil or criminal
proceedings, or to seek law reform, and to also assist in the
preparation and conduct of proceedings if such proceedings are
commenced. The public interest in preparing an interim report must
be balanced against the public interest in maintaining the
integrity of the investigation.
844. ASIC also has discretion to decide to prepare an interim report.
[Part 6-1, Division 2, subsection 249(2)]
845. ASIC may choose to prepare a final report at the end of an
investigation that sets out ASIC's findings about matters
investigated, material on which those findings are based and any
other matters relating to or arising out of the investigation that
ASIC thinks fit. [Part 6-1, Division 2, section 250]
846. If a final report is prepared for an investigation, each record of
an examination conducted in the course of that investigation must
accompany the report. In addition, if, in ASIC's opinion, a
statement made at an examination conducted in the course of another
investigation under Part 6-1 is relevant to the investigation and a
record has been made of that statement, a copy of the record must
accompany the report. [Part 6-1, Division 2, section 251]
847. ASIC can be directed by the Minister to prepare either an interim
report or a final report. If a report is prepared at the
Minister's direction, it must also set out such matters relating
to, or arising out of, the investigation that the Minister directs.
[Part 6-1, Division 2, subsections 249(2) and (3), 250(2) and (3)]
848. Interim reports and final reports prepared are not legislative
instruments. Subsections 249(4) and 250(4) are declaratory of the
position that the interim or final reports are not a legislative
instrument within the meaning of section 5 of the Legislative
Instruments Act 2003. [Part 6-1, Division 2, subsections 249(4)
and 250(4)]
849. All reports must be given to the Minister, and the Minister can
choose to print and publish the report or part of it. [Part 6-1,
Division 2, subsections 251(1) and (4)]
850. ASIC may also give a report of an investigation in whole or part
to:
. specified agencies - if the report relates to a serious
contravention of a law of the Commonwealth, or of a
referring State or Territory. This will enable those
agencies to use ASIC's findings in the administration of
their own legislation and the exercise of their powers;
and
. a person - if the report relates to a person's affairs to
a material extent.
[Part 6-1, Division 2, subsections 251(2) and (3)]
851. The making of a report is a reviewable decision for the purposes of
the AD(JR) Act. The rules of natural justice require ASIC to give
a person whose rights, interests or legitimate expectations may be
adversely affected by findings contained in the draft report an
opportunity to be heard or to make submissions on those findings
before the report is published: Kioa v West (1985) 116 ALR 321 at
582-583. Findings of fact contained in a report are also
reviewable under the AD(JR) Act if there is an error of law or on
the ground that there is no evidence or other material to justify
the decision made: Australian Broadcasting Tribunal v Bond (1990)
94 ALR 11 at 38.
852. A report prepared by ASIC under Part 6-1 is admissible in
proceedings (other than criminal proceedings) as prima facie
evidence of any facts or matters that the report states ASIC to
have found to exist. [Part 6-8, Division 2, section 308]
853. The term proceedings has the same meaning as in Part 3 of the ASIC
Act, that is, a proceeding in a court, or a proceeding or hearing
before, or an examination by or before, a tribunal, whether the
proceeding, hearing or examination is of a civil, administrative,
criminal, disciplinary or other nature. Tribunal is broadly
defined and would include ASIC. [Part 1-2, Division 2, section 5]
854. The court or tribunal must be satisfied that the copy of the report
has been given to the other party, and that the other party, and
their lawyer, have had a reasonable opportunity to examine it and
take the contents into account in preparing their case. [Part 6-8,
Division 2, section 309]
855. Before a copy of a report is admitted into evidence, the other
party can apply to cross-examine persons who were involved in
preparing the report or making a finding about a fact or matter
that the report states ASIC to have found to exist, or who gave
information or produced a book on the basis of which a finding was
made. Cross-examination must be allowed unless the court or
tribunal considers that, in all the circumstances, it is not
appropriate to do so. This gives the other party the opportunity
to appropriately test the findings made by ASIC and the information
on which those findings were based. [Part 6-8, Division 2,
subsections 309(3) and (4)]
856. These provisions ensure that the other party has the opportunity to
take the contents of the report into account when preparing their
case, and appropriately test the findings made by ASIC and the
information on which those findings were based.
857. Under section 246 of the ASIC Act, the Minister, ASIC, Commission
members, delegates and staff are protected from liability for acts
done, or omissions made, in good faith relating to the functions
and powers of ASIC. This includes the preparation and distribution
of a report under Part 6-1. It is intended to make regulations so
that the credit legislation is a prescribed law for the purposes of
section 246 of the ASIC Act.
Part 6-2 - Examination of persons
858. ASIC may, by written notice, require a person to:
. give to ASIC all reasonable assistance with an
investigation under Part 6-1 of the Bill; and
. appear before an ASIC staff member for an examination on
oath and to answer questions. [Part 6-2, Division 2,
section 253]
ASIC can exercise this power if it, on reasonable grounds, suspects
or believes that the person can give information relevant to a
matter that it is investigating, or is to investigate, under Part 6-
1. [Part 6-2, Division 2, subsection 253(1)]
859. Intentional or reckless failure to comply with a requirement is
an offence, unless the person has a reasonable excuse. The
defendant has the burden of establishing that they had a reasonable
excuse for non-compliance, as this matter is peculiarly within the
knowledge of the defendant. The penalty is 100 penalty units or
two years imprisonment or both. [Part 6-6, Division 2, subsections
290(1) and (4)]
860. Failure to comply with requirements made by ASIC in relation to an
examination can seriously jeopardise ASIC's ability to exercise its
powers and functions to properly inquire into questionable
behaviour. In the absence of any reasonable excuse, criminal
sanctions are appropriate to deter non-compliance.
861. This power and the corresponding offence is consistent with section
19 of the ASIC Act.
862. A person can give information relevant to a matter if the person
can:
. explain or state a matter;
. identify a person, matter or thing;
. disclose information; or
. answer a question.
[Part 1-2, Division 2, section 5]
863. The terms 'give' and 'information' when used in Chapter 6 have the
same meaning as in Part 3 of the ASIC Act. [Part 1-2, Division 2,
section 5]
864. ASIC can exercise this power if it suspects or believes that the
person can give relevant information. A suspicion for the purposes
of this provision must be more than mere conjecture, surmise or
speculation, but it can be based on matters not admissible in
evidence, such as hearsay. A 'suspicion that something exists is
more than a mere idle wondering whether it exists or not; it is a
positive feeling of actual apprehension or mistrust, amounting to a
"slight opinion, but without sufficient evidence"': Qld Bacon Pty
Ltd v Rees (1966) 115 CLR 266 at 303. The test for a belief is a
higher threshold than suspicion.
865. A person is required to give all reasonable assistance in
connection with the investigation. This may extend to actions as
well as providing information.
1. : Examples of Reasonable Assistance
Examples of 'reasonable assistance' include:
. signing a power of attorney (ASC v Kutzner (1998) 16 ACLC
182);
. signing documents to authorise the release of information
to ASIC (Smith v Papamihail (1998) 158 ALR 451);
. identifying where documents may exist by drawing a chart,
map or diagram;
. providing passwords for access to computer files; and
. providing a key for a locked safe.
866. The overriding requirement is that the assistance sought must be
'reasonable'.
867. The notice given by ASIC must state the general nature of the
matter that ASIC is investigating, or is to investigate. The
notice must also set out the effect of subsection 257(1) (right of
the examinee's lawyer to be present, address the inspector and
examine the examinee) and section 295 (abrogation of the privilege
against self-incrimination). [Part 6-2, Division 2, subsection
253(3)]
Procedure of an examination
868. The remaining provisions of Part 6-2 apply only where a person (the
examinee) appears before another person (the inspector) for
examination. These provisions do not apply to the power to require
a person to give reasonable assistance. [Part 6-2, Division 2,
section 254]
869. The provisions authorise the inspector to control the procedure of
the examination. The inspector has power to:
. require the examinee to either take an oath or make an
affirmation that the statements the examinee will make are
true [Part 6-2, Division 2, subsection 255(1)];
. administer an oath or affirmation [Part 6-2, Division 2,
subsection 255(1)];
. require the examinee to answer a question that is put at
the examination and that is relevant to a matter that ASIC
is investigating, or is to investigate, under Part 6-1
[Part 6-2, Division 2, subsection 255(4)];
. make directions about who can be present at the
examination [Part 6-2, Division 2, section 256];
. curtail obstruction of the examination [Part 6-2, Division
2, section 257];
. give directions about the conduct of an examinee's lawyer
[Part 6-2, Division 2, section 257];
. cause a record to be made of the examination [Part 6-2,
Division 2, subsection 258(1)]; and
. impose conditions when providing the examination
transcript to the examinee [Part 6-2, Division 2,
subsection 258(2)].
870. These provisions are consistent with sections 20 to 24 of the ASIC
Act.
871. Failure of an examinee to comply with a requirement to either take
an oath or make an affirmation that the statements the examinee
will make are true is an offence of strict liability, except to the
extent that the person has a reasonable excuse [Part 6-6, Division
2, subsections 290(1) and (4)]. The defendant has the burden of
establishing that they had a reasonable excuse for non-compliance,
as this matter is peculiarly within the knowledge of the defendant.
The penalty is 10 penalty units, or three months imprisonment or
both [Part 6-6, Division 2, subsection 290(2)].
872. The inspector may require the examinee to answer a question that is
put to the examinee and that is relevant to a matter that is being
investigated. [Part 6-2, Division 2, subsection 255(4)]
873. The concept of 'relevance' is wide in the context of investigative
powers. ASIC is not obliged to explain to the examinee why
questions are relevant to the investigation.
874. Intentional or reckless failure to comply with a requirement under
subsection 255(4) is an offence, unless the person has a reasonable
excuse. The defendant has the burden of establishing that they had
a reasonable excuse for non-compliance, as this matter is
peculiarly within the knowledge of the defendant. The penalty is
100 penalty units or two years imprisonment or both. The offence
and penalty is consistent with those for non-compliance with
subsection 21(3) of the ASIC Act. [Part 6-6, Division 2,
subsections 290(1) and (4)]
875. Failure to comply with requirements made by ASIC in relation to an
examination can seriously jeopardise ASIC's ability to exercise its
powers and functions to properly inquire into questionable
behaviour. Criminal sanctions are appropriate to deter non-
compliance where there is no reasonable excuse for non-compliance.
876. The requirement to answer a question overrides any duty of
confidentiality and the privilege against self-incrimination. It
is expressly provided that it is not a reasonable excuse for a
person to refuse or fail to give information because the
information might tend to incriminate the person or make the person
liable to a penalty. However, if before making an oral statement,
the examinee claims that the statement might tend to incriminate
them or make them liable to a penalty, then the statement is not
admissible in evidence against the person in criminal proceedings
or proceedings for the imposition of a penalty (other than
proceedings in respect of the falsity of the statement). [Part 6-
6, Division 2, section 295]
877. A lawyer is entitled to refuse to answer a question if the giving
of information would involve disclosing a privileged communication
made by or on behalf of the lawyer in his or her capacity. The
lawyer may not refuse to comply if the person on behalf of whom the
communication was made consents to the lawyer complying with the
requirement, or, if this person is a body corporate that is being
wound up, the liquidator of the body gives their consent. [Part 6-
6, Division 2, section 296]
878. If an examinee refuses to answer a question, the inspector may
certify the refusal in writing (for example, by swearing an
affidavit setting out details of the failure to comply) and apply
to the court for an order that the person comply. The court may
inquire into the matter to determine whether the refusal was based
on a reasonable excuse. [Part 6-6, Division 2, section 297]
879. The examination must take place in private [Part 6-2, Division 2,
subsection 256(1)]. This promotes the public interest in
protecting the integrity of the investigation and the private
interest of the examinee by ensuring that any prejudicial
disclosures injurious to reputation or disclosures relating to
personal or business confidences are not made public.
880. The following persons are entitled to be present:
. the inspector, the examinee and a member of ASIC;
. a staff member approved by ASIC - which is defined in Part
1-2 (Dictionary) by reference to section 5 of the ASIC Act
to mean a person referred to in subsection 120(1) of the
ASIC Act (staff engaged under the Public Service Act 1999)
or employed under subsection 120(3) of the ASIC Act
(additional persons employed under written agreements), a
person engaged under section 121(1) of the ASIC Act
(persons engaged under written agreements as consultants
or to perform services) and any officers, employees or
persons who under section 122 of the ASIC Act are to
assist ASIC (staff seconded to ASIC); and
. the examinee's lawyer.
[Part 6-2, Division 2, subsection 256(2)]
881. The inspector may also give directions about who may be present
during the examination, or part of the examination. [Part 6-2,
Division 2, subsection 256(1)]
882. The power to allow any other person to attend an examination must
only be exercised where it is reasonable to do so, and without the
private character of the examination being lost. It would not
normally be reasonable to have persons with no connection with ASIC
or the matter present.
1.
For example, this may be reasonable where:
. the examinee is elderly, ill or otherwise in need of
support; or
. to allow an accredited translator to be present to assist
where a person speaks a language other than English.
883. The individual circumstances should be considered by the inspector.
This power also allows the presence of persons recording the
examination for transcription.
884. The power to give directions under subsection 256(1) may also be
used to exclude a particular person from an examination. The
inspector may use this power to overrule the examinee's choice of
lawyer and exclude that particular lawyer from the examination if
the inspector had a belief, in good faith and on reasonable
grounds, that the presence of the particular lawyer would prejudice
the investigation.
1.
For example, ASIC may need to make this direction where a
particular lawyer or firm of lawyers represents a number of
examinees in the same investigation. This may increase the
risk that persons to be examined have prior knowledge of
questions and answers of previous examinees, which could
affect the veracity of the examinee's answers and prejudice
the investigation; Gangemi v ASIC (2003) 45 ACSR 383.
885. It is an offence for any other person to be present at an
examination. This is an offence of strict liability. The penalty
is 10 penalty units or imprisonment for three months or both. This
offence and penalty is consistent with the offence and penalty in
subsection 22(2) of the ASIC Act. [Part 6-2, Division 2,
subsections 257(2) and (3)]
886. This offence provision recognises the importance of maintaining
privacy of examinations for both the public interest in the
integrity of the investigation and the private interests of the
examinee. Criminal sanctions are appropriate to deter unauthorised
attendance at examinations.
887. An examinee's lawyer may address the inspector and examine the
examinee about matters about which the examinee has been
questioned. The lawyer is subject to directions from the inspector
about the timing of these activities; for example, the inspector
might determine that any examination by the lawyer should take
place after the inspector has finished questioning the examinee.
[Part 6-2, Division 2, subsection 257(1)]
888. The inspector also has power to prevent the lawyer from exercising
those rights in a manner that obstructs the inspector's own
examination. Examples of obstruction by a lawyer may include
prompting of answers or repeatedly interrupting the examination. A
failure by the examinee's lawyer to comply with a requirement to
stop addressing the inspector, or examining the examinee, is an
offence of strict liability, attracting a penalty of 5 penalty
units. This is because of the need to preserve the integrity of
the examination, in order for it to be effective. [Part 6-2,
Division 2, subsections 257(2) and (3)]
Record of examination
889. The inspector may, or must if the examinee requests, cause a record
to be made of statements made at the examination. The making of a
record of examination ensures the effectiveness of the examination
because it records for future use the questions asked and answers
given at the examination. If a record is made in, or reduced to,
writing, the inspector may require the examinee to read and sign
it. [Part 6-2, Division 2, subsection 258(1) and paragraph
258(2)(a)]
890. Signing the record of examination affects its evidentiary use. If
the record is signed, it is, in any future proceeding, prima facie
evidence of the statements that it records. [Part 6-8, Division 3,
section 303]
891. Failure to read or sign a record in accordance with a requirement
is an offence of strict liability, unless the person has a
reasonable excuse. The defendant has the burden of establishing
that they had a reasonable excuse for non-compliance, as this
matter is peculiarly within the knowledge of the defendant. The
penalty is 10 penalty units or three months imprisonment or both.
This offence and penalty is consistent with the offence and penalty
in section 63 of the ASIC Act. [Part 6-2, Division 2, paragraph
258(2)(a) and Part 6-6, Division 2, subsection 290(2)]
892. This offence provision recognises the importance of the signed
record of examination as evidence in proceedings. Criminal
sanctions are appropriate to deter non-compliance with a
requirement to sign a record of examination, except where there is
a reasonable excuse for the non-compliance.
893. It is expressly provided that it is not a reasonable excuse for a
person to refuse or fail to sign a record in accordance with a
requirement that the signing the record might tend to incriminate
the person or make the person liable to a penalty. However, if
before signing the record the examinee claims that the statement
might tend to incriminate the person or make them liable to a
penalty, the fact that the person has signed the record is not
admissible in evidence against the person in a criminal proceeding
or a proceeding for the imposition of a penalty (other than a
proceeding in respect of the falsity of a statement contained in
the record). [Part 6-6, Division 2, section 295]
894. This provision is included because it is necessary to expressly
state that the privilege against self-incrimination does not apply
in order to abrogate that privilege. It enables ASIC to obtain
information that is necessary for the purposes of its
investigation, but allows the person to maintain protection from
the information being used against them in criminal proceedings or
proceedings for the imposition of a penalty.
895. If an examinee refuses to sign a record, the inspector may certify
the refusal in writing (for example, by swearing an affidavit
setting out details of the failure to comply) and apply to the
court for an order that the person comply. The court may inquire
into the matter to determine whether the refusal was based on a
reasonable excuse. [Part 6-6, Division 2, section 297]
896. If requested by the examinee, the inspector must give the examinee
a copy of the written record subject to any conditions that the
inspector imposes. For example, an inspector might impose
conditions that protect the private nature of the examinations,
such as limitations on the subsequent use and disclosure of the
record. [Part 6-2, Division 2, paragraph 258(2)(b)]
897. A record of examination, together with a copy of any related book,
may be given by ASIC to a person other than the examinee to be used
in connection with proceedings. ASIC may give a copy of a record
and related books to a person's lawyer if the lawyer satisfies ASIC
that the person is carrying on, or contemplating in good faith,
proceedings in relation to a matter to which the examination
related. [Part 6-2, Division 2, subsection 259(1)]
898. The term 'related book' is not defined, but may include documents
formally identified and incorporated in the record, and also
documents referred to directly or indirectly that would help a
reader to understand the record. For example, if an examinee
refers to a meeting with a client in which a particular credit
contract was suggested, written notes of that meeting may
constitute a related book.
899. This power recognises the importance of litigants and potential
litigants having access to information relevant to their
proceedings, and supports the efficient conduct of those
proceedings.
900. If a copy of a record is given to a person under this power, the
person or any other person who has possession, custody or control
of the copy or a copy of it must not use it, or publish or
communicate to a person any part of its contents, except in
connection with preparing, beginning or carrying on, or in the
course of, proceedings. [Part 6-2, Division 2, subsection 259(2)]
901. Contravention of this provision is an offence of strict liability.
The penalty is 10 penalty units or three months imprisonment or
both. The offence and penalty are consistent with the offence and
penalty in subsection 25(3) of the ASIC Act. [Part 6-2, Division
2, subsections 259(2) and (3)]
902. This provision is necessary because the release of the record may
affect the confidentiality of the information contained in the
record. This provision limits as far as possible the terms on
which the information can be used and distributed to protect the
confidential nature of that information. Criminal sanctions are
appropriate to deter use of the record for a purpose not
contemplated by the section.
903. It is also provided that ASIC may, subject to such conditions (if
any) as it imposes, give to a person a copy of a written record of
the examination together with any related book. [Part 6-2,
Division 2, subsection 259(4)]
904. This is not a discrete power to give a copy of a record of
examination to a person. It is a machinery or facilitative
provision that enables the provision of records of examination and
related books and the imposition of conditions where the giving of
those documents is for a purpose authorised in some other way (for
example under section 127 of the ASIC Act): see Johns v ASC (1993)
178 CLR 408.
905. A failure to comply with conditions imposed by ASIC under
subsection 258(2) or subsection 259(2) is an offence of strict
liability. The penalty is 10 penalty units or three months
imprisonment or both. The offence and penalty are consistent with
the offence and penalty in section 26 of the ASIC Act. [Part 6-2,
Division 2, section 260]
906. This offence provision recognises the importance of conditions for
protecting the confidentiality of information contained in the
record. Criminal sanctions are appropriate to deter use of the
record contrary to conditions imposed by ASIC.
907. If a final report of the investigation is prepared under section
250, each record of an examination conducted in the course of that
investigation must accompany the report. In addition, if, in
ASIC's opinion, a statement made at an examination is relevant to
any other investigation under Part 6-1 and a record has been made
of that statement and a final report has been prepared for that
other investigation, a copy of the record must accompany the
report. This is to ensure that reports prepared by ASIC include a
complete record of information about the basis on which ASIC's
findings are made. [Part 6-2, Division 2, section 261]
Part 6-3 - Inspection of books and audit information-gathering powers
908. For most ASIC inquiries and investigations, records and documents
are as important a source of evidence as oral testimony. ASIC has
wide powers to compel the inspection and production of records of
information, referred to as 'books', that relate to credit
activities. These powers are consistent with the information-
gathering powers in Part 3 Division 3 of the ASIC Act.
909. A book includes a register, any other record of information,
financial reports or financial records, and documents. This
definition is inclusive and therefore also covers any records of
information that relate to credit activities engaged in by a
person. [Part 1-2, Division 2, section 5]
When powers may be exercised
910. A power conferred by Part 6-3 (other than sections 264, 265, 269
and 270) may only be exercised by ASIC for the following purposes:
. for the performance or exercise of any of ASIC's functions
and powers under the Commonwealth credit legislation
[Part 6-.3, Division 2, paragraph 263(a)];
. for the purposes of ensuring compliance with the
Commonwealth credit legislation [Part 6-3, Division 2,
paragraph 263(b)];
. in relation to an alleged or suspected contravention of
the credit legislation or a law of the Commonwealth or of
a referring State or Territory [Part 6-3, Division 2,
paragraphs 263(c) and (d)]; or
. for the purposes of an investigation under Part 6-1 [Part
6-3, Division 2, paragraph 263(d)].
911. An example of ASIC exercising its powers for the purposes of the
performance or exercise of its functions and powers is using them
to obtain information to assist it to make a decision on whether to
make a banning order under section 80.
912. ASIC's power to obtain information to enable it to assess whether a
person is complying with an obligation or requirement under the
Commonwealth credit legislation can be used, for example, in the
course of a surveillance of a person engaging in credit activities.
913. ASIC's power to obtain information can be used for making inquiries
in relation to:
. an alleged or suspected contravention of the credit
legislation; or
. a contravention of a law of the Commonwealth or of a
referring State or Territory that:
- concerns the management, conduct or affairs of a
licensee or credit representative or another person who
engages, or has engaged, in credit activities; or
- involves fraud or dishonesty and that relates to credit
activities or to a credit contract, mortgage, guarantee
or consumer lease.
914. For ASIC to have a reason to suspect a contravention requires more
than mere speculation, but less than having reasonable grounds to
believe that a contravention has occurred.
915. The requirement that a contravention concern the management,
conduct or affairs of a person would generally mean that the
contravention must arise out of the internal management of the
person or out of their conduct or business to the extent that it
involves credit activities. It is generally not sufficient that
the contravention merely relates to the management, conduct or
affairs of the person: ASC v Lord (1991) 33 FCR 144 at 149.
916. The requirement that a contravention involves fraud or dishonesty
does not require fraud or dishonesty to be an element of an
offence: ASC v Lord (1991) 33 FCR 144 at 149.
Power to inspect books
917. A person who has been authorised in writing by ASIC is entitled to
inspect (without charge) a 'book' that the Commonwealth credit
legislation requires a person to keep. For example, staff members
of ASIC would generally be authorised for the purpose of this
provision. The authorisation can be of general application or
limited to specified books. [Part 6-3, Division 2, subsection
264(1)]
918. The authorised person may require a person in whose possession,
custody or control the book is to make the book available for
inspection. [Part 6-3, Division 2, subsection 264(2)]
919. A book will be in a person's possession if the book is in their
custody or under their control. [Part 1-2, Division 2, section 5]
920. Books that a person can obtain by exercising an enforceable legal
right are therefore in the person's possession, notwithstanding
that they do not have legal ownership of the books. More than one
person can have custody or control of a book. For example, if an
agent holds books on a person's behalf, those books are in the
possession, custody or control of both the agent and the person,
and may be inspected under a notice given to either the agent or
the person.
921. The power of inspection only enables physical inspection of the
books where they are located.
922. Failure to comply with a requirement to make books available for
inspection is a strict liability offence unless the person has a
reasonable excuse. The defendant has the burden of establishing
that they had a reasonable excuse for non-compliance, as this
matter is peculiarly within the knowledge of the defendant. The
penalty is 10 penalty units or 3 months imprisonment or both. This
offence and penalty is consistent with the offence and penalty in
section 63 of the ASIC Act. [Part 6-3, Division 2, subsections
264(2) and (3) and Part 6-6, Division 2, subsections 290(2) and
(4)]
923. Failure to comply with requirements made by ASIC in relation to
inspection of books can seriously jeopardise ASIC's ability to
exercise its powers and functions to ensure compliance with the law
and properly inquire into questionable behaviour. Criminal
sanctions and strict liability are appropriate to deter non-
compliance where there is no reasonable excuse for non compliance.
Power to require an auditor to give information or produce books
924. ASIC may give a written notice to an auditor who prepares an audit
report required by the Credit Bill requiring that auditor to give
specified information or produce specified books to ASIC, at a
specified place and time. [Part 6-3, Division 2, subsection
265(1)]
925. The place and time for production of books must be reasonable in
all the circumstances. There could be a reasonable excuse for non-
compliance with a notice to produce books where there is a
capricious or unreasonable fixing of a time for production of
books: Hopfner v Flavel (1990) 2 ACSR 295. [Part 6-9, Division 2,
section 315]
926. This power may only be exercised:
. for the purposes of ascertaining compliance with audit
requirements under the Commonwealth credit legislation; or
. in relation to an alleged or suspected contravention of:
- audit requirements under the Commonwealth credit
legislation; or
- a law of the Commonwealth or of a referring State or
Territory that either concerns the management, conduct
or affairs of a licensee of credit representative or
other person who engages in, or has engaged in, credit
activities or involves fraud or dishonesty and relates
to a credit activity engaged in by a person, or a credit
contract, mortgage, guarantee or consumer lease; or
. for the purposes of an investigation under Part 6-1
relating to such a contravention.
[Part 6-3, Division 2, subsection 265(2)]
927. This provision broadly sets out the proper purposes for ASIC to
require production of books - that is, where ASIC needs to be able
to consider a book to assess whether there has been compliance with
an audit requirement, make preliminary inquiries about a possible
contravention that relates to an audit matter (outside the formal
investigation process), or investigate a matter.
928. If the notice requires the giving of information, that information
can be given orally or in writing or both.
929. An intentional or reckless failure to comply with a requirement
made under section 265 is an offence, unless the person has a
reasonable excuse. The penalty is 100 penalty units or two years
imprisonment or both. This offence and penalty is consistent with
the offence and penalty in section 63 of the ASIC Act. [Part 6-6,
Division 2, subsections 290(1) and (4)]
930. Failure to comply with requirements made by ASIC in relation to
production of books can seriously jeopardise ASIC's ability to
exercise its powers and functions to ensure compliance with the law
and properly inquire into questionable behaviour. Criminal
sanctions are appropriate to deter non-compliance where there is no
reasonable excuse for non-compliance.
931. It is not a reasonable excuse for a person to refuse or fail to
give information or produce a book because that might tend to
incriminate the person or make them liable to a penalty. However,
if before making an oral statement the person claims that the
statement might tend to incriminate the person or make them liable
to a penalty, the statement is not admissible in evidence against
the person in criminal proceedings or proceedings for the
imposition of a penalty (other than proceedings in respect of the
falsity of a statement). [Part 6-6, Division 2, section 295]
932. This provision is included to expressly confirm that the privilege
against self-incrimination does not apply, in order to abrogate
that privilege. It enables ASIC to obtain information that is
necessary for the purposes of its assessment or inquiries, but
allows the person to maintain protection from the information being
used against them in criminal proceedings or proceedings for the
imposition of a penalty.
933. The notice can require the giving of information or production of
books even if doing so would involve a breach of confidentiality
owed to an audited body. [Part 6-3, Division 2, subsection 265(4)]
934. A person who responds to the notice is not liable to a proceeding
or subject to a liability merely because of compliance with a
requirement under Chapter 6. [Part 6-9, Division 2, section 320]
935. An auditor has qualified privilege in relation to the response.
This is necessary to protect the auditor from legal proceedings for
breach of confidence as a result of complying with a requirement
made by ASIC. An auditor is also given qualified privilege in
relation to information provided to ASIC where they are complying
with their other statutory obligations as auditors. [Part 2-5,
Division 4, section 105]
936. ASIC may, by written notice, extend the time within which the
auditor must give the information or produce the books to which the
notice relates. [Part 6-3, Division 2, subsection 265(5)]
937. ASIC can authorise an ASIC member or ASIC staff member to make a
requirement under section 265. This authorisation can be of
general application or limited by reference to the persons of whom
requirements may be made, the books that may be required to be
produced or the information that is required to be given. If the
authorisation is given, the person may make a requirement as if
references in section 265 to ASIC were a reference to the person.
[Part 6-3, Division 2, section 268]
Powers to require production of books
938. ASIC may, by written notice, require the following persons to
produce to ASIC specified books, at a specified place and time:
. a person who engages in credit activity (either alone or
together with any other person);
. a person who, in ASIC's opinion, has been a party to
engaging in a credit activity; or
. a representative, banker, lawyer or auditor of a person
referred to above.
[Part 6-3, Division 2, paragraphs 266(a) to (c)]
939. The notice may require the production of specified books relating
to:
. a credit activity engaged in by a person; or
. the character of financial situation of, or a business
carried on by, a person who engages in a credit activity.
[Part 6-3, Division 2, paragraphs 266(d) and (e)]
940. The power conferred in this provision is consistent with the powers
conferred on ASIC by sections 30 and 31 of the ASIC Act, (with
changes to limit unnecessary duplication and make those powers
relevant to the context of the credit legislation).
941. The intention is to enable ASIC to require the production of all
books that relate to a credit activity, a credit contract,
mortgage, guarantee or consumer lease, or a person who engages in a
credit activity (whether under an authorisation in accordance with
the credit legislation or not).
942. ASIC is given broad powers so that it can:
. obtain all information necessary to enable it to exercise
its powers and functions;
. ascertain whether persons involved in engaging in credit
activities have done so in compliance with the
Commonwealth credit legislation; and
. make all appropriate inquiries and investigation where
there is a possible contravention of the Commonwealth
credit legislation and other relevant laws.
943. The person to whom a notice is given does not need to be the
subject of ASIC's investigation or inquiry. If the person has
custody or control of relevant books, they may be required to
produce those books to ASIC for a proper purpose.
944. ASIC also has the power to obtain books by giving a person a
written notice requiring production to a specified member or staff
member of ASIC at a specified place and time of specified books
that are in the person's possession, custody or control and relate
to:
. a credit activity engaged in by a person; or
. the character or financial situation of, or business
carried on by, a person who engages in a credit activity.
[Part 6-3, Division 2, subsection 267(1)]
945. ASIC also has the power to obtain books by giving a person a
written notice requiring production to a specified member or staff
member of ASIC at a specified place and time of specified books
that are in the person's possession, custody or control and relate
to the question of whether an auditor has complied with audit
requirements under the Commonwealth credit legislation. [Part 6-3,
Division 2, subsection 267(2)]
946. Books that a person can obtain by exercising an enforceable legal
right are in the person's possession, custody or control
notwithstanding the person does not have legal ownership of the
books. More than one person can have possession, custody or
control of a book. For example, if an agent holds books on a
person's behalf, those books are in the possession, custody or
control of both the agent and the person, and production may be
required under a notice given to either the agent or the person.
If the person who receives the notice does not have physical
possession of a book, but the book is within their custody and
control, compliance with the notice will involve the person
exercising their legal right to obtain the return to them of the
book so that it can be produced to ASIC.
947. The powers to require the production of books at a specified place
and time are taken to require the person giving the notice to
specify a place and time for production of books that is reasonable
in all the circumstances. There could be a reasonable excuse for
non-compliance with a notice to produce books where there is a
capricious or unreasonable fixing of a time for production of
books: Hopfner v Flavel (1990) 2 ACSR 295. [Part 6-9, Division 2,
paragraph 315(a)]
948. If it is reasonable in the circumstances, ASIC may require
production of books immediately. [Part 6-9, Division 2, paragraph
315(b)]
1. : Production of books
Circumstances relevant to whether immediate production of
books is reasonable may include:
. the urgency of the inquiry or investigation - for example,
whether assets are likely to be disposed of; or
. volume, type and location of the documents sought - for
example, with large organisations such as banks a reasonable
time may be needed to locate documents covered by the
notice; or
. whether the person to whom the notice is given wishes to
exercise their right to obtain legal advice: Swan v Scanlan
(1982) 61 FLR 468.
949. The books specified in the notice need to be specified in enough
detail for the person who is given the notice to understand what
they are required to produce. The notice can only specify existing
books; ASIC cannot use these powers to require a person to create a
book.
950. ASIC can authorise a member or staff member to make a requirement
under sections 266 and 267. This authorisation can be of general
application or limited by reference to the persons of whom
requirements may be made, the books that may be required to be
produced or the information that is required to be given. [Part 6-
3, Division 2, section 268]
951. If an authorisation is given, the person may make a requirement as
if references in sections 266 and 267 to:
. ASIC were a reference to the authorised person [Part 6-3,
Division 2, paragraph 268(3)(a)];
. to specified books or information were a reference to
books or information that the authorised person specifies,
whether in the requirement or not and whether orally or in
writing, to the person of whom the requirement is made.
This power supplements, and is not a substitute for, a
written notice. It allows the authorised person to adjust
a requirement to produce books to meet an immediate demand
[Part 6-3, Division 2, paragraphs 268(3)(b) and (3)(c)];
or
. to giving or producing to a specified person were a
reference to giving or producing to the authorised person
[Part 6-3, Division 2, paragraph 268(3)(d)].
952. An intentional or reckless failure to comply with a requirement to
produce books under sections 31, 33 and 34 is an offence, unless
the person has a reasonable excuse. The penalty is 100 penalty
units or two years imprisonment or both. This offence and penalty
is consistent with the offence and penalty in section 63 of the
ASIC Act. [Part 6-6, Division 2, subsections 290(1) and (4)]
953. Failure to comply with requirements made by ASIC in relation to
production of books can seriously jeopardise ASIC's ability to
exercise its powers and functions to ensure compliance with the law
and properly inquire into questionable behaviour. Criminal
sanctions are appropriate to deter non-compliance where there is no
reasonable excuse for non-compliance.
954. It is expressly provided that it is not a reasonable excuse for a
person to refuse or fail to produce a book in accordance with a
requirement that the production of the book might tend to
incriminate the person or make the person liable to a penalty.
[Part 6-6, Division 2, section 295]
955. This provision is included because it is necessary to expressly
state that the privilege against self-incrimination does not apply
in order to abrogate that privilege. It enables ASIC to obtain
information that is necessary for the purposes of its
investigation.
956. If the requirement to produce books is made to a person who is a
lawyer, and the book contains a privileged communication made by or
on behalf of the lawyer in his or her capacity as a lawyer, the
lawyer is entitled to refuse to comply. The lawyer may not refuse
to comply if the person, on behalf of whom the communication was
made, or, if this person is a body corporate that is being wound
up, the liquidator of the body, consents to the lawyer complying
with the requirement. [Part 6-6, Division 2, section 296]
Powers if books are not produced in accordance with a requirement
957. ASIC is given power to enforce compliance with a requirement to
produce books, by:
. seeking the issue of a warrant to search premises and
seize books [Part 6-3, Division 2 sections 269 and 270];
. requiring the person to state where those books may be
found [Part 6-3, Division 2 section 272];
. certifying the failure to comply to the court with a view
to the court, in its discretion, inquiring into the case
and ordering compliance [Part 6-6, Division 2, section
297]; and
. making freezing orders [Part 6-7, Division 2, sections 299
to 301].
958. The powers in Part 6-3 (Inspection of books), Part 6-6 (Offences)
and Part 6-7 (ASIC's powers in relation to non compliance with
Chapter 6) are explained in more detail below.
959. If a staff member of ASIC has reasonable grounds to suspect that
there are, or may be within the next three days, on particular
premises in Australia books whose production has been required
under this Part and that have not been produced, they can apply to
a magistrate for the issue of a warrant to search premises for
those books. [Part 6-3, Division 2, section 269]
960. A search warrant authorises the holder to search and enter private
property, and seize books. It authorises what would otherwise be a
trespass upon the privacy and property of another.
961. ASIC also has existing powers under other legislation to obtain a
search warrant. For example, a warrant may be obtained under
section 3E of the Crimes Act 1914 (Crimes Act), which applies
generally to all offences against Commonwealth law.
962. A search warrant can only be obtained if ASIC has required a person
to produce books and there has been non-compliance with that
requirement. The power is intended primarily to enforce compliance
with the notice that was given by ASIC, by authorising entry on
property and seizure of books, rather than being an alternate means
of obtaining books.
963. A warrant is issued to a member of the Australian Federal Police,
who does not have to be named in the warrant. The warrant will
enable that Australian Federal Police member to enter and search
the premises and take possession of or secure against interference,
books that appear to be the books whose production was required.
[Part 6-3, Division 2, subsections 270(1) and (2)]
964. If a warrant is issued, the magistrate must set out on the
information laid before him or her by ASIC the grounds that have
been relied on to justify the issue of the warrant. This ensures
transparency of the reasons for issuing the warrant and determining
whether the warrant may be challenged. [Part 6-3, Division 2,
subsection 270(3)]
965. The warrant must specify the premises that may be entered, and
books that may be searched for, state whether entry is authorised
during specified hours or any time, and state that the warrant
ceases to have effect on a specified day not more than seven days
after the date of issue. [Part 6-3, Division 2, subsection 270(4)]
966. ASIC may also require a person who has failed or refused to produce
particular books in compliance with a requirement under Part 6-3 to
state where the books may be found, and who last had possession,
custody or control of the books and where that person may be found.
[Part 6-3, Division 2, section 272]
967. This power enables ASIC to obtain information from a person about
the location of books that will assist it to obtain those books
from a third party
968. An intentional or reckless failure to comply with section 272 is an
offence, except to the extent that the person has stated the matter
to the best of his or her knowledge or belief, or unless the person
has a reasonable excuse. The defendant has the burden of proving
that they had a reasonable excuse or that they stated the matter to
the best of his or her knowledge, as this matter is peculiarly
within the knowledge of the defendant. The penalty is 100 penalty
units or two years imprisonment or both. This offence and penalty
is consistent with the offence and penalty in section 63 of the
ASIC Act. [Part 6-6, Division 2, subsections 290(1), (4) and (6)]
969. Failure to comply with requirements made by ASIC in relation to
inspection of books can seriously jeopardise ASIC's ability to
identify sources of books, and therefore its ability to exercise
its powers and functions to ensure compliance with the law and
properly inquire into questionable behaviour. Criminal sanctions
are appropriate to deter non-compliance.
970. It is not a reasonable excuse for a person to refuse or fail to
make a statement in accordance with a requirement under section 272
that the statement might tend to incriminate the person or make the
person liable to a penalty. However, if before making an oral
statement the person claims that the statement might tend to
incriminate the person or make them liable to a penalty, the
statement is not admissible in evidence against the person in
criminal proceedings or proceedings for the imposition of a penalty
(other than proceedings in respect of the falsity of a statement).
This 'use immunity' does not apply if the statement is given in
writing. [Part 6-6, Division 2, section 295]
971. This provision is included because it is necessary to expressly
state that the privilege against self-incrimination does not apply
in order to abrogate that privilege. It enables ASIC to obtain
information that is necessary for the purposes of its assessment or
inquiries, but allows the person to maintain protection from the
information being used against them in criminal proceedings or
proceedings for the imposition of a penalty.
972. If the requirement is made to a person who is a lawyer, and the
giving of information would involve disclosing a privileged
communication made by or on behalf of the lawyer in his or her
capacity as a lawyer, the lawyer is entitled to refuse to comply.
The lawyer may not refuse to comply if the person on behalf of whom
the communication was made, or, if this person is a body corporate
that is being wound up, the liquidator of the body, consents to the
lawyer complying with the requirement. [Part 6-6, Division 2,
section 296]
Powers if books are produced or seized
973. The member or staff member of ASIC specified in a notice or warrant
under this Part has powers to:
. take possession of books;
. inspect, make copies of, or take extract from, the books;
and
. use, or permit use of, the books for the purposes of a
proceeding.
[Part 6-3, Division 2, subsections 271(1) to (4)]
974. The books can be retained for as long as necessary for the
following purposes:
. exercising a power under this provision;
. performing a function or power under the Commonwealth
credit legislation, ensuring compliance with the
Commonwealth credit legislation or carrying on an
investigation;
. making a decision about whether or not proceedings to
which the books would be relevant should be begun; and
. carrying on such proceedings.
[Part 6-3, Division 2, subsection 271(5)]
975. This ensures that ASIC is entitled to retain the books until such
time as the purpose for obtaining the books, and any proper purpose
that has subsequently arisen has been completed.
976. No-one is entitled to claim a lien on the books as against the
person to whom they have been produced. [Part 6-3, Division 2,
subsection 271(6)]
977. If a person would be entitled to inspect any of the books if they
were not in the possession of ASIC, that person must be permitted
to inspect the books. The person to whom books are produced may
also permit another person to inspect any of the books. The
exercise of the discretion to allow inspection is constrained by
section 127 of the ASIC Act, which protects confidential
information from unauthorised use or disclosure. [Part 6-3,
Division 2, subsection 271(7)]
978. The person to whom books are produced may deliver them into the
possession of ASIC or a person authorised by it to receive them.
If this is done, the person who then has possession can exercise
each of the powers in this provision. [Part 6-3, Division 2,
subsection 271(8) and paragraph 271(1)(b)]
979. The person to whom books are produced, or to whom they are
subsequently delivered, may require the person who produced the
books or a person who was a party to the compilation of any of the
books, to explain any matter about the compilation of the books. A
corporation can be required to supply this information through its
officers. [Part 6-3, Division 2, subsection 271(9)]
980. This provision enables ASIC to clarify matters that are not clear
on the face of books that are produced (such as the meaning of
codes and terms used in the books, or the identity of persons whose
signatures appear in the books) and an explanation of systems used
for compiling the books (such as methods used for identifying books
required to be produced and IT systems used). This information can
assist ASIC to understand and use the books produced, determine the
importance of particular books in the context of other books that
have been produced and also determine whether any other books ought
to have been produced.
981. A requirement under subsection 271(9) can be answered in writing or
orally.
982. A failure to comply with a requirement under subsection 271(9) is
an offence, except to the extent that the person has stated the
matter to the best of his or her knowledge or belief or unless the
person has a reasonable excuse. The defendant has the burden of
proving that they had a reasonable excuse or that they stated the
matter to the best of his or her knowledge, as this matter is
peculiarly within the knowledge of the defendant. The penalty is
100 penalty units or two years imprisonment or both. This offence
and penalty is consistent with the offence and penalty in section
63 of the ASIC Act. [Part 6-6, Division 2, subsections 290(1), (4)
and (5)]
983. Failure to comply with a requirement to explain matters about books
that have been produced can jeopardise ASIC's ability to understand
and use those books, and therefore its ability to exercise its
powers and functions to ensure compliance with the law and properly
inquire into questionable behaviour. Criminal sanctions are
appropriate to deter non-compliance.
984. It is not a reasonable excuse for a person to refuse or fail to
give information in accordance with a requirement that the
information might tend to incriminate the person or make the person
liable to a penalty. However, if before making an oral statement
the person claims that the statement might tend to incriminate the
person or make them liable to a penalty, the statement is not
admissible in evidence against the person in criminal proceedings
or proceedings for the imposition of a penalty (other than
proceedings in respect of the falsity of a statement). This 'use
immunity' does not apply if the explanation is given in writing.
[Part 6-6, Division 2, section 295]
985. This provision is included because it is necessary to expressly
state that the privilege against self-incrimination does not apply
in order to abrogate that privilege. It enables ASIC to obtain
information that is necessary for the purposes of its assessment or
inquiries, but allows the person to maintain protection from the
information being used against them in criminal proceedings or
proceedings for the imposition of a penalty.
986. If the requirement is made to a person who is a lawyer, and the
giving of information would involve disclosing a privileged
communication made by or on behalf of the lawyer in his or her
capacity as a lawyer, the lawyer is entitled to refuse to comply.
The lawyer may not refuse to comply if the person on behalf of whom
the communication was made, or, if this person is a body corporate
that is being wound up, the liquidator of the body, consents to the
lawyer complying with the requirement. [Part 6-6, Division 2,
sections 295 and 296]
Part 6-4 - Proceedings after an investigation
987. This Part defines ASIC's power to commence criminal and civil
proceedings, following an investigation. These powers are
consistent with the powers in sections 49 and 50 of the ASIC Act.
ASIC may cause prosecution to be begun
988. Section 274 applies where it appears to ASIC, as a result of an
investigation or from a record of examination conducted under
Chapter 6, that a person may have committed an offence against the
Commonwealth credit legislation and ought to be prosecuted for an
offence. [Part 6-4, Division 2, subsection 274(1)]
989. ASIC may cause a prosecution of the person for the offence to be
begun and carried on. [Part 6-4, Division 2, subsection 274(2)]
990. This power does not cover the commencement of prosecutions for
offences against Part 2 of Division 2 of the ASIC Act, as this
power is already contained in section 49 of the ASIC Act.
991. Criminal proceedings can also be brought against third parties who
assisted in the contravention, as the application of the
Commonwealth credit legislation is extended by both section 11 of
the Criminal Code Act 1995 to aiders and abettors, and section 6 of
the Crimes Act 1914 to accessories.
992. ASIC has a power to require a person to give all reasonable
assistance in connection with a prosecution. This power may be
exercised where ASIC, on reasonable grounds, suspects or believes
that a person can give information relevant to a prosecution for
the offence or the offence relates to matters being, or connected
with, affairs of a licensee, credit representative or other person
that engages, or has engaged, in credit activities. [Part 6-4,
Division 2, subsections 274(3) and (4)]
993. The requirement can be made of a person who ASIC suspects or
believes, on reasonable grounds, can give information relevant to
the prosecution, or, if the offence relates to matters being, or
connected with, affairs of a licensee, credit representative or
other person that engages, or has engaged, in credit activities,
any representative, banker, lawyer or auditor of the licensee,
credit representative or other person that engages, or has engaged,
in credit activities.
994. This power does not apply in relation to the person that is the
subject of the prosecution or a person who is or has been that
person's lawyer. [Part 6-4, Division 2, subsection 274(6)]
995. This power is independent of the power to require a person to give
reasonable assistance in connection with an investigation. It is
an additional power available to ASIC to further the prosecution of
a matter. It only operates from the time at which ASIC commences a
prosecution and does not apply at the earlier investigation stage.
996. This power is supplemented by ASIC's ability in relation to section
207, which allows ASIC to require certain assistance relating to
prosecutions.
997. This power is subject to the rules applying to contempt of court.
998. A failure to comply with a requirement to give reasonable
assistance with a prosecution is an offence, unless the person has
a reasonable excuse. The defendant has the burden of proving that
they had a reasonable excuse, as this matter is peculiarly within
the knowledge of the defendant. The offence is one of strict
liability. The penalty is 10 penalty units or imprisonment for
three months or both. The offence and penalty are consistent with
the offence and penalty in subsection 49(3) of the ASIC Act. [Part
6-4, Division 2, subsection 274(5) and Part 6-6, Division 2,
subsection 290(2)]
999. The requirement to answer a question overrides any duty of
confidentiality and the privilege against self-incrimination. It
is expressly provided that it is not a reasonable excuse for a
person to refuse or fail to give information in accordance with a
requirement that the information might tend to incriminate the
person or make the person liable to a penalty. However, if before
making an oral statement the person claims that the statement might
tend to incriminate the person or make them liable to a penalty,
the statement is not admissible in evidence against the person in
criminal proceeding or proceedings for the imposition of a penalty
(other than proceedings in respect of the falsity of the
statement). [Part 6-6, Division 2, section 295]
1000. It is considered that ASIC's ability to seek this assistance will
maintain the integrity of the financial system and credit
regulation framework and outweighs, in these circumstances, the
privilege against self incrimination.
1001. If the requirement under subsection 274(4) is made to a person who
is a lawyer, and the giving of information would involve disclosing
a privileged communication made by or on behalf of the lawyer in
his or her capacity as a lawyer, the lawyer is entitled to refuse
to comply. However, the lawyer may not refuse to comply if the
person, on behalf of whom the communication was made, or, if this
person is a body corporate that is being wound up, the liquidator
of the body, consents to the lawyer complying with the requirement.
[Part 6-6, Division 2, section 296]
1002. If a person refuses to comply with the requirement, the person
making the requirement may certify the refusal in writing (for
example, by swearing an affidavit setting out details of the
failure to comply) and apply to the court for an order that the
person comply. The court may inquire into the matter to determine
whether the refusal was based on a reasonable excuse. [Part 6-6,
Division 2, section 297]
1003. Nothing in section 274 affects the operation of the Director of
Public Prosecutions Act 1983. [Part 6-4, Division 2, subsection
274(7)]
ASIC may cause civil proceedings to be begun
1004. ASIC has the power to cause certain civil proceedings to be begun
and carried on in another person's name if, as a result of an
investigation or from a record of an examination conducted under
Chapter 6, it appears to ASIC to be in the public interest for the
person to being and carry on such proceedings (other than
proceedings under Commonwealth credit legislation). [Part 6-4,
Division 2, section 275]
1005. Proceedings that ASIC may begin and carry on are proceedings for
the recovery of damages for fraud, negligence, default, breach of
duty or other misconduct, committed in connection with a matter to
which the investigation or examination related, or proceedings for
recovery of property of a person.
1006. ASIC may cause proceedings to be begun and carried on in a person's
name (not in the name of ASIC), but must only do so with the
person's written consent.
1007. This provision reflects the important role of ASIC in the areas of
public policy and law enforcement. It enables ASIC to cause
proceedings to be taken where persons have suffered loss or damage,
but do not have the resources to maintain expensive and complicated
litigation. The purpose of the provision is to commence litigation
where there is otherwise insufficient private funding, or the value
of individual claims is too small to make litigation worthwhile,
but there are good prospects of recovery.
1008. This power is necessary to ASIC for the proper and efficient
exercise of its functions and powers. This is because it enables
ASIC to take action in response to offending conduct in a timely
way. In some instances, this may be a more appropriate or
effective response to misconduct than lengthy and costly
investigations that may or may not result in a successful criminal
prosecution. In some instances, this may better serve the public
interest in protecting consumers.
1009. Before this power can be exercised, ASIC must consider that it is
in the public interest to for a person to begin and carry on civil
proceedings. There must be a causative link between the
investigation or examination under Chapter 6 and ASIC's view that
it is in the public interest to begin and carry on proceedings.
Public interest has a broad meaning.
1010. If the person in whose name proceedings will be begun is a natural
person, that person must consent to ASIC beginning and carrying on
the proceedings in the person's name. This requirement allows the
private interests of the person to override the public interest in
causing the proceedings to be begun and carried on. The consent of
the person must be present at all stages of the litigation. For
example, settlement negotiations can not be conducted or concluded
by ASIC without the consent of the persons in whose name
proceedings are brought.
1011. If the person in whose name proceedings will be begun is a company,
there is no consent requirement. The public interest in the
proceeding prevails over private interests of the company.
Part 6-5 - Hearings
1012. Division 2 gives ASIC the power to hold hearings for the purpose of
the performance or exercise of any of its functions or powers under
the Commonwealth credit legislation, other than a function or power
conferred by Part 6-1 (which deals with investigations). [Part 6-
5, Division 2, section 277]
1013. The power to hold hearings is consistent with the provisions
dealing with hearings in Part 3 Division 6 of the ASIC Act.
1014. There are two general types of hearing that may be conducted by
ASIC:
. discretionary hearings; and
. hearings that ASIC is required to hold, in accordance with
the Commonwealth credit legislation.
1015. A discretionary hearing can be held by ASIC for the purposes of the
performance or exercise of any of its functions or powers,
including the functions or powers set out in section 12A of the
ASIC Act.
1016. The power to hold a hearing may, for example, be used to determine
whether particular conduct is acceptable, and not against public
interest, to restore confidence in the honesty, efficiency and
fairness of the provision of credit activities, or to determine
whether particular conduct complies with the law, whether it is
against the public interest and if, as a consequence, there should
be a change in the law: Broken Hill Pty Co Ltd v National Companies
and Securities Commission (1986) 160 CLR 492.
1017. The requirement to hold a hearing is subject to exceptions, where
there is a need for ASIC to be able to act quickly. Otherwise,
ASIC is required to offer a hearing to the affected person and
provide that person with the opportunity to make submissions on how
ASIC should exercise its discretion on a particular matter, in
order to ensure natural justice in the process.
1018. Unless an exception applies, ASIC is required under the Credit Bill
and Transitional Bill to give a person an opportunity to attend a
hearing and make submissions before ASIC decides to
. impose conditions, or vary or revoke conditions, on
registration [Transitional Bill, Schedule 2, Part 3,
subitems 14(1) and (2)];
. suspend or cancel a person's registration [Transitional
Bill, Schedule 2, Part 3, subitem 22(2)];
. refuse to grant a credit licence [Part 2-2, Division 3,
section 41];
. impose conditions, or vary or revoke conditions, on a
credit licence [Part 2-2, Division 4, section 45];
. suspend or cancel a credit licence [Part 2-2, Division 6,
section 55];
. make a banning order [Part 2-4, Division 2, section 80];
or
. not vary or cancel a banning order in accordance with an
application [Part 2-4, Division 2, section 83].
1019. Exceptions to the general rule that ASIC is required to hold a
hearing are specified in the law, and generally relate to
situations where there may be a need to act quickly to protect the
public (for example, where a licensee is insolvent).
1020. The advantages of enabling ASIC to conduct administrative hearings
and make administrative decisions and orders are that they are
procedurally less complex than court proceedings, and they
generally allow ASIC to respond in a more timely and cost-effective
manner to contraventions of the Commonwealth credit legislation.
This is particularly important from the perspective of the public
interest and protecting and promoting the confidence of
participants in the credit industry (including consumers and
persons who engage in credit activities).
1021. The public interest in ASIC having wide powers to make
administrative orders is balanced with the need to protect private
interests of affected persons who may be the subject of those
orders. Private interests of affected persons are protected
through:
. clear rights and protections in the administrative
process, including:
- the right to receive a written notice of the hearing
[Part 6-5, Division 2, section 285];
- the requirement that certain hearings be held in private
[Part 6-5, Division 2, section 280];
- the requirement for ASIC to observe the rules of natural
justice [Part 6-5, Division 2, paragraph 285(2)(c)];
- the affected person's right to be represented by a
lawyer at the hearing [Part 6-5, Division 2, subsection
285(8)]; and
. the affected person's right to administrative or judicial
review of ASIC's administrative decisions or orders.
1022. ASIC has general discretion over how a hearing is conducted.
However, the overriding requirement is that hearings must be
conducted with as little formality and technicality, and with as
much expedition, as the requirements of the credit legislation
(other than the excluded provisions) and a proper consideration of
the matters before ASIC permit. [Part 6-5, Division 2, subsection
285(1)]
Hearings to be held in public or in private
1023. ASIC has the power to direct that a hearing take place in public or
in private. [Part 6-5, Division 2, section 278]
1024. In making such a direction, ASIC must have regard to whether
matters that will arise during the hearing are of a confidential
nature or relate to the commission of an offence, whether any
unfair prejudice to a person's reputation would be likely to be
caused if the hearing took place in public and whether it is in the
public interest that the hearing take place in public. [Part 6-5,
Division 2, subsection 278(2)]
1025. For a compulsory hearing, if ASIC has a discretion and the person
who has been given the opportunity to appear at the hearing asks
that all or part of the hearing be held in public, the hearing or
part of the hearing must be held in public unless ASIC is satisfied
that it is desirable that the hearing take place in private for one
of the reasons referred to in section 278. If a direction under
subsection 279(2) is given in writing, it is not a legislative
instrument [Part 6-5, Division 2, subsection 279(3)]. This
provision is declaratory of the position that the direction is not
a legislative instrument within the meaning of section 5 of the
Legislative Instruments Act 2003 [Part 6-5, Division 2, section
279].
1026. However, ASIC does not have any discretion to direct that a hearing
be held in public if the Commonwealth credit legislation requires
that the hearing take place in private. [Part 6-5, Division 2,
section 280]
1027. In each of the provisions of the Credit Bill and Transitional Bill
that require a hearing to be held (listed above), the Bills provide
that the hearing must take place in private.
1028. ASIC has power to determine who may be present at a hearing that is
to be held in private. If a hearing is to be held in private, the
only persons who may be present are:
. a member of ASIC or a staff member approved by ASIC
[Part 6-5, Division 2, paragraphs 282(3)(a) and (3)(b)];
. the person to whom the Commonwealth credit legislation
required ASIC to give the opportunity of appearing at a
hearing [Part 6-5, Division 2, paragraphs 282(2)(a) and
(3)(c)];
. a person who represents the person who the Commonwealth
credit legislation required ASIC to give the opportunity
of appearing at a hearing (which can be an employee of the
person if they are a natural person, or an officer or
employee if they are a body corporate, or a lawyer [Part 6-
5, Division 2, subsections 285(6) and (8),
subparagraph 282(2)(b)(i) and paragraph 282(3)(c)]; and
. a person for whom ASIC has given a direction that they may
be present, and a person who represents that person [Part
6-5, Division 2, subsection 282(1), subparagraph
282(2)(b)(ii), paragraph 282(3)(c)].
1029. ASIC's power to make directions about who may be present includes a
power to make directions that a person may not be present.
However, this discretion would not enable ASIC to exclude a person
who is entitled to be present at the hearing. [Part 6-5, Division
2, subsection 282(2)]
1030. It is an offence of strict liability for a person to be present at
a hearing without an entitlement to be present or an ASIC direction
authorising the presence of that person. The penalty is 10 penalty
units or 3 months imprisonment or both. This is necessary to
protect the private nature of these types of hearings. [Part 6-5,
Division 2, subsections 282(3) and (4)]
1031. In making a direction under subsection 282(1) that a person may be
present at a hearing, ASIC may consider whether allowing other
persons to attend is fair to the affected person and whether the
other person's presence will assist in the conduct of the hearing.
For example, in some circumstance it may be appropriate for a
friend or relative to be present to provide the affected person
with support, or for the person to have an adviser other than a
lawyer to assist them.
1032. A direction under section 282(1) is not a legislative instrument.
The provision is included to assist readers, as the instrument is
not a legislative instrument within the meaning of section 5 of the
Legislative Instruments Act. [Part 6-5, Division 2, subsection
282(5)]
General procedure of the hearing
1033. ASIC has general discretion about how a hearing is conducted.
However, an overriding requirement is that hearings must be
conducted with as little formality and technicality, and with as
much expedition, as the requirements of the corporations
legislation (other than the excluded provisions) and a proper
consideration of the matters before ASIC permit. [Part 6-5,
Division 2, subsection 285(1)]
1034. A hearing conducted by ASIC is inquisitorial in nature, to find out
the true position about whether, for example, a person should be
granted a licence or whether a person should be prevented from
engaging in credit activities for the protection of the public.
The provisions allow for the proceeding of a hearing to be flexible
and enable the person who is given the opportunity of appearing at
the hearing the opportunity to make submissions to ASIC in a way
that they consider appropriate.
1035. If ASIC were required to follow formal procedures in the conduct of
hearings, it would lose its ability to respond to contraventions in
a timely way, which would be contrary to the public interest.
1036. At the hearing,
. ASIC is not bound by the rules of evidence. It may take
into account any material that is relevant, credible and
probative;
. ASIC may permit a person to intervene, on such conditions
as it thinks fit; and
. ASIC must observe the rules of natural justice, including
the bias rule and the hearings rule.
[Part 6-5, Division 2, subsection 285(2)]
1037. The provision that ASIC is not bound by rules of evidence, such as
inadmissibility of hearsay evidence, enables ASIC to have regard to
the widest range of information and evidence. This is consistent
with the inquisitorial nature of the hearing. The requirement that
ASIC observe the rules of natural justice ensures that the
procedures adopted by ASIC in obtaining and considering information
and evidence during the hearing are fair.
1038. The requirement that ASIC observe the rules of natural justice
generally include the bias rule and hearings rule.
1039. The bias rule is that a person must not hear and make a decision on
a matter if they have actual or apprehended bias.
1040. Actual bias exists where the decision-maker has prejudged the case
against the person, or acted in a way that shows that the decision-
maker had a concluded view and was not open to persuasion in favour
of the person. Apprehended bias may exist where there is a
reasonable apprehension that the decision-make might not bring an
impartial and unprejudiced mind to the resolution of the legal and
factual matters at the hearing, so that those matters will not be
decided on their merits.
1041. The hearings rule is that no person should be condemned unheard.
The hearings rule relates to matters such as the giving of notice
of the hearing, the degree of formality of the hearing, use of
material not disclosed to person who is given the opportunity of
the hearing, cross-examination of evidence, and the giving of
reasons for a decision. ASIC must not make a decision based on
evidence obtained without knowledge of the affected person. ASIC
must inform the affected person of the nature of any credible and
relevant prejudicial evidence that is significant to the decision
to be made, and give the person the opportunity to test that
evidence.
1042. Division 4 of Part 4 of the ASIC Act (Meetings of ASIC) applies as
far as practicable to hearings. [Part 6-5, Division 2, subsections
285(3) and (4)]
Specific procedural requirements
Notice of hearing
1043. If a hearing is required, ASIC must give a written notice
appointing a place and time for the hearing. The person who is
given the opportunity to attend the hearing is not compelled to
attend. The hearing is the person's opportunity to make
submissions about matters that the person wishes ASIC to take into
account. If the person does not wish to attend, they may still
lodge with ASIC written submissions before the day of the hearing.
[Part 6-5, Division 2, section 283]
1044. If the person chooses to neither appear nor make written
submissions, ASIC may make a decision based on the information that
it has before it.
1045. There is no prescribed form for a notice of hearing. This is
consistent with the overriding requirement that hearings be
conducted with little formality or technicality [Part 6-5, Division
2, subsection 285(1)]. In determining the content of the form,
ASIC must have regard to the rules of natural justice [Part 6-5,
Division 2, paragraph 285(2)(c)]. For example, the rules of
natural justice require that affected persons be informed of the
substance of ASIC's concerns about a particular matter to enable
them to understand the concerns to be addressed and prepare their
submissions.
Power to summons witnesses and take evidence
1046. The person who has been given an opportunity to appear at the
hearing may choose to call witnesses to provide evidence to support
their submissions. ASIC may also choose to call witnesses to
enable it to fully inquire into the subject matter of the hearing.
1047. ASIC has power to give a written summons requiring a person to
appear at a hearing to give evidence, produce specified documents
or both. [Part 6-5, Division 2, subsection 284(1)]
1048. An example of where the issue of a summons may be appropriate is
where a witness is not willing or is unable to give a written
statement, such as where a contractual duty of confidentiality
prevents them from disclosing the relevant information.
1049. ASIC may also permit a witness to give evidence by tendering a
written statement, and, if required, verifying that statement by
oath. Whether a written statement is permitted may depend on
matters such as the credibility of the witness and whether the
evidence should be tested. [Part 6-5, Division 2, subsection
284(6)]
1050. ASIC may require a witness to either take an oath or affirmation
that the evidence the person will give will be true. It is a
matter for the discretion of the ASIC member conducting the hearing
whether an oath or affirmation is required. This will depend on
the circumstances of a particular matter. For example, the taking
of an oath or affirmation may be required if the credibility of the
witness is an issue. [Part 6-5, Division 2, subsections 284(2) and
(3)]
1051. The ASIC member conducting the hearing may also require a witness
to answer a question, and, if the witness is attending under a
summons, produce a document specified in the summons. ASIC may
also use its powers under Part 6-3 powers to require the production
of books. [Part 6-5, Division 2, subsection 284(4)]
1052. Failure to comply with a requirement to appear in accordance with a
summons, take an oath or affirmation and answer a question or
produce a document are offences of strict liability, except to the
extent that the person has a reasonable excuse. The penalty is 10
penalty units or 3 months imprisonment or both. This offence and
penalty is consistent with the offence and penalty in section 63 of
the ASIC Act. [Part 6-5, Division 2, subsections 284(4) and (5);
Part 6-6, Division 2, subsections 290(2) and (4)]
1053. This offence provision recognises the public interest in ASIC
having power to inquire into matters to the fullest extent possible
before making decisions in the exercise of its functions and
powers, and also to support the interest of the person who has been
given the opportunity of a hearing in being able to secure the
attendance all necessary witnesses. Criminal sanctions are
appropriate to deter non-compliance unless there is a reasonable
excuse for non-compliance.
1054. It is expressly provided that it is not a reasonable excuse for a
person to refuse or fail to give information or produce a book in
accordance with a requirement that information or the production of
the book might tend to incriminate the person or make the person
liable to a penalty. [Part 6-6, Division 2, section 295]
1055. This provision is included because is necessary to expressly state
that the privilege against self-incrimination does not apply in
order to abrogate that privilege. It enables ASIC to obtain
information from a witness that is sought by ASIC or the person who
has been given the opportunity of a hearing to fully inquire into
the matters that are the subject of the hearing. It is not a
reasonable excuse for a person to refuse or fail to give
information or produce a book in accordance with a requirement that
the information or production of a book might tend to incriminate
the person or make the person liable to a penalty.
1056. However, if before making an oral statement or producing a book the
examinee claims that the statement or the production of the book
might tend to incriminate the person or make them liable to a
penalty, the statement or the production of the book is not
admissible in evidence against the person in a criminal proceeding
or a proceeding for the imposition of a penalty (other than a
proceeding in respect of the falsity of the statement). [Part 6-6,
Division 2, subsections 295(2) and (3)]
1057. If the requirement to give information or produce books is made to
a person who is a lawyer, and the information would involve
disclosing, or the book contains, a privileged communication made
by or on behalf of the lawyer in his or her capacity as a lawyer,
the lawyer is entitled to refuse to comply. The lawyer may not
refuse to comply if the person on behalf of whom the communication
was made, or, if this person is a body corporate that is being
wound up, the liquidator of the body, consents to the lawyer
complying with the requirement. [Part 6-6, Division 2, section
296]
ASIC may restrict publication of certain material
1058. ASIC may make a direction preventing or restricting the publication
of evidence given before, or matters contained in documents lodged
with, ASIC. In determining whether to make a direction, ASIC must
have regard to:
. whether the evidence given, or matter arising during the
hearing is a confidential nature and relates to the
commission of an offence;
. any unfair prejudice to a person's reputation would be
likely to be caused unless ASIC exercises its power;
. it is in the public interest that ASIC exercises its power
to prevent or restrict publication of the evidence or
matter; and
. any other relevant matter.
[Part 6-5, Division 2, section 281]
1059. The publication of information obtained at a hearing before the
conclusion of the hearing could prejudice the effective conduct of
that hearing.
1060. This power is necessary because a person who is given the
opportunity to appear at a hearing, or a witness, may have lawful
possession of a recording or transcript of a hearing, and are under
no duty of confidentiality to ASIC.
1061. The non-disclosure order should be necessary to preserve the
secrecy of the hearing, limited to the persons present at the
hearing and the evidence given at, and documents before, the
hearing and should only operate during the hearing or for a
reasonable time after the hearing.
1062. Failure to comply with a direction under subsection 281(1) is an
offence, unless the person has a reasonable excuse. The defendant
has the burden of proving that they had a reasonable excuse, as
this matter is peculiarly within the knowledge of the defendant.
The penalty is 50 penalty units or imprisonment for one year or
both. The offence and penalty are consistent with the offence and
penalty in subsection 66(2) of the ASIC Act. [Part 6-5, Division
2, sections 281; Part 6-6, Division 2, section 293]
1063. A direction under subsection 281(1) is not a legislative
instrument. The provision is included to assist readers, as the
instrument is not a legislative instrument within the meaning of
section 5 of the Legislative Instruments Act 2003. [Part 6-5,
Division 2, subsection 281(3)]
Representation of persons appearing at hearing
1064. A natural person may appear in person or be represented by an
employee of the person approved by ASIC. [Part 6-5, Division 2,
subsection 285(5)]
1065. A body corporate may be represented by an officer (within the
meaning of Part 3 of the ASIC Act) or employee of the body
corporate approved by ASIC. [Part 6-5, Division 2, subsection
285(6)]
1066. An unincorporated association, or person in their capacity as a
member of an unincorporated association, may be represented by a
member, officer (within the meaning of Part 3 of the ASIC Act) or
employee of that association approved by ASIC. [Part 6-5, Division
2, subsection 285(7)]
1067. Any person may be represented by a lawyer. [Part 6-5, Division 2,
subsection 285(8)]
1068. The right to representation by a lawyer is a fundamental right to
protect private interests. ASIC may overrule the choice of lawyer
of an affected person or a witness in appropriate circumstances
(such as where the presence of the particular lawyer prejudices the
conduct of the hearing) by making a direction that that the
particular lawyer may not be present. This does not restrict the
right of the person to be represented by another lawyer. [Part 6-
5, Division 2, subsection 282(1)]
ASIC to take into account evidence and submissions
1069. ASIC must take into account all evidence given, and submissions
made, during the hearing (whether they have been given or made in
writing or orally), including written submissions given before the
hearing. [Part 6-5, Division 2, section 286]
1070. ASIC cannot choose to ignore evidence or submissions, though it may
accord evidence or submissions different weight depending on all
the circumstances of the matter, including the credibility of the
witnesses.
Reference to court of questions of law
1071. If a question of law arises during a hearing, ASIC may, of its own
motion or at a person's request, refer to the court for a decision
on that question. In this case, ASIC must not give a decision to
which that question is relevant pending the court's decision or
proceed with the hearing in a manner that is inconsistent with the
court's opinion. All documents that are before ASIC in connection
with the hearing must be sent to the court, and will be returned
after the court has made a decision. [Part 6-5, Division 2,
section 287]
Protection for participants
1072. Members of ASIC that perform or exercise functions or powers in
relation to a hearing, lawyers and other person's appearing on a
person's behalf and witnesses have the same protection and immunity
as a Justice, barristers and witnesses in proceedings in the High
Court. [Part 6-5, Division 2, section 288]
1073. ASIC staff members may also be protected by the defence against
liability for damages in section 246 of the ASIC Act. Regulations
will be made that prescribe the credit legislation as a prescribed
law for the purposes of section 246 of the ASIC Act.
1074. A person is also not liable to a proceeding merely because they
have complied, or propose to comply, with a requirement made or
purported to be made under this Chapter. This gives protection
from liability (for example, for breach of confidentiality) arising
from complying with a requirement to answer a question, or produce
documents, during a hearing. [Part 6-9, Division 2, section 320]
Part 6-6 - Offences
Non-compliance with requirements made under Chapter 6
1075. There are a number of offences for non-compliance with requirements
of Chapter 6. [Part 6-6, Division 2, section 290]
1076. These offences have been referred to in the above discussion of
each of those requirements.
1077. Each of these offences and the penalties that apply to the offences
are consistent with those set out in Part 3 Division 7 of the
ASIC Act.
1078. The criminal sanctions applying to refusal or failure to comply
with requirements made by ASIC are appropriate because:
. criminal sanctions play an important role in deterring
inappropriate conduct; and
. failure to comply with requirements made by ASIC in
relation to examinations, production of books and the
conduct of hearings can seriously jeopardise ASIC's
ability to exercise its functions and powers to ensure
compliance with the Commonwealth credit legislation.
1079. There are a number of strict liability offences which attach to
breaches of Chapter 6. These offences are strict liability
offences, as they relate to the punishment of offences lacking
'fault' and they:
. enhance the effectiveness of the regulatory regime dealing
with ASIC's enforcement powers; and
. encourage participants to put in place systems and
policies that address the risk of contraventions of the
relevant provisions.
1080. Offences under subsections 290(1) and (2) do not apply if the
person has a reasonable excuse for their non-compliance. The
person has the burden of proving that they had a reasonable excuse,
as this matter is peculiarly within the knowledge of the defendant.
[Part 6-6, Division 2, subsection 290(4)]
1081. Whether there is a reasonable excuse at law for non-compliance
depends on all the relevant circumstances of a particular case. It
is not necessarily limited to physical or practical difficulties of
compliance and may include any excuse which would be accepted by a
reasonable person as justifying non-compliance taking into account
the importance of the particular statutory requirement: ASIC v
Albarran [2008] FCA 147 at [82] and [134].
1. : Reasonable excuse
Some examples of where a court has considered that a person
has established that they had a reasonable excuse are:
. The time specified for compliance with a notice for
production of books, or the specification of what is to be
produced, is unreasonable or capricious: Hopfner v Flavel
(1990) 8 ACLC 706 at 711.
. The recipient of the notice only has possession of books
that fall outside the scope of the books specified in the
notice. The onus is on the recipient of the notice to
determine whether the books in their possession are within
the scope of the notice: General Benefits Pty Ltd & Tomblin
v ASIC [2001] SASC 137 at [45].
Some examples of where a court has found that matters did
not constitute a reasonable excuse for non-compliance are:
. a duty of confidentiality. The need to maintain a duty of
confidentiality does not fall within the statutory
definition of a reasonable excuse: ASC v Zarro (1991) 32 FCR
546;
. the fact that the person does not have physical custody of
relevant books if the person has custody and control of
those books;
. mere inconvenience, such as a prior engagement: Re Deam Ltd
[1974] ACLC 27,799 at 27,803;
. there is current litigation challenging the validity of the
notice: Macdonald v ASC [No 2] (1994) 12 ACLC 246 at 252;
. the fact that a person may suffer personal detriment in
terms of damage to business reputation or the risk of losing
future commercial dealings: von Doussa v Owens [No 1] (1982)
30 ACSR 367 at 380-381; and
. the possibility that compliance would expose a person to
liability for breach of a foreign law: Bank of Valetta plc v
National Crime Authority (1999) 164 ALR 45.
False information
1082. A person must not:
. give information, or make a statement, that is false or
misleading in a material particular during an examination;
or
. give evidence that is false or misleading in a material
particular at a hearing.
[Part 6-6, Division 2, subsections 291(1) and (2)]
1083. It is a defence if the person believes on reasonable grounds that
the information, statement or evidence was true and not misleading.
The onus is on the defendant to prove this, as this matter is
peculiarly within the knowledge of the defendant. [Part 6-6,
Division 2, subsection 291(3)]
1084. The penalties for these offences are 100 penalty units or 2 years
imprisonment or both and 10 penalty units or 3 months imprisonment
or both respectively [Part 6-6, Division 2, subsections 291(1) and
(2)]. These offences and penalties are consistent with section 64
of the ASIC Act.
1085. Criminal sanctions for the provision of false or misleading
information to ASIC are appropriate because it is important for
ASIC to be able to rely on information given and statements made in
the course of examinations and hearings when making decisions about
investigations and proceedings that may result from an
investigation, and decisions about the subject matter of a hearing.
Obstructing person executing a warrant under this chapter
1086. A person must not engage in conduct that results in the obstruction
or hindering of a person who is executing a warrant issued under
section 270, unless the person has a reasonable excuse. The onus
is on the defendant to prove this, as this matter is peculiarly
within the knowledge of the defendant. [Part 6-6, Division 2,
subsections 292(1) and (2)]
1087. The penalty is 100 penalty units or two years imprisonment or both.
This offence and penalty is consistent with the offence and
penalty in section 65 of the ASIC Act.
1088. An occupier or person in charge of premises that are entered under
a warrant issued under section 270 must not intentionally or
recklessly refuse or fail to provide all reasonable facilities and
assistance. The penalty is 25 penalty units or six months
imprisonment or both [Part 6-6, Division 2, subsection 292(3)].
This offence and penalty is consistent with the offence and penalty
in section 65 of the ASIC Act.
Disrupting hearings
1089. A person must not engage in conduct that results in the disruption
of a hearing. [Part 6-6, Division 2, subsection 293(1)]
1090. A person must not contravene a direction given under subsection
281(1), which prevents or restricts the publication of certain
material before a hearing, unless the person has a reasonable
excuse. The onus is on the defendant to prove this, as this matter
is peculiarly within the knowledge of the defendant. This is an
offence of strict liability. [Part 6-6, Division 2, subsections
293(2) to (4)]
1091. These offences are punishable on a summary conviction. The penalty
is 50 penalty units or one year imprisonment or both [Part 6-6,
Division 2, subsections 293(1) and (2)]. These offences and the
penalties are consistent with offences in section 66 of the ASIC
Act.
1092. The criminal sanctions, including strict liability, are appropriate
because:
. criminal sanctions play an important role in deterring
inappropriate conduct;
. obstructing or hindering a person in exercising its
examination and information-gathering powers can seriously
jeopardise ASIC's ability to exercise its functions and
powers to ensure compliance with the Commonwealth credit
legislation and properly inquire into questionable
behaviour;
. obstructing or hindering a person in the conduct of a
hearing, can seriously jeopardise ASIC's ability to
exercise its functions and powers to make an appropriate
decision on a matter arising under the Commonwealth credit
legislation in a timely way; and
. publishing material that has been obtained, or that is
considered, in the course of a hearing, contrary to a
direction by ASIC, may undermine the privacy of the
hearing and may prejudice the effective conduct of the
hearing.
Concealing books relevant to investigation
1093. If ASIC is investigating, or about to investigate, a matter a
person must not:
. engage in conduct resulting in concealment, destruction,
mutilation or alteration of a book relating to that
matter; or
. if the matter is in a particular State or Territory,
engage in conduct resulting in the taking or sending of
the book out of that State or Territory.
[Part 6-6, Division 2, subsection 297(1)]
1094. The purpose of this provision is to deter conduct being engaged in
to defeat the purposes of the Commonwealth credit legislation, or
delay or obstruct an investigation by ASIC. A defence is provided
where the person establishes that they did not intend to defeat the
purposes of the Commonwealth credit legislation, or delay or
obstruct an investigation by ASIC. The onus is on the defendant to
prove this, as this matter is peculiarly within the knowledge of
the defendant. [Part 6-6, Division 2, subsection 297(2)]
1095. The penalty is 200 penalty units or five years imprisonment or
both. This offence and the penalty are consistent with the offence
in section 67 of the ASIC Act.
Self-incrimination
1096. The common law privilege against self-incrimination provides that
no-one is bound to answer any question or produce any document or
thing if the answer or the document or thing would have a tendency
to expose that person to conviction for a crime.
1097. The doctrine of penalty privilege provides that a person cannot be
compelled to disclose evidence that may subject the person to a
penalty.
1098. These privileges can be used by a person not to do some act, except
where they are expressly or by implication abrogated by
legislation.
1099. The Credit Bill overrides these privileges as it expressly provides
that it is not a reasonable excuse for a person to refuse or fail
to give information, sign a record or produce a book in accordance
with a requirement that information, signing the record or the
production of the book might tend to incriminate the person or make
the person liable to a penalty. [Part 6-6, Division 2, subsection
295(1)]
1100. Although it is not expressly stated that the privilege is not a
legal excuse for non-compliance, it is judicially accepted that
this is the effect of such a provision: Mortimer v Brown (1969-
1970) 122 CLR 493 at 496.
1101. A person cannot therefore rely on this privilege to justify or
excuse non-compliance with a requirement made by ASIC under
Chapter 6. This provision is consistent with section 68 of the
ASIC Act.
1102. The Joint Senate Select Committee on Corporations Legislation
indicated that the abrogation of these privileges by statute is
necessary to give ASIC maximum effectiveness in achieving its
investigatory function, thereby protecting the public interest.
The same considerations apply to ASIC's functions and powers under
the Commonwealth credit legislation.
1103. It is provided that if, before making an oral statement giving
information or signing a record pursuant to a requirement under
this Chapter, a person claims that the statement, or signing the
record, might tend to incriminate the person or make the person
liable to a penalty, and that it would in fact do so, the statement
or the fact that the person has signed the record is not admissible
in evidence against the person in criminal proceedings or
proceedings for the imposition of a penalty (other than in relation
to the falsity of the statement or a statement in the record).
[Part 6-6, Division 2, subsections 295(2) and (3)]
1104. These provisions are consistent with subsections 68(2) and (3) of
the ASIC Act.
1105. These provisions afford a natural person the protection of use
immunity. There is no provision for derivative use immunity.
1106. Subsection 295(2) expressly confines the evidential immunity in
subsection 295(3) to natural persons. Corporations cannot claim
the privilege against self-incrimination, the penalty privilege,
use immunity or derivative use immunity.
1107. The use immunity in subsection 295(3) applies in proceedings for
the imposition of a penalty. The term proceedings has the same
meaning as in Part 3 of the ASIC Act, that is, a proceeding in a
court, or a proceeding or hearing before, or an examination by or
before, a tribunal, whether the proceeding, hearing or examination
is of a civil, administrative, criminal, disciplinary or other
nature. 'Tribunal' is broadly defined and would include ASIC.
[Part 1-2, Division 2, section 5]
1108. If privilege is claimed, oral statements, and the fact that a
record has been signed, cannot be used and is not admissible in
evidence against the person in proceedings by ASIC for the
suspension or cancellation of registration or a licence and banning
orders (which may result in the imposition of non-monetary
penalties).
Legal professional privilege
1109. At common law, legal professional privilege protects communications
between clients and their lawyers from disclosure. The privilege
applies to confidential communications between clients, their
lawyers and third parties made for the dominant purpose of use in
litigation, whether actual or contemplated (litigation privilege).
Legal professional privilege also applies to confidential
communications between clients and their lawyers made for the
dominant purpose of giving or receiving legal advice (legal advice
privilege).
1110. Legal professional privilege is based on the duty of
confidentiality between lawyer and client, and on the public
interest in assisting the administration of justice by facilitating
the representation of clients by lawyers.
1111. If a lawyer is required under Chapter 6 to give information or
produce a book, and the information would involve disclosing, or
the book contains, a privileged communication made by or on behalf
of the lawyer in his or her capacity as a lawyer, the lawyer is
entitled to refuse to comply. The lawyer may not refuse to comply
if the person on behalf of whom the communication was made, or, if
this person is a body corporate that is being wound up, the
liquidator of the body, consents to the lawyer complying with the
requirement. [Part 6-6, Division 2, subsections 296(1) and (2)]
1112. If the lawyer refuses to comply with a requirement under Chapter 6
on the basis of legal professional privilege, he or she must as
soon as practicable give to the person who made the requirement a
written notice setting out:
. if the lawyer knows the name and address of the person to
whom, - that name and address;
. if the requirement is to give information and the
communication was made in writing - sufficient particulars
to identify the document containing the communication; and
. if the requirement is to produce a book - sufficient
particulars to identify the book, or part of the book,
containing the communication.
[Part 6-6, Division 2, section 296]
1113. The lawyer is not entitled to refuse to provide this information,
for example on the basis that the release of this information would
endanger the privilege.
1114. This provision therefore allows a lawyer to preserve the
confidentiality and privilege that may attach to communications
sought by ASIC. However, ASIC can use the information obtained
under subsection 296(3) to give a requirement to the person
identified by the lawyer to produce the otherwise privilege
communications. The decision of whether to comply with a
requirement from ASIC is then a matter for that person. Although
legal professional privilege is a legal excuse for non-compliance,
it is not a 'reasonable excuse' for the purposes of the offence
provisions in Chapter 6.
1115. A statement that a person makes at an examination is admissible in
evidence against the person in proceedings unless the statement
discloses a matter in relation to which the person could claim
legal professional privilege, if subsection 303(1) did not apply in
relation to the statement, and the person objects to the admission
of evidence of the statement. [Part 6-8, Division 2, paragraph
303(1)(d)]
1116. This provision affords the examinee 'use immunity' in relation to
statements made at an examination. It has no application in
relation to production of books. This provision achieves a level
of balance between the public interest in ASIC having access to all
relevant information and the competing public and private interest
in preserving the client's legal professional privilege.
Powers of the court in relation to non-compliance with Chapter 6
1117. If a person refuses or fails to comply with a requirement made
under Chapter 6 (other than Part 6-6), and ASIC is satisfied that
the person does not have a reasonable excuse, ASIC may certify the
failure in writing (for example, by swearing an affidavit setting
out details of the failure to comply) and apply to the court for an
order that the person comply with the requirement. [Part 6-6,
Division 2, section 297]
1118. The court may inquire into the matter to determine whether the
refusal or failure was based on a reasonable excuse. If the court
makes an order requiring compliance with the requirement, a refusal
or failure to comply would amount to a contempt of court.
Part 6-7 - ASIC's powers in relation to non-compliance with Chapter 6
1119. ASIC can make 'freezing orders' that restrain certain dealings in a
credit contract, mortgage, guarantee or consumer lease where:
. ASIC considers that information about a credit contract,
mortgage, guarantee or consumer lease needs to be found
out for the purposes of the exercise of any of ASIC's
powers under Chapter 6; and
. a person has refused or failed to comply with a
requirement made under Chapter 6, that would provide ASIC
with that information.
[Part 6-7, Division 2, section 299]
1120. The orders that can be made by ASIC are orders:
. restraining a specified person from assigning any interest
in a credit contract, mortgage, guarantee or consumer
lease;
. restraining a specified person from acquiring any interest
in a credit contract, mortgage, guarantee or consumer
lease;
. restraining the exercise of a right under a credit
contract, mortgage, guarantee or consumer lease; and
. directing a credit provider, mortgagee, beneficiary of a
guarantee or lessor in relation to which one of these
orders is in force to give written notice of that order to
any person whom the credit provider, mortgagee,
beneficiary of a guarantee or lessor knows to be entitled
to exercise a right in relation to the credit contract,
mortgage, guarantee or consumer lease.
[Part 6-7, Division 2, section 300]
1121. Interest in relation to a credit contract, mortgage, guarantee or
consumer lease may include:
. the money that is obtained on credit;
. property obtained using the money obtained on credit; and
. real property and goods that secure a credit contract.
1122. This power is intended to be used on a short-term basis to preserve
the status quo where a person fails to comply with a requirement
under Chapter 6 to provide information.
1123. This power can be exercised unilaterally by ASIC without the need
of an application to court, and the delay involved in such an
application. This power is consistent with the power in section 73
of the ASIC Act.
1124. An order under subsection 300(1) is not a legislative instrument.
Subsection 300(3) is only declaratory of the position that the
order is not a legislative instrument within the meaning of section
5 of the Legislative Instruments Act 2003. [Part 6-7, Division 2,
subsection 300(3)]
1125. ASIC may also make orders varying or revoking an order made under
section 300. [Part 6-7, Division 2, subsection 301(1)]
1126. If ASIC makes an order under this Part, it must:
. give a copy of the order, and any subsequent order varying
or revoking that order, to the person to whom the order is
directed [Part 6-7, Division 2, subsection 301(3)]; and
. publish the order in the Gazette [Part 6-7, Division 2,
subsection 301(2)].
1127. Failure to comply with an order made under this Part is an offence.
The penalty is 25 penalty units or imprisonment for six months or
both. This offence and penalty is consistent with the offence and
penalty in section 75 of the ASIC Act.
Part 6-8 - Evidentiary use of certain materials
1128. This Part of the Credit Bill provides for the admissibility in
evidence of:
. information obtained by ASIC in response to a requirement
made under Chapter 6; and
. reports prepared by ASIC under Part 6-1.
1129. This Part is generally consistent with Part 3 Division 9 of the
ASIC Act.
Statements made at an examination
1130. In general, a statement that a person makes during their
examination is admissible in evidence against that person in
proceedings, except in specified circumstances. [Part 6-8,
Division 2, subsection 303(1)]
1131. A statement will not be admissible if:
. the use immunity in subsection 295(3) applies [Part 6-8,
Division 2, paragraph 303(1)(a)];
. if the statement is not relevant to the proceedings and
the person objects to the admission of evidence of the
statement [Part 6-8, Division 2, paragraph 303(1)(b)];
. the statement is qualified or explained by some other
statement made at the examination, evidence of which has
not been tendered at the proceedings, and the person
objects to the admission of the statement [Part 6-8,
Division 2, paragraph 303(1)(c)]; or
. the person could claim legal professional privilege in the
proceedings in relation to the matter disclosed in the
statement, and the person objects to the admission of the
statement [Part 6-8, Division 2, paragraph 303(1)(d)].
1132. The examinee's statements may also be admitted in proceedings
against the examinee that is heard together with proceedings
against another person. [Part 6-8, Division 2, subsection 303(2)]
1133. Where the record of examination has been signed by the examinee,
the record is prima facie evidence of the statements that it
records. [Part 6-8, Division 2, subsection 303(3)]
1134. A statement that a person makes at an examination of the person may
also be admissible in proceedings where that person is not called
as a witness.
1135. If direct evidence by the person (the absent witness) would be
admissible in the proceedings, a statement that the absent witness
made at an examination is admissible if:
. the absent witness is dead or unfit, because of physical
or mental incapacity, to attend as a witness;
. the absent witness is outside the State or Territory in
which the proceedings is heard and it is not reasonably
practicable to secure their attendance, or they cannot be
found; or
. another party requires the absent witness to be called as
a witness and the tendering party does not call the absent
witness.
[Part 6-8, Division 2, section 304]
1136. These provisions are not exhaustive as to the circumstances in
which statements made at an examination will be admissible in a
court. The provisions only supplement other means available to
adduce evidence of statements made in examination as original
evidence to prove the facts contained in those statements, or to
prove another fact in issue in the proceedings. If the tendering
party does not satisfy the requirements in the Credit Bill, it may
still be able to rely on the general law of evidence or some other
statute to make the statement admissible against a person. [Part 6-
8, Division 2, section 310]
1137. If a statement contained in a record of examination is admitted as
evidence against a person other than the examinee under section
304, the weight to be given to the statement as evidence of a
matter is to be determined having regard to the following matters:
. the amount of time between the matter and the making of
the statement;
. any reason the person may have had for concealing or
misrepresenting a material matter; and
. any other circumstances from which it is reasonable to
draw an inference about the accuracy of the statement.
[Part 6-8, Division 2, subsection 305(2)]
1138. If the person who made the statement is not called as a witness in
the proceeding, evidence that would be admissible in relation to
the person's credibility and to show that the statement is
inconsistent with another statement made by the person is also
admissible. [Part 6-8, Division 2, subsection 305(3)]
1139. This provision ensures that an unfair advantage cannot be obtained
by tendering a record of an examination in evidence rather than
calling the examinee as a witness.
1140. A party that intends to apply to have statements made at an
examination admitted in evidence in proceedings may give written
notice to another party of this intention. The written notice must
be given not less than 14 days before the first day of the hearing.
The statements to that the person will apply to admit in evidence
must be specified. [Part 6-8, Division 2, subsections 306(1) and
(2)]
1141. This requirement ensures that sufficient and timely notice is given
to the defendants of the statements that are to be tendered as
evidence so that those defendants are given an opportunity to
formulate objections to the admission of those statements.
1142. Written objections of the other party must be given within 14 days,
and the court or tribunal may determine those objections as a
preliminary point before the hearing of the proceedings. [Part 6-
8, Division 2, subsections 306(3) to (5)]
1143. The notice must specify the statements to be tendered in sufficient
detail, so that the defendants have no difficulty in identifying
what the statements are for the purpose of considering whether or
not to object. The requirement to set out specified statements may
include questions, answers and other comments or remarks made in
the examination that are necessary to properly understand the
examinee's answers.
1144. If notice has been given by the tendering party in accordance with
subsections 306(1) and (2), the other party is not entitled to
object to the statement unless they have objected to the statement
being admitted in accordance with subsection 306(3), or the court
or tribunal gives leave to object. [Part 6-8, Division 2,
subsection 306(7)]
1145. If the procedure in section 306 is not followed, statements made at
an examination may still be admissible in evidence under the
general law of evidence or some other evidential statute. [Part 6-
8, Division 2, section 310]
Copies of, or extracts from, certain books
1146. Subsection 271(4) allows a person to whom books are produced under
Chapter 6 to use, or permit the use of, any of the books for the
purposes of a proceeding.
1147. A copy of, or extract from, a book will be admissible in evidence
in proceedings as if it were the original book, where it relates
to:
. the affairs of a licensee, credit representative or other
person who engages, or has engaged, in a credit activity;
. a credit activity engaged in by a person; or
. the character or financial situation of, or a business
carried on by, a person who engages, or has engaged, in a
credit activity.
1148. It must be proved that the book is a true copy of the original, and
this may be proved by evidence from a person who has compared the
copy or extract with the original. [Part 6-8, Division 2,
subsections 307(2) and (3)]
1149. The copy or extract does not need to be made under section 271 for
this provision to apply.
Report under Part 6-1
1150. A report prepared by ASIC under Part 6-1 is admissible in
proceedings (other than criminal proceedings) as prima facie
evidence of any facts or matters that the report states ASIC to
have found to exist. [Part 6-8, Division 2, section 308]
1151. The court or tribunal must be satisfied that the copy of the report
has been given to the other party, and that the other party, and
their lawyer, have had a reasonable opportunity to examine it and
take the contents into account in preparing their case. If this
does not occur the copy is not admissible under section 81. [Part
6-8, Division 2, subsection 309(2)]
1152. Before a copy of a report is admitted into evidence, the other
party can apply to cross-examine persons who were:
. involved in preparing the report or making a finding about
a fact or matter that the report states ASIC to have found
to exist; or
. who gave information or produced a book on the basis of
which a finding was made.
1153. Cross-examination must be allowed unless the court or tribunal
considers that, in all the circumstances, it is not appropriate to
do so. This gives the other party the opportunity to appropriately
test the findings made by ASIC and the information on which those
findings were based. [Part 6-8, Division 2, subsections 309(3) and
(4)]
1154. These provisions ensure that the other party has the opportunity to
appropriately test the findings made by ASIC and the information on
which those findings were based.
Part 6-9 - Miscellaneous
1155. A requirement that can be made of a body corporate under Chapter 6
may also be made of a person who is or has been an officer (within
the meaning of Part 3 of the ASIC Act) or employee of the body.
[Part 6-9, Division 2, section 312]
1156. This is because a body corporate can only do acts through its
officers and agents. For example, if a body corporate has produced
books in accordance with a requirement under section 266, ASIC may
require a director or employee of the body to explain matters in
relation to the books under subsection 271(9).
1157. A person who makes a requirement under Chapter 6 (other than Part 6-
5) must be able to produce an identity card and evidence of their
authorisation to make the requirement. [Part 6-9, Division 2,
section 313]
1158. This provision provides protection against inspectors making
requirements that are outside the scope of their authorisation.
1159. Subsection 313(2) states that the identity card is not a
legislative instrument. This provision is declaratory of the
existing position, that an identity card is not a legislative
instrument within the meaning of section 5 of the Legislative
Instruments Act 2003.
1160. For ASIC's powers to be effective, there must be clear procedures
for service of notices. A notice setting out requirements must be
validly served before the recipient is under an obligation to
comply with the notice.
1161. The provision in section 109X of the Corporations Act for service
of documents on bodies corporate is applied to the giving of
documents under Chapter 6 to natural persons. [Part 6-9, Division
2, section 314]
1162. The provision also has the effect of applying the service
procedures in section 109X of the Corporations Act to the service
of a notice under Chapter 6 on a natural person. As a result a
notice can be served on a natural person either:
. personally - it is sufficient for the document to be left
with the person served. It is not necessary that its
nature and purpose be identified, described or brought to
the attention of the person served; or
. by posting it to or leaving it at the address of the place
of residence or business of the intended recipient last
known to the process server. The notice may be left with
a person who the process server believes on reasonable
grounds to live or work at the address of the intended
recipient and who is at least 16 years of age. This
ensures that service is effected, establishes proof of
service, even when the intended recipient refuses to take
the notice from the process server and removes the common
law requirement that the nature of the document must be
described where the person to be served does not accept
the document.
1163. Where a provision in Chapter 6 gives the power to require the
production of books at a specified place and time, the provision is
taken to require the person giving the notice to specify a place
and time for production of books that is reasonable in all the
circumstances [Part 6-9, Division 2, paragraph 315(a)]. There
could be a reasonable excuse for non-compliance with a notice to
produce books where there is an unreasonable fixing of a time for
production of books: Hopfner v Flavel (1990) 2 ACSR 295.
1164. If it is reasonable in the circumstances, ASIC may require
production of books immediately. [Part 6-9, Division 2, paragraph
315(b)]
1. : Production of books
Circumstances relevant to whether immediate production of
books is reasonable may include:
. the urgency of the inquiry or investigation - for example,
whether assets are likely to be disposed of; or
. volume, type and location of the documents sought - for
example, with large organisations such as banks a reasonable
time may be needed to locate documents covered by the
notice; or
. whether the person to whom the notice is given wishes to
exercise their right to obtain legal advice: Swan v Scanlan
(1982) 61 FLR 468.
1165. An examination or a hearing is a judicial proceeding for the
purposes of Part III of the Crimes Act (offences relating to the
administration of justice). [Part 6-9, Division 2,
subsection 316(1)]
1166. Part III of the Crimes Act provides for a number of offences
relating to the administration of justice, which apply in relation
to the institution and conduct of judicial proceedings. These
include offences such as:
. giving false testimony in, or with the intention of
instituting, a judicial proceeding;
. fabricating evidence with intent to mislead any tribunal
in a judicial proceeding;
. intimidation of persons in relation to their appearance as
a witness in judicial proceedings;
. corruption of a witness in judicial proceedings;
. deceiving a witness in judicial proceedings with intent to
affect their testimony;
. destroying any book, document or thing that may be
required in evidence in judicial proceedings; and
. preventing a person from attending as a witness pursuant
to a subpoena or summons.
1167. Specified sections of the Evidence Act 1995 apply to an examination
in the same way that they apply to proceedings before a court to
which the Evidence Act 1995 applies. The provisions that are
applied to examinations are:
. Part 2.2 in full - documents;
. sections 69, 70 and 71 - exceptions to the hearsay rule
for business records, contents of tags, labels and
electronic communications;
. section 147 - proof of documents produced by processes,
machines and other devices in the course of business; and
. Division 2 of Part 4.6 - proof of certain matters by
affidavits or written statements.
[Part 6-9, Division 2, subsection 316(2)]
1168. Examinees and persons who have been required to appear as a witness
at a hearing are entitled to allowances and expenses prescribed in
the regulations (if any). It is proposed to seek regulations that
will prescribe allowances and expenses. ASIC may also, at its
discretion, pay an amount it considers reasonable on account of
costs and expenses incurred in complying with a requirement under
Chapter 6. [Part 6-9, Division 2, section 317]
1169. A decision by ASIC to refuse to exercise its discretion under
subsection 317(3) to pay reasonable expenses incurred in complying
with a requirement is a reviewable decision under the AD(JR) Act.
1170. As a general rule, the expenses of an investigation are to be paid
by ASIC. [Part 6-9, Division 2, section 318]
1171. 'Expenses' bears its ordinary meaning and is confined to moneys
expended by a person or obligations incurred by a person. ASIC is
not responsible for paying expenses of a third party, unless those
expenses are payable under section 317. Other expenses of an
investigation may include the costs and expenses of initiating
civil proceedings under section 275 and any other outgoings that
ASIC may reasonably and necessarily incur for the purposes of the
investigation.
1172. ASIC has the power to make orders for the recovery of expenses of
its investigation from a proceeding begun as a result of an
investigation under Part 6-1 where:
. a person who is convicted of an offence against a law of
the Commonwealth or a law of a referring State or
Territory in a prosecution; or
. a person has a judgement against them, or a declaration or
other order is made against them.
[Part 6-9, Division 2, subsection 319(1)]
1173. The orders that ASIC may make are:
. An order that the person pay the whole of a specified part
of the expense of the investigation [Part 6-9, Division 2,
paragraph 319(1)(c)] - this order may be made where ASIC
has incurred an obligation to pay expenses, but has not
discharged that obligation.
. An order that the person reimburse ASIC to the extent of a
specified amount of such expenses of the investigation as
ASIC has paid [Part 6-9, Division 2, paragraph 319(1)(d)]
- this order may be made where ASIC has already paid the
expenses of the investigation. ASIC may make a single
reimbursement order directed to more than one person
because section 23 of the Acts Interpretation Act 1901
provides that words in the singular include the plural.
If a reimbursement order is made to more than one person,
those persons are jointly and severally liable under the
order: Corporate Affairs Commission v Australian Timber
Pty Ltd (1998) 16 ACLC 1642 at 1647.
. An order to pay, or reimburse ASIC in relation to the
whole, or a specified part, of the cost to ASIC of making
the investigation [Part 6-9, Division 2, paragraph
319(1)(e)] - this order may require a person to pay costs
of an investigation that do not fall within the ordinary
meaning of 'expenses'.
1174. For paragraphs 319(1)(c) and (d), 'expenses' bears its ordinary
meaning and is confined to moneys expended by a person or
obligations incurred by a person, but will include expenses payable
under section 317.
1175. For paragraph 319(1)(e), the costs of an investigation includes
remuneration of ASIC members and ASIC staff members. These terms
are defined in the Dictionary in section 5 of the Credit Bill by
reference to the definitions in section 5 of the ASIC Act, and
include persons engaged by ASIC under the Public Service Act 1999,
additional staff employed under written agreements, persons engaged
under written agreements as consultants and persons who are staff
members, officers and employees of other agencies under the Public
Service Act 1999 that have been seconded to ASIC.
1176. The order must be made by ASIC in writing and specify when and how
the payment or reimbursement is to be made. [Part 6-9, Division 2,
subsection 319(2)]
1177. Failure to comply with an order under this provision is an offence
of strict liability. The penalty is 50 penalty units or
imprisonment for one year or both. This offence provision and
penalty is consistent with the offence and penalty in section 91 of
the ASIC Act. [Part 6-9, Division 2, subsections 319(3) and (4)]
1178. Where a person fails to pay an amount payable under an order, ASIC
may also recover that amount as a debt due to ASIC. The right to
recover money does not, however, entitle ASIC to access or continue
to hold funds originally obtained by ASIC under a voluntary
undertaking. [Part 6-9, Division 2, subsection 319(5)]
1179. A report of an investigation may make recommendations about the
making of orders for payment or reimbursement of expenses and costs
of the investigation. [Part 6-9, Division 2, subsection 319(6)]
1180. An order for payment or reimbursement of expenses and costs of the
investigation is not a legislative instrument [Part 6-9, Division
2, subsection 319(7)]. This provision is declaratory of the
existing position, as these types of orders are not a legislative
instruments within the meaning of section 5 of the Legislative
Instruments Act 2003.
1181. A person is neither liable to a proceeding, nor subject to a
liability, merely because the person has complied, or proposes to
comply, with a requirement made or purported to be made under
Chapter 6. [Part 6-9, Division 2, section 320]
1182. This provision is necessary to ensure that persons who are required
by ASIC to answer questions or provide books or other information
are not discouraged from complying with the requirement by the
possibility of civil liability for breach of a contractual or
equitable duty of confidentiality.
1183. This provision does not protect voluntary informants, because it is
limited to circumstance of compliance with a Chapter 6 requirement.
1184. The functions and powers conferred by Chapter 6 are additional to,
and do not derogate from, any other function or power conferred by
a law of the Commonwealth, a State or a Territory. [Part 6-9,
Division 2, section 321]
1185. This provision is necessary to ensure that the operation of the
Credit Bill does not prejudice, or is interpreted as limiting the
effect of other laws that confer functions and powers on ASIC, ASIC
members and ASIC staff members.
1186. ASIC has a power to accept enforceable undertakings from a person
in connection with a matter in relation to which ASIC has a
function or power under the Commonwealth credit legislation. [Part
6-9, Division 2, subsection 322(1)]
1187. This power enables ASIC to accept an enforceable undertaking from
credit licensees, representatives of credit licensees and other
persons that engage, or who have engaged, in credit activities in
relation to credit activities. This power enhances ASIC's ability
to enforce compliance with the law.
1188. Acceptance of an enforceable undertaking is an enforcement outcome
that may be used by ASIC as an alternative to commencing civil or
administrative action in relation to a contravention of the
Commonwealth credit legislation.
1189. A person cannot be compelled to offer or enter an enforceable
undertaking.
1190. If an enforceable undertaking is given by a person the person may
withdraw from, or vary, the undertaking at any time, but only with
ASIC's consent. [Part 6-9, Division 2, subsection 322(2)]
1191. A variation of an undertaking may be necessary, for example, to
extend the time allowed to complete a particular act. A variation
to an enforceable undertaking modifies the original undertaking but
does not replace it.
1192. If ASIC considers that the person who gave the undertaking has
breached any of its terms, ASIC may apply to the court for:
. an order directing the person to comply with the terms of
the undertaking;
. an order directing the person to pay to the Commonwealth
an amount referable to the financial benefit that the
person has obtained that is reasonably attributable to the
breach;
. any orders that are appropriate directing the person to
compensate any other person who has suffered loss or
damage as a result of the breach; or
. any other orders the court considers appropriate.
[Part 6-9, Division 2, subsections 322(3) and (4)]
1193. The court may make orders that can compel the person providing the
enforceable undertaking to comply with their undertaking, and put
all persons, including third parties who would benefit from the
undertaking, in the position that they would have been in had the
enforceable undertaking not been breached.
1194. A breach of an enforceable undertaking cannot be the subject of
contempt proceedings. However, the breach of a court order made in
relation to a breach of an enforceable undertaking may constitute
contempt of court.
Chapter 7
Miscellaneous
Outline of chapter
1195. Chapter 7 of this explanatory memorandum outlines provisions which
deal with regulation-making powers and administration matters
established in Chapter 7 of the National Consumer Credit Protection
Bill 2009 (Credit Bill).
Summary of new law
1196. The miscellaneous provisions contain standard administration and
machinery type provisions that enable the effective operation of
the Credit Bill. The provisions include (but are not limited to)
the following matters:
. circumstances in which a person will be liable for the
conduct of others;
. review by the Administrative Appeals Tribunal (AAT) of
decisions made by the Australian Securities and
Investments Commission (ASIC);
. the making of regulations; and
. other miscellaneous provisions such as Ministerial
delegations.
Detailed explanation of new law
Part 7-1 - Miscellaneous
Division 2 - Liability of bodies corporate and persons for conduct
of their agents etc.
1197. There are certain circumstances which deal with the liability of
bodies corporate under the Credit Bill and the conditions in which
liability may be imposed on a body corporate where conduct is
engaged in on behalf of a body corporate. In particular, conduct
engaged in, by an officer, employee or agent of the body corporate
(or by a person at the direction or with the consent or agreement
of the officer, employee or agent) is taken to have been engaged in
by the body corporate, provided the conduct is within that person's
actual or apparent authority. [Part 7-1, Division 2, section 324]
1198. Similarly, it is sufficient to show the state of mind of an
officer, employee or agent (or of a person acting at the direction
or with the consent or agreement of the officer, employee or
agent), to establish the state of mind of the body corporate.
[Part 7-1, Division 2, subsection 323(3)]
1199. Part 2.5 of Chapter 2 of the Criminal Code, which deals with
corporate criminal responsibility, does not apply to an offence
under the Credit Bill [Part 7-1, Division 2, subsection 323(4)].
An equivalent provision, which provides for the liability of bodies
corporate under the Credit Bill, is applied to liability for
principals which would cover sole traders and partnerships. [Part
7-1, Division 2, section 325]
1200. Regulations may modify this Division for the purposes prescribed in
the regulations. [Part 7-1, Division 2, section 326]
Division 3 - Review of ASIC's decisions
1201. Division 3 provides for a review by the AAT of a decision made by
ASIC other than:
. a decision made by ASIC dealing with approved codes of
conduct; or
. a decision to make a determination.
[Part 7-1, Division 3, subsection 327(1)]
1202. The review by the AAT is a de novo review on the merits of the
decision of the original decision-maker and empowers the AAT to
exercise all the powers and discretions that are conferred on the
original decision-maker. [Section 43 of the Administrative Appeals
Tribunal Act 1975]
1203. Section 27A of the Administrative Appeals Tribunal Act 1975, which
requires a notice of decision and review rights to be given to a
person affected by the decision, does not apply to decisions made
under section 327 of the Credit Bill. [Part 7-1, Division 3,
section 327(2)]
1204. Where an ASIC decision is reviewable, persons whose interests are
affected by the decision must be informed of the making of the
decision and review rights relating to the decision. All
reasonable steps in the circumstances must be taken to inform the
person [Part 7-1, Division 3, subsections 328(1) and (2)].
However, a failure to do so does not invalidate the decision.
[Part 7-1, Division 3, subsection 328(5)]
1205. ASIC is not required to give notice to a person affected by the
decision. In deciding not to do so, ASIC may have regard to:
. the cost of giving notice to the person or persons; and
. the way in which the interests of the person or persons
are affected by the decision.
[Part 7-1, Division 3, subsection 328(3)]
1206. A determination made by ASIC to not give a notice to a person
affected by the decision is not a legislative instrument. This
statement is merely declaratory of the law, consistent with section
5 of the Legislative Instruments Act 2003. [Part 7-1, Division 3,
subsection 328(4)]
Division 4 - Regulations
1207. The Governor-General may make regulations prescribing matters that
are required or permitted by the Credit Bill or matters that are
necessary or convenient to be prescribed for the purpose of
carrying out or giving effect to the Credit Bill. [Part 7-1,
Division 4, section 329]
1208. Regulations may prescribe the location for where court proceedings
in relation to matters relating to credit contracts and consumer
leases must be brought. [Part 7-1, Division 4, section 330]
1209. In adopting the old Credit Code on a national basis, the new Credit
Code's jurisdiction is no longer limited to the State and Territory
where the contract was made. This could make it difficult for
consumers in another jurisdiction to respond to, or engage with
those proceedings; and may cause particular vulnerabilities for
debtors who could not afford or have the capacity to challenge a
proceeding in another jurisdiction. Hence, the need to make
regulations about the above matters.
1210. Regulations may provide for a person who is alleged to have
contravened a civil penalty provision to pay a penalty to the
Commonwealth as an alternative to civil proceedings; and that the
penalty must not exceed one fortieth of the maximum penalty that a
court could impose. [Part 7-1, Division 4, subsections 331(1) and
(2)]
1211. In the case of alleged contraventions of strict liability offences,
infringement notices may be issued as an alternative to
prosecution. A detailed explanation of the operation of section
331 is provided in Chapter 4 of this explanatory memorandum.
[Part 7-1, Division 4, subsection 331(3)]
1212. The value of the infringement notices is limited to one-fifth of
the maximum the court could impose for the offence. [Part 7-1,
Division 4, subsection 331(4)]
Division 5 - Other miscellaneous provisions
1213. A person is taken to have contravened a civil penalty provision or
committed an offence, if that person, does or omits to do, an act
outside this jurisdiction; and if that person had done, or omitted
to do, that act in this jurisdiction, the person would, by reason
of also having done, or omitted to do, an act in this jurisdiction,
have contravened a civil penalty provision or committed an offence
against the Credit Bill. [Part 7-1, Division 5, subsection 332]
1214. A failure to comply with any requirement of the Credit Bill does
not affect the validity or enforceability of any transaction,
contract or other arrangement. [Part 7-1, Division 5, subsection
333(1)]
1215. This is subject to any express provision to the contrary in the
Credit Bill or proposed regulations including regulations made
specifically for this purpose. [Part 7-1, Division 5, subsection
333(2)]
1216. There are certain circumstances under which a provision of a
contract or other instrument is void. In particular, provisions
which seek to modify the effect of the Credit Bill or to indemnify
certain classes of persons from loss or liability arising under the
Credit Bill are void. For example, a credit provider, mortgagee,
beneficiary of a guarantee or lessor who is a party to such a
provision commits an offence. The criminal penalty for the offence
is a maximum of 100 penalty units. [Part 7-1, Division 5,
subsections 334(1) to (3)]
1217. This offence also carries strict liability [Part 7-1, Division 5,
subsection 334(4)]. This strict liability will significantly
enhance the role of ASIC in administering the enforcement regime.
[Part 7-1, Division 5, subsection 334(5)]
1218. Subsection 324(2) does not prevent a credit provider from enforcing
a guarantee relating to liabilities under a credit contract that is
unenforceable solely because of the debtor's death, insolvency or
incapacity. [Part 7-1, Division 5, subsection 334(5)]
1219. Subject to the abovementioned contracting out provision, any
indemnity for any liability under the Credit Bill is not void, nor
can it be declared void on the grounds of public policy, despite
any rule of law to the contrary. However, this does not apply to
indemnities from liabilities under the Credit Code. [Part 7-1,
Division 5, section 335]
1220. It is not anticipated that the treatment of existing rights under
the Credit Bill will result in any acquisition of property other
than on just terms for the purposes of paragraph 51(xxxi) of the
Constitution. However, for the avoidance of doubt, a provision has
been included to ensure that an acquisition for the purposes of
paragraph 51(xxxi) cannot take place. To the extent that an
acquisition of property other than on just terms would occur by
virtue of a provision of the Credit Bill (when enacted), the
relevant law or instrument is taken not to apply. [Part 7-1,
Division 5, section 336]
1221. The Minister may delegate their functions and powers under the
Credit Bill to a member or staff member of ASIC. Any such delegate
must comply with any directions of the Minister in performing
function or exercising powers under the delegation. [Part 7-1,
Division 5, section 337]
Chapter 8
National Credit Code
Outline of chapter
1222. Chapter 8 of this explanatory memorandum relates to the National
Credit Code (Code), which is Schedule 1 to the National Consumer
Credit Protection Bill 2009 (Credit Bill).
1223. The National Credit Code provides a consumer protection framework
for consumer credit and related transactions. It largely
replicates the Uniform Consumer Credit Code (UCCC), enacted in the
Consumer Credit (Queensland) Act 1994 (Qld) and applied in States
and Territories since 1996. The Code also includes amendments to
enable to UCCC to operate effectively in Commonwealth context.
1224. As the Code largely replicates the UCCC, the objectives of the
regime remain the same as those when the UCCC was first enacted.
Namely, to ensure strong consumer protection through 'truth in
lending', while recognising that competition and product innovation
must be enhanced and encouraged by the development of non
prescriptive flexible laws.
1225. The Code regulates many aspects of the provision of certain types
of credit, including upfront and ongoing disclosure obligations,
changes to the credit contract, advertising and marketing
requirements, termination of the credit contract and penalties and
remedies. The Code also regulates consumer leases.
Context of amendments
1226. The UCCC previously formed part of a legislative scheme that was
based on the Uniform Credit Laws Agreement 1993 of the States and
Territories. Under this Agreement, the States and Territories
agreed to adopt uniform consumer credit laws throughout Australia
based on template legislation to be enacted by the Queensland
Parliament. In 1994, Queensland enacted the Consumer Credit
(Queensland) Act 1994 (Qld), with the UCCC set out as an appendix
to this legislation. All States and Territories then passed
enabling legislation which adopted the template legislation and
applied it in the State or Territory as 'in force from time to
time'. Any amendments to the UCCC were only required to be made to
the template legislation and applied automatically in other States
without amendment to those States' enabling Acts. Slightly
different arrangements existed in Tasmania and Western Australia
although the outcomes were the same.
1227. The approach of the Code is for it to be as similar to the UCCC as
is practicable, except where the Commonwealth has specifically
decided to amend or extend its operation. To achieve this, the
Code is contained in a schedule to the Credit Bill and, where
possible, the same interpretative provisions that applied to the
UCCC now apply to the Code.
1228. Amendments to the Code can be generally grouped into three
categories:
. amendments reflecting new Commonwealth policy regarding
the regulation of consumer credit (for example, increasing
the threshold for access to hardship variations and stays
of enforcements, extending the Code to credit for the
purchase, renovation, improvement or refinancing of
residential investment property and changes to the
debtor's residency requirement);
. amendments to reform mandatory comparison rates, default
notices and address several fringe lending practices
previously agreed to, but not legislated, by the States;
and
. amendments required to replicate UCCC as Commonwealth
legislation (for example, changes to ensure consistency
with the Commonwealth drafting style, changes to comply
with Commonwealth policy, and removal of State
references).
Summary of new law
1229. The provisions in the Code broadly cover the following areas:
. scope and application of the Code - including credit to
which the Code applies and does not apply, deemed credit
contracts and when the Code is presumed to apply;
. entering into a credit contract - including contractual
and pre-contractual form and disclosure requirements as
well as restrictions on interest, fees and charges;
. the life of the credit contract - including provisions for
unilateral and agreed changes to obligations as well as
changes on account of hardship experienced by the debtor
or harsh or unconscionable conduct by the credit provider;
. continuous disclosure - including obligations for credit
providers to give statements of account which includes
specific information, copies of documents and other
notices, and payout figures;
. terminating a credit contract - including when a debtor
may end a credit contract, a credit provider's enforcement
rights and obligations, and enforcement procedures for
mortgaged goods;
. related mortgages and guarantees - provisions dealing with
security for regulated credit contracts, including
requirements to ensure security holders' rights are not
all encompassing, and prohibition on certain securities;
. breaches - including penalties and offences;
. related sale contracts - provisions creating liability for
linked credit providers;
. credit related insurance - including restrictions on
financing insurance premiums, limits on commissions paid
by an insurer and provisions automatically terminating an
insurance contract where credit contract is terminated;
. advertising and marketing - including interest rate and
comparison rate disclosure requirements as well as
restrictions on false or misleading representations,
harassment and credit hawking; and
. consumer leases - form and disclosure requirements,
application of other provisions of the Code (for example,
variation on hardship grounds and where a transaction is
unjust) and when consumer leases can be ended.
Amendments reflecting new Commonwealth policy
Increased threshold for access to hardship variations and stays of
enforcements
1230. In transferring the consumer credit regime to the Commonwealth, the
Government has increased the threshold under which a debtor can
request a change to certain terms of their credit contract on the
grounds of hardship to $500,000 (or higher as specified in the
regulations). The increase in threshold enables more consumers to
apply for changes to the terms of their credit contract when in
financial hardship, for example, because of illness or
unemployment. This increased threshold also applies to request
stays of enforcement.
1231. The UCCC thresholds were set at 110 per cent of the average loan
size for new dwellings in New South Wales (which changes monthly
and was, for example, $342,870 for 10 June 2009 to 7 July 2009).
Extension of the Code to credit for residential investment property
1232. The Government has also extended the Code to apply to credit
provided to individuals and strata corporations to purchase,
renovate, improve or refinance residential property for investment
purposes.
1233. This is achieved by amending section 6 of the UCCC, now section 5
of the Code, which relates to the provision of credit to which the
Code applies.
1234. Residential property is defined in section 204 to include:
. land that contains or will contain a dwelling;
. certain Crown leases or licences where the land contains
or will contain a dwelling;
. interests in a share company which owns the land (that
contains or will contain a dwelling) where the individual
has a right to occupy the dwelling;
. aged care homes or dwellings in a retirement village; or
. an equity of redemption in land that contains or will
contain a dwelling.
1235. For the Code to apply, the property must be wholly or predominately
used (or intended to be used at some future time) as residential
property.
Replacement of debtor's residency requirement
1236. In determining whether the Code applies, the UCCC requirement for
the debtor to be a resident has not been retained. The residency
requirement in the UCCC was primarily used to determine which State
or Territory had jurisdiction, which is not required under
Commonwealth jurisdiction.
1237. For the purposes of applying the Code, the debtor's residency
requirement has been replaced with a jurisdictional test that
examines whether the credit provider carries on business in
Australia.
1238. A business is taken to be 'carried on in this jurisdiction' where a
person engages in conduct that is intended to induce people in
Australia to use the goods or services the person provides, or is
likely to have that effect. This is intended to capture credit
providers who do not have a physical presence in Australia but may
use the internet or intermediaries to offer consumer credit
products to persons in Australia. [Credit Bill, Part 1-2, Division
4, section 12]
Amendments previously agreed to by the States
National Competition Policy Review recommendations
1239. After the Council of Australian Governments (COAG) agreements, but
prior to the transfer of credit to the Commonwealth, legislation to
implement key recommendations of the National Competition Policy
Review of the UCCC was passed through the Queensland Parliament.
1240. The Justice Legislation Amendment Act 2008 (Qld) ensures that
consumers of 'terms sale of land contracts', 'conditional sale
agreements' and 'tiny terms contracts' have the protections of the
UCCC.
. 'Terms sale of land contracts' are contracts for the sale
of land where the purchase price is payable to the vendor
in instalments and the vendor allows the purchaser to take
possession of the land but retains title until payment of
the final instalment is made.
. 'Conditional sale agreements' are contracts where the
purchase price is payable in instalments and the seller
allows the purchaser to take possession of the goods but
retains title until payment of the final instalment.
. 'Tiny terms contracts' are contracts where the cost of
credit is incorporated into the cash price and the
transaction is represented as a sale of goods by
instalment (without any credit charges or interest).
1241. These amendments commenced on 22 May 2009.
Amendments being progressed by the States
1242. Prior to the COAG agreement, the Ministerial Council on Consumer
Affairs (MCCA) had consulted on, and agreed to, a range of
amendments in relation to fringe lending, default notices and
mandatory comparison rates. However, given the proposed timing of
the introduction of those amendments would have overlapped with the
development of the Commonwealth regime, MCCA requested that the
amendments instead be progressed as part of the transfer of
regulatory responsibility to the Commonwealth.
1243. These amendments, as contained in the draft Consumer Credit Code
Amendment Bill 2008 (Qld), have been largely incorporated by the
Commonwealth. The main changes cover:
. The provision of credit to which the Code does not apply
- Subsections 6(2) and (3) have been inserted to address
fee structures aimed at avoiding the fees and charges
limit for exempt short-term credit by capturing fees and
charges paid to parties other than the credit provider.
- The exemption for pawnbroking in subsection 6(9) is
limited to persons genuinely conducting a pawnbroking
business by ensuring that where a debtor is in default
the pawnbroker's only recourse is against the pawned
goods.
. The presumption relating to the application of the Code
- The presumption in section 11 of the UCCC, now
section 13 of the Code, has been amended to address
abuses of the declaration that allowed credit providers
to avoid the UCCC. Specifically, the amendment
addresses the situation where credit is being provided
wholly or predominantly for personal, domestic or
household use, or in relation to a residential
investment property, and the lender fails to enquire as
to the purpose of the credit because it does not want to
hear an inconvenient answer.
- The aim of the amendment is to make the business purpose
declaration presumptive rather than conclusive. Further
changes have been made to those proposed by Queensland
to minimise the circumstances in which declarations can
be used as an avoidance mechanism. Credit providers
will still be able to have the benefit of the
presumption in situations where the purpose of the
credit is ambiguous.
. Prohibited securities
- Section 50, formerly section 46 of the UCCC, is amended
to prohibit the taking of security over essential
household goods or certain property used by the
mortgagor in earning income by personal exertion.
. Comparison rate schedules
- The operation and application of comparison rates has
been amended.
. Default notice amendments
- Section 88 has been amended to impose new default notice
requirements before a credit provider can enforce a
credit contract or a mortgage against a defaulting
debtor or mortgagor. New requirements for default
notices include:
- specifying a period for remedying the default;
- specifying the date after which enforcement proceedings
may begin;
- specifying any information prescribed by regulations
about the credit provider's approved external dispute
resolution scheme or the debtor's rights under the
scheme; and
- specifying the debtor's debt may be included in a credit
reporting agency's credit information file if the debt
remains overdue for 60 days or more.
. Mortgagor's remedies
- The Code inserts new provisions (sections 108 to 110)
dealing with a mortgagor's remedies. These amendments
give a mortgagor additional rights against a credit
provider who is seeking to recover enforcement expenses
when in breach of requirements that must be met before a
credit contract or mortgage can be enforced.
- The new sections will enable a mortgagor to apply to the
Court to regain possession of the goods; apply to the
Court for an order for possession for mortgagor; and
apply to the Court for other ancillary or consequential
orders.
Amendments to transition the UCCC into Commonwealth legislation
1244. In addition to the abovementioned amendments, a number of technical
amendments were required to make the UCCC operate in the
Commonwealth jurisdiction. These cover two broad categories:
. to be consistent with the Commonwealth style (first type
of amendments - see paragraph 8.24);
. to make the Code work, or work more effectively, in the
Commonwealth context (second type of amendments - see
paragraph 8.25).
Consistency with the Commonwealth legislative style
1245. The first type of amendments is to ensure the Code is consistent
with the Commonwealth legislative style. For example:
. changing references to 'maximum penalty' to 'penalty';
. changing references from the higher unit of a provision to
the lower unit (for example, changing 'section 62(3)' to
'subsection 62(3)');
. changing references to 'is guilty of an offence' to
'commits an offence'; and
. changing section references to deal with differences in
the Commonwealth and State numbering systems.
Work effectively in the Commonwealth context
1246. The second type of amendments are those required to make the UCCC
work in the Commonwealth context. Examples of this type are:
. changing references to 'Government Consumer Agency' to the
'Australian Securities and Investments Commission (ASIC)';
. removal of references to 'Queensland', the 'Legislative
Assembly' or 'Queensland Acts';
. replacing transitional provisions relevant to Queensland
with Commonwealth transitional provisions;
. the classification of certain offences as strict liability
in bringing the UCCC into the Commonwealth jurisdiction,
so as to maintain the current operation and policy
intention of these offences; and
. changes that result from interaction between the UCCC and
other Commonwealth legislation (for example, Acts
Interpretation Act 1901, the Crimes Act 1914, the Criminal
Code, the Electronic Transactions Act 1999, the Trade
Practices Act 1974 and the Legislative Instruments
Act 2003).
Comparison of key features of new law and current law
|New law (the Code) |Current law (the UCCC) |
|The Code largely |The UCCC regulates many |
|replicates the UCCC. |aspects of the provision |
|The Code also applies to |of credit for personal, |
|credit for the purchase, |domestic or household |
|renovation, improvement |use, including upfront |
|or refinancing of |and ongoing disclosure |
|residential property for |obligations, changes to |
|investment purposes. |the credit contract, |
| |advertising and marketing|
| |requirements, termination|
| |of the credit contract |
| |and penalties and |
| |remedies. |
| |The UCCC includes |
| |amendments made by the |
| |Justice Legislation |
| |Amendment Act 2008 (Qld),|
| |which implements the key |
| |recommendations of the |
| |National Competition |
| |Policy Review. |
| |The UCCC also governs |
| |consumer leases. |
|The threshold has been |Under the UCCC, the |
|increased to $500,000. |threshold for hardship |
| |variations and stays of |
| |enforcement was 110 per |
| |cent of the average loan |
| |size for new dwellings in|
| |New South Wales (that is,|
| |$342,870 for 10 June 2009|
| |to 7 July 2009). |
|In the context of |The debtor was required |
|determining whether the |to be a resident of an |
|Code applies, a |Australian state or |
|jurisdictional test that |territory for the UCCC to|
|examines whether the |apply. |
|credit provider carries | |
|on business in Australia | |
|is used. | |
|This replaces the | |
|residency test as | |
|determining State or | |
|Territory jurisdiction is| |
|not an issue under | |
|Commonwealth | |
|jurisdiction. | |
|The Code includes a range|No equivalent. |
|of amendments in relation| |
|to fringe lending that | |
|were agreed by MCCA to be| |
|implemented during the | |
|transfer of credit to the| |
|Commonwealth. | |
|A range of other |No equivalent. |
|technical changes to | |
|translate the UCCC into | |
|Commonwealth legislation.| |
Detailed explanation of new law
Part 1 - preliminary
1247. Part 1 sets out the preliminary matters of the Code. Consistent
with the policy objectives of the UCCC, the Code applies to all
credit provided to individual debtors and strata corporations
wholly or predominantly for personal, domestic or household
purposes whenever any type of charge is made for the credit. There
are no thresholds or ceilings such as an upper monetary limit or a
minimum interest rate before the Code applies.
1248. Unlike the UCCC, Part 1 extends application of the Code to credit
provided to individuals or strata corporations for the purchase,
renovation, improvement or refinancing of residential property for
investment purposes.
Meaning of key words and expressions
Credit and amount of credit
1249. Section 3 defines 'credit' and 'amount of credit' in the same way
as section 4 of the UCCC. For the purposes of the Code, credit is
the deferral of the payment of debt or the incurring of deferred
debt, and amount of credit is the amount of debt actually deferred.
[Schedule 1, Part 1, section 3]
Credit contract
1250. Credit contract is defined in section 4 as a contract under which
credit may be provided to which the Code applies. [Schedule 1,
Part 1, section 4]
Other key terms
1251. Part 13 defines other words and expressions used in the Code. This
replicates (with some amendment) Schedule 1 of the UCCC. Other
miscellaneous provisions relating to the interpretation of the Code
are contained in Part 14. [Schedule 1, Part 1, section 2]
Credit to which the Code applies
1252. Section 5 sets out the circumstances in which the Code will apply
to the provision of credit (and to credit contracts and related
matters):
. the debtor is a natural person or a strata corporation
[Schedule 1, Part 1, paragraph 5(1)(a)];
. the credit is provided or intended to be provided wholly
or predominantly for:
- personal, domestic or household purposes [Schedule 1,
Part 1, subparagraph 5(1)(b)(i)]; or
- the purchase, renovate, improve or refinance of a
residential investment property [Schedule 1, Part 1,
subparagraphs 5(1)(b)(ii) and (iii)];
. a charge is or may be made for the credit [Schedule 1,
Part 1, paragraph 5(1)(c)]; and
. the credit provider provides credit as part of a business
carried on in Australia of providing credit or as part of
or incidentally to any other business of the credit
provider. A credit provider need not be a bank or
financial institution. [Schedule 1, Part 1, paragraph
5(1)(d)].
1253. It is specified that investment by the debtor is not a personal,
household or domestic purpose. This means that a purpose that can
be characterised as being for both an investment purpose or a
personal, household or domestic purpose is excluded from the
application of the Code. [Schedule 1, Part 1, subsection 5(3)]
1254. The predominant purpose for which credit is provided is
specifically defined as:
. the purpose for which more than half of the credit is
intended to be used; or
. if the credit is intended to be used to obtain goods or
services, and those goods or services will be used for
different purposes, the purpose for which the goods or
services are intended to be most used. [Schedule 1, Part
1, section 4]
1255. The question of whether or not credit is provided or intended to be
provided wholly or predominantly for a purpose which will result in
the credit being regulated by the Code is to be determined
consistently with the objectives of the Code. It would not be
expected that it can be resolved simply by considering either the
actual use of the credit by the borrower or by the purpose of the
credit provider.
1256. Whether or not the credit provider provides credit as part of or
incidentally to any other business of the credit provider is to be
determined according to the connection between the 'other business'
and the provision of credit. For example, in Dale v Nichols
Constructions Pty Ltd [2003] QDC 453 the connection was established
because the working capital of a construction business, when
available, was used as the source of funds for credit.
Credit to which the Code does not apply
1257. Section 6 sets out the kinds of credit to which some or all of the
provisions of the Code do not apply. These include short-term
credit, credit without prior agreement, credit provided under bill
facilities, credit provided by pawnbrokers and trustees of estates
(however, sections 76 to 81 regarding reopening unjust transactions
apply) and certain employee loans, as well as certain other
specified kinds of credit. [Schedule 1, Part 1, section 6]
1258. The exemptions reflect the fact that these contracts provide
benefits to the debtor (that Code credit does not) and their
availability is restricted so that they do not affect competition.
1259. Credit under a continuing credit contract is also exempt under
subsection 6(5) if the only charge that is, or may be made, is a
periodic or other fixed charge that does not vary according to the
amount provided. However, the Code does apply where the charge
exceeds the prescribed maximum [Schedule 1, Part 1, subsection
6(5)]. It is intended that a regulation will be made which
replicates the following prescribed maximum charges under the UCCC:
. $200 - for the months after the credit contract is made;
and
. $125 - for any subsequent period of 12 months.
1260. Margin loans are also excluded from the Code as they are proposed
to be regulated as a financial product under Chapter 7 of the
Corporations Act 2001. [Schedule 1, Part 1, subsection 6(12)]
1261. Subsection 6(13) enables other classes of credit to be excluded by
regulation from all or any provision of the Code [Schedule 1, Part
1, subsection 6(13)]. It is intended that regulations will be made
to replicate the exclusions of the following classes of credit
under the UCCC:
. credit that does not exceed $50;
. credit under the GIO Finance Limited No Interest Loan
Scheme;
. credit under the Queensland Government Rental Purchase
Plan Scheme;
. credit by a firm to a partner of the firm;
. student loans;
. certain heritage conservation loans;
. credit by an authorised deposit-taking institution that
does not exceed 62 days;
. credit to a person's estate by the estate's administrator;
. credit under the Aged Care Act 1997;
. credit by the Western Australian Firefighter's Benefit
Fund; and
. credit provided under certain charge contracts.
1262. ASIC is given power to effect exemptions and modifications to the
Code. The application of the Code can be modified or changed in
respect of:
. a provision of credit as specified by ASIC [Schedule 1,
Part 1, subsection 6(14)]; and
. the provision of a class of credit [Schedule 1, Part 1,
subsection 6(17)].
1263. An exemption of a provision of credit as specified by ASIC is
stated not to be a legislative instrument. This statement is
declaratory of the law, consistent with section 5 of the
Legislative Instruments Act 2003. [Schedule 1, Part 1, subsection
6(16)]
Mortgages
1264. Section 7 applies the Code to mortgages given by natural persons or
strata corporations which secure obligations under a credit
contract or related guarantee, but only to the extent that they do
so [Schedule 1, Part 1, section 7]. It is intended that a
regulation will be made to replicate the exemptions given to the
following mortgages under the UCCC:
. a mortgage relating to perishable goods, livestock,
primary produce or food stuffs;
. a banker's right to combine accounts; and
. a lien or charge arising by operation of any Act or law or
by custom.
Guarantees
1265. Section 8 applies the Code to guarantees given by natural persons
or strata corporations which guarantee obligations under a credit
contract, but only to the extent that they do so [Schedule 1, Part
1, section 8]. A regulation is intended to be made to replicate
the UCCC regulation that exempts any guarantee by the supplier
under a tied loan contract or tied continuing credit contract.
Deemed credit contracts
Goods leases with option to purchase
1266. A contract for the hire of goods would not ordinarily be regarded
as involving the provision of credit. However, where such a
contract has a right or option to purchase the goods and the hire
charge exceeds the cash price of the goods, it is functionally
equivalent to a credit contract to finance the price of the goods.
. Part 11 of the Code deals with leases for the hire of
goods where the hirer has no right or option to purchase
the goods.
1267. Where the lease is a credit contract because of subsection 5(1),
section 9 treats such a goods lease as a sale of goods by
instalment with a mortgage over the goods [Schedule 1, Part 1,
section 9]. A regulation is intended to be made to replicate the
UCCC regulation that prescribes the form of the terms and
conditions of the mortgage.
Contracts for the sale of land by instalments
1268. Whether or not an executory contract for the sale of land by
instalments involves the provision of credit will depend on the
form of the transaction. However, where the purchaser becomes
entitled to possession before transfer of title and is required to
make payments (the amount of which exceeds the cash price of the
land), it is functionally equivalent to a credit contract to
finance the price of the land. For the purpose of contracts for
the sale of land by instalments, payments do not include deposits
or rent payments.
1269. Section 10 applies the Code to sale of land by instalments
contracts by treating them as credit contracts. [Schedule 1, Part
1, section 10]
1270. The amendment clarifies the application of the Code to executory
contracts for the sale of land by instalments. It was always
intended that these transactions would be regulated where they
involved the provision of credit (as illustrated by the decision in
Director of Consumer Affairs v Geeveekay Pty Ltd [2006] VCAT 793).
The amendment ensures that irrespective of the legal structure
these transactions are regulated by the Code where the purchaser
becomes entitled to possession before transfer of title and is
required to make payments that exceed in total the cash price of
the land. A transaction of this type is functionally equivalent to
a credit contract to finance the price of the land, and the
amendment ensures that purchasers of land in this way will be
treated similarly.
Contracts for the sale of goods by instalments
1271. Whether or not a contract for the sale of goods by instalments
involves the provision of credit is not necessarily
straightforward, particularly where the purchase price of the goods
is payable by instalment and the total amount payable is in excess
of the cash price of the goods. A transaction structured in this
way is functionally equivalent to a credit contract to finance the
price of the goods. This provision is not intended to regulate lay-
by contracts, where the requirement to make payments is not a
deferred debt within the meaning of section 4.
1272. Section 11 applies the Code to contracts for the sale of goods by
instalments by treating them as credit contracts. [Schedule 1,
Part 1, section 11]
Contracts for the sale of goods by instalments under related
contracts
1273. A contract for the sale of goods by instalments under a related
contract would not ordinarily be regarded as involving the
provision of credit. However, where the charge exceeds the cash
price of the goods under the contracts, it is functionally
equivalent to a credit contract to finance the price of the goods.
1274. A related contract is one where credit finances the sale of the
goods where amounts are payable by instalments and the credit
provider is the supplier of the goods (or a related body
corporate).
1275. Section 12 has the effect of applying the Code to contracts for the
sale of goods by instalments under related contracts by treating
them as credit contracts. [Schedule 1, Part 1, section 12]
Presumptions
1276. Section 13 does not replicate section 11 of the UCCC. It has been
amended to address abuses associated with the use of the
declaration to create a conclusive presumption the credit was not
regulated by the Code, notwithstanding that the credit was applied
for a personal use. The avoidance of the Code in this way has
often been associated with the practice of 'equity stripping' where
borrowers in financial stress are refinanced into loans they can
not afford, in order for a broker or intermediary to earn
substantial fees.[3]
1277. Section 13 sets out presumptions relating to the application of the
Code to credit contracts, mortgages and guarantees. In any court
proceedings it places the onus of proof on a person who seeks to
claim that the Code does not apply. [Schedule 1, Part 1,
subsection 13(1)]
1278. However, it is to be presumed that the Code will not apply where
the debtor, before entering into the contract, signs a declaration
that the credit is not to be used for a personal, domestic or
household purpose or to purchase, renovate, improve or refinance a
residential property for investment purposes (a Code purpose).
[Schedule 1, Part 1, subsection 13(2)]
1279. Under the UCCC the presumption was conclusive, except in limited
circumstances. The decisive effect of the presumption enabled
credit providers to rely on it as an effective means of excluding
the application of the UCCC; borrowers were not readily able to set
side the effect of the declaration as they needed to argue that the
credit was for personal use, and therefore that they had signed a
false declaration.
1280. The result was that the declaration could be largely relied upon by
credit providers to prevent borrowers being able to exercise rights
under the UCCC, even where the credit was used for personal,
domestic or household purposes. It was for this reason that
declarations were utilised in 'equity stripping' lending practices,
and by other lenders seeking to avoid the Code.
1281. In State of Queensland v Ward and Another [2002] QSC 171. Ambrose
J said at paragraphs [25] and [35]:
'... it was the terms of section 11 of the Code which induced Shark
[the lender] to adopt a business practice of persuading some
potential borrowers to sign a declaration that the money they
borrowed from Shark was intended wholly or predominately for
business purposes ... some of the loans which have been canvassed
were accompanied by a declaration executed by the borrower in the
form to which I have referred. In many of them, neither Shark nor
the borrower believed that the money lent was advanced for any
business or investment purpose. The whole exercise in my view was
merely a step taken to avoid impact of the Code upon money lent for
non-business/investment purposes with a wink and a nod on the part
of both lender and borrower the object of the lender merely being
to evade its constraints'.
1282. In order to address this situation it is now provided that the
declaration will be ineffective:
. if the credit provider or a prescribed person:
- knew or had reason to believe; or
- if they had made reasonable inquiries, would have known
or had reason to believe; and
. the credit was in fact to be applied wholly or
predominantly for a Code-regulated purpose.
[Schedule 1, Part 1, subsection 13(3)]
1283. It is proposed therefore to define a prescribed person in the
regulations in such a way that a credit provider can protect itself
from the risk of the declaration being set aside by obtaining the
declaration itself. However, where a third party is involved in
arranging or obtaining the declaration their knowledge will be
relevant to the question of whether the presumption can be
displaced.
1284. This amendment will provide an effective response to the problems
previously associated with the abuse of declarations as:
. where, before the contract was entered into, the credit
was to be applied for a Code purpose it would be unlikely
that this would not be known or ascertainable by
reasonable inquiry by the credit provider; and
. credit providers who do not make any reasonable inquiries
into the use of the credit will find it difficult to rely
on a declaration where the credit was in fact applied for
a Code purpose.
[Schedule 1, Part 1, subsection 13(4)]
1285. It is specifically provided that if a declaration is ineffective
under subsection 13(4), that paragraph 5(1)(b) of the Code is taken
to be satisfied in respect of the contract, that is, the borrower
does not still need to establish that the credit was provided for a
Code purpose. The Code still may not apply to the credit contract,
but only where it fails to meet some other criteria.
1286. An offence for inducing a person to make a false or misleading
business purpose declaration has been inserted as there was no
penalty in the UCCC which applied in these circumstances. The
penalty for this offence is 100 penalty units, two years
imprisonment, or both. The strict liability attached to this
penalty will significantly enhance the role of ASIC in enforcing
the provision. [Schedule 1, Part 1, subsection 13(7)]
1. : Whether the lender made reasonable inquiries
The borrower obtains a loan of $250,000 from Lender A, with
$200,000 used to pay out their existing home loan, and with
the further $50,000 to be used for a business purpose.
Lender A makes reasonable inquiries to establish that the
$50,000 is for a business purpose, but makes no inquiries
into the purpose of the remainder of the funds. Lender A
would not meet the criteria for making reasonable inquiries.
2. : Whether the lender made reasonable inquiries
The lender receives an application submitted by a finance
broker seeking a loan of $50,000 for business purposes. The
application form is signed by the borrower and states that
the borrower has an Australian Business Number (ABN),
acquired two days before the loan application. The date an
ABN was issued can be easily checked.
The application gives no details of the business. In fact,
the borrower uses the money to pay arrears on their home
loan. It is unlikely that the lender would meet the
criteria for making reasonable inquiries if it failed to
verify the existence of any business said to be carried on
by the borrower.
Part 2 - credit contracts
1287. In achieving the policy objective of the Code, Part 2 of the Code,
which generally mirrors Part 2 of the UCCC, sets out:
. credit providers' disclosure obligations when negotiating
and making credit contracts;
. debtors' monetary obligations;
. credit providers' interest charging obligations;
. specific obligations on credit providers regarding fees
and charges; and
. credit providers' obligation to account.
Negotiating and making credit contracts
1288. Division 1 of Part 2 sets out a number of disclosure measures which
are directed at ensuring the debtor understands the terms of the
credit contract before it is entered into and that key aspects of
the contract are documented.
1289. A maximum penalty of 100 penalty units applies for contraventions
of a requirement of this Division. In bringing the UCCC into the
Commonwealth jurisdiction, this offence has been drafted as an
offence of strict liability. [Schedule 1, Part 2, section 22]
1290. Civil penalties also apply for contraventions of certain provisions
of this Division known as 'key requirements' (see Part 6).
Credit contract to be in writing
1291. A credit contract must be in writing, although the regulations may
allow other ways of making a credit contract, which do not involve
a written document. [Schedule 1, Part 2, subsection 14(1) and
section 15]
1292. The Code requires a credit contract to be in writing and sets out
the offer and acceptance process. Specifically, the provision
permits a contract to be accepted by the debtor (or an authorised
person) by accessing or drawing down credit or by some other act
that satisfies the conditions of the offer. Where a contract
consists of more than one document, only one needs be signed if the
other documents are referred to in the signed document. [Schedule
1, Part 2, subsections 14(1), (2) and (4)]
1293. The credit provider (and any associate) cannot be authorised by a
debtor to accept the offer. However, a debtor may authorise the
credit provider to debit the debtor's account. For example, this
is a common practice where the debtor is entering into a new
continuing credit contract and wishes the outstanding balance under
an existing contract to be paid out and debited to the debtor's
account under the new contract. [Schedule 1, Part 2, subsection
14(3)]
Pre-contractual disclosure
1294. Section 16 requires the credit provider to make pre-contractual
disclosures to the proposed debtor. The disclosures must include
the matters required by section 15 to be included in the contract
document [Schedule 1, Part 2, subsection 16(1)]. The pre-
contractual disclosure must occur before the contract is entered or
the debtor offers to enter into the contract, whichever occurs
first [Schedule 1, Part 2, subsection 16(2)].
1295. Some of the financial information to be included in the pre-
contractual statement must be disclosed in the format prescribed by
regulation [Schedule 1, Part 2, subsection 16(4)]. It is intended
that a regulation will be made to replicate the UCCC regulation
that prescribes the content and form requirements for pre-
contractual statements. Any changes to the pre-contractual
disclosure must be notified, in writing, to the debtor before the
contract is entered into or the debtor offers to enter into the
contract, whichever occurs first [Schedule 1, Part 2, subsection
16(7)].
1296. If the credit provider discloses the comparison rate in the pre-
contractual disclosure, it must calculate the comparison rate on
the basis prescribed by the regulations [Schedule 1, Part 2,
subsection 16(3)]. It is intended that a regulation will be made
that replicates the comparison rate formula in the UCCC regulations
as well as the accompanying warning.
1297. A credit provider must provide the debtor with an information
statement setting out their rights and obligations [Schedule 1,
Part 2, paragraph 16(1)(b)]. It is intended that a regulation will
be made that replicates the UCCC information statement.
Contract document
1298. Under section 17, the contract document must contain the following
matters:
. the credit provider's name;
. the amount of credit, with specific disclosure
requirements related to whether the amount of credit is
ascertainable. Additional disclosure requirements also
apply to credit provided by suppliers for a sale of land
or goods by instalment;
. the annual percentage rate under the contract;
. calculation of interest charges and total interest
charges;
. repayment details;
. credit fees and charges;
. changes affecting interest and credit charges;
. statement of accounts;
. default rate;
. enforcement expenses;
. details of any mortgage or guarantee;
. commissions;
. insurance financed by the contract; and
. other information prescribed by the regulations. It is
intended that a regulation will be made that replicates
the UCCC's prescribed warning about credit contracts.
[Schedule 1, Part 2, section 17]
1299. Section 18 requires a credit provider any requirements in the
regulations as to the form and expression of the contract document.
It provides that, subject to any contrary requirement in the
regulations, it may consist of one or more separate documents.
1300. Section 19 requires that any alteration to a contract document
(except alterations that reduce the debtor's liabilities) by the
credit provider after it is formed be signed or initialled by the
debtor. [Schedule 1, Part 2, section 19]
1301. Section 20 provides for a copy of the contract document to be given
to the debtor unless the debtor has already been given such a copy.
[Schedule 1, Part 2, section 20]
Termination of contract
1302. Section 21 enables a debtor to terminate a credit contract, by
written notice, before credit is provided. The provision also
clarifies that the debtor may still be charged relevant fees and
charges incurred under the credit contract before termination.
[Schedule 1, Part 2, section 21]
Division 2 - Debtor's monetary obligations
1303. Credit providers are prohibited from imposing monetary liabilities
on the debtor that are not consistent with the Code. In addition,
credit providers are prohibited from imposing charges not
authorised by the credit contract. [Schedule 1, Part 2,
subsections 23(1) and (3)]
1304. It is an offence of strict liability for a credit provider to
impose such a prohibited monetary liability or to accept or demand
money in respect of such a prohibited monetary liability. A
maximum of 100 penalty units applies. [Schedule 1, Part 2, section
24].
1305. A civil remedy is also provided (see section 111), which means any
amount required to be paid in breach of subsections 23(1) and (3)
may be recovered by the debtor. [Schedule 1, Part 2, subsections
23(2) and (4)]
1306. The credit provider must make a loan in full, either in cash or
money's worth, without deducting interest. A maximum penalty of
100 penalty units applies. This offence is one of strict
liability. A regulation is intended to be made which, like the
regulations under the UCCC, prescribes that section 25 does not
apply to the deduction of the first payment of interest charges.
[Schedule 1, Part 2, section 25]
1307. Section 26 deals with the acceptance of early payments and the
crediting of payments under the contract. The credit provider must
credit each early payment made as soon as practicable after receipt
of the payment, unless the contract prohibits the early payment and
the credit provider takes action to alert the debtor of this when
payment is made or refunds the payment to the debtor. A maximum
penalty of 100 penalty units applies. [Schedule 1, Part 2,
subsections 26(1), (2) and (4)]
1308. The offences in section 26 are offences of strict liability.
[Schedule 1, Part 2, subsection 26(3)]
1309. Credit contracts may not prohibit a debtor or guarantor from paying
out the contract at any time. [Schedule 1, Part 2, subsection
26(5) and section 82]
Division 3 - Interest charges
1310. The following expressions used in the Code are defined in section
27:
. 'annual percentage rate';
. 'daily percentage rate';
. 'default rate';
. 'unpaid balance'; and
. 'unpaid daily balance'.
[Schedule 1, Part 2, section 27]
1311. Section 28 limits the amount of interest charges payable under a
contract to the amount derived by applying the daily percentage
rate to unpaid daily balances. [Schedule 1, Part 2, section 28]
1312. A credit provider may not, under section 29, require payment of (or
debit) interest in advance. A regulation is intended to be made
that replicates the UCCC regulation which exempts the first payment
of interest charged. Interest can be debited on the last day of
the period to which the interest charge applies provided the amount
debited is not part of the unpaid daily balance for that day.
[Schedule 1, Part 2, section 29]
1313. Section 30 prohibits the credit contract from providing for a
higher rate of interest on default except when the debtor is in
default, in respect of the amount in default and while the default
continues. [Schedule 1, Part 2, section 30]
Division 4 - Fees and charges
1314. Sections 31 and 32 enable the regulations to prohibit particular
credit fees or charges and deal with the situation where fees or
charges are passed onto other parties. [Schedule 1, Part 2,
sections 31 and 32]
Division 5 - Credit provider's obligation to account
1315. Division 5 deals with the credit provider's obligations to provide
periodic statements of account to the debtor.
1316. The credit provider must provide the debtor with statements of
account. Failure to do so is an offence of strict liability. The
required frequency of these statements depends on the type of
credit provided. There are also various circumstances in which a
statement of account is not required, such as for a credit contract
with a fixed interest rate for the entire term of the contract.
[Schedule 1, Part 2, section 33]
1317. The information to be contained in a statement of account is
specified by section 34 and is:
. the period which the statement covers;
. opening and closing balances;
. credit provided during the statement period;
. identity of supplier;
. interest charges;
. fees and charges debited during the statement period;
. payments to or from account;
. amounts payable by debtor;
. insurance payments;
. alterations; and
. other prescribed information.
[Schedule 1, Part 2, section 34]
1318. Section 35 provides that the opening balance of a statement of
account must not exceed the closing balance of the previous
statement. [Schedule 1, Part 2, section 35]
1319. Section 36 requires on request the credit provider to account to a
debtor or guarantor statements of amounts owing and certain other
matters within certain timeframes. Failure to do so is an offence
of strict liability. [Schedule 1, Part 2, section 36]
1320. A statement may be provided orally, unless the request was in
writing, in which case the statement must be given in writing
[Schedule 1, Part 2, subsection 36(3)]. In the case of joint
debtors or guarantors, the statement only needs to be provided to
the requesting party [Schedule 1, Part 2, subsection 36(4)].
1321. If the statement is not provided within specified timeframes, the
Court may order the credit provider to provide a statement required
under this Division or determine the amounts in relation to which
the statement was sought. [Schedule 1, Part 2, section 37]
Disputed accounts
1322. Section 38 makes provision for a debtor to dispute accounts. A
credit provider is to give a debtor a written explanation where a
debtor disputes a particular liability, generally within 30 days of
receiving the statement of account. A credit provider must not
commence enforcement action until at least 30 days after the
written explanation is provided. Where the Court has been asked to
determine liability within 30 days of the credit provider's
explanation, the credit provider must not commence enforcement
proceedings without leave of the Court. Failure to observe this
requirement is a strict liability offence with a maximum penalty of
50 penalty units. [Schedule 1, Part 2, section 38]
Dating and adjustment of debits and credits in accounts
1323. Debits or credits made by a credit provider to a debtor's account
are taken to have been made on the date assigned to the debit or
credit and not the date on which it is processed. A credit
provider may subsequently adjust debits or credits so as to
accurately reflect the legal obligations of the debtor and credit
provider. However, in certain circumstances a debit or credit
cannot be assigned a date other than the date on which it is
processed, or on the subsequent adjustment of a debit or a credit,
or on the account balance (for example, where the assignment or
adjustment is not consistent with the credit contract). [Schedule
1, Part 2, section 39]
Certain transactions not to be treated as contracts
1324. Section 40 provides that the requirements for making new contracts
do not apply to the provision of credit by authorised deferrals or
waivers of money due under a contract, or by authorised changes to
the contract. [Schedule 1, Part 2, section 40]
Part 3 - related mortgages and guarantees
1325. Part 3, which replicates Part 3 of the UCCC, regulates the rights
of the parties to a security transaction, namely mortgages and
guarantees. The rationale behind the provisions in Part 3 is to
regulate the rights of parties between themselves according to a
single set of rules, regardless of the form of the transaction.
Part 5 of the Code deals with ending and enforcing mortgages and
guarantees.
Division 1 - Mortgages
Meaning of mortgage
1326. Division 1 applies to a mortgage (under which the mortgagor is a
natural person or a strata corporation) that secures obligations
under a credit contract or related guarantee (see section 7).
Under the Code, 'mortgage' has an extended meaning (see Part 13).
The definition catches all forms of possessory and non-possessory
security. It also catches a seller's retention of title, terms
sale of land and the conditional sale of goods. However, mortgage
does not include goods leases which are separately regulated in
Part 11. [Schedule 1, Part 2, section 41]
1327. Credit providers commit an offence when contravening this Division,
or entering into a mortgage that is, or contains a provision which
is, void or unenforceable. The offences in section 53 are strict
liability and carry a maximum penalty of 50 penalty units.
[Schedule 1, Part 2, section 53]
Requirements
1328. Section 42 requires a mortgage document to be in writing and signed
by the mortgagor. The mortgage document can be included in the
credit contract. If these requirements are not met, the mortgage
is unenforceable and the mortgagee commits an offence. These form
requirements are in addition to State and Territory laws.
[Schedule 1, Part 2, section 42]
1329. The credit provider is required to provide the mortgagor with a
copy of the mortgage after it has been made, but need not do so
where a copy has previously been provided to the mortgagor.
[Schedule 1, Part 2, section 43]
Restrictions on mortgage
1330. The Code contains a range of measures to ensure the mortgagor's
obligations are not open-ended or all encompassing. The aim of
these restrictions is to ensure that the mortgagee cannot claim, or
place restrictions on, goods or property of greater value than the
mortgagee has right to under the credit contract.
. The mortgage document must disclose or identify property
secured by it [Schedule 1, Part 2, subsection 44(1)].
. The mortgage document cannot charge all the property of
the mortgagee [Schedule 1, Part 2, subsection 44(2)].
. A mortgage over property acquired after the mortgage is
entered into is void except where the property is:
- acquired with the credit provided;
- described or identified in the mortgage;
- goods acquired in replacement for, or as additions or
accessories to, other goods subject to the mortgage
[Schedule 1, Part 2, section 45].
. A mortgage over goods supplied from time to time under a
continuing credit contract is void except where the
mortgage securing payment is over specified goods
[Schedule 1, Part 2, section 46].
. A mortgage that secures credit under another future credit
contract or future-related guarantee is unenforceable
unless the credit provider has provided a copy of the
credit contract or proposed contract, and guarantee or
proposed guarantee [Schedule 1, Part 2, section 47].
. A mortgage must not secure obligations under a credit
contract unless each mortgagor is a debtor or a guarantor
under a related guarantee [Schedule 1, Part 2, subsection
46(1)].
. A mortgage must not secure obligations under a guarantee
unless each mortgagor is a guarantor or a debtor [Schedule
1, Part 2, subsection 48(2)].
Maximum amount that can be secured
1331. Section 49 specifies the maximum amount that may be secured under a
mortgage. A mortgage is void where it secures an amount greater
than the amount of the debtor's liabilities under the credit
contract, or the guarantor's liability under the guarantee, plus
reasonable enforcement expenses. [Schedule 1, Part 2, section 49]
Prohibited securities
1332. Unless the regulations provide otherwise, a mortgage must not be
taken over employees' remuneration or employment benefits under a
superannuation scheme. [Schedule 1, Part 2, subsection 50(1)]
1333. An obligation under a credit contract cannot be secured by a
cheque, or bill of exchange or promissory note, endorsed or issued
by the debtor or guarantor. This prevents a credit provider taking
a post-dated cheque from the debtor as security for future
repayments, and using the potentially criminal consequences of
having the cheque not be paid on presentation as a threat to induce
repayment. [Schedule 1, Part 2, subsection 50(6)]
1334. A mortgage must also not be taken over goods that are essential
household goods or certain property used by the mortgagor to earn
income by personal exertion. The objective of this provision is to
address the situation where a credit provider takes a mortgage over
essential household goods and threatens repossession of the
essential household goods to obtain repayment from the borrower
rather than selling the security, which in practice would have
minimal resale value. [Schedule 1, Part 2, subsections 50(2) to
(5)]
1335. Essential household property is given the same meaning as in the
Bankruptcy Act 1966 and include property (including recreational
and sports equipment) that is reasonably necessary for the domestic
use of the bankrupt's household, having regard to current social
standards (for example, sufficient beds for the members of the
household, the only refrigerator, washing machine or television set
in the home). Antiques are excluded from the definition.
[Schedule 1, Part 2, subsection 50(8)]
Assignment or disposal of mortgaged property
1336. Section 51 prohibits the mortgagor assigning or disposing of
mortgaged property without the credit provider's consent or the
authority of the Court. Failure to observe this requirement is a
strict liability offence with a maximum penalty of 50 penalty units
applies. A creditor provider must not unreasonably withhold
consent or attach unreasonable conditions to the consent. A
condition requiring equivalent security is not unreasonable.
[Schedule 1, Part 2, section 51]
1337. A credit provider may impose any condition when consenting to any
such assignment or disposal of mortgaged property, including:
. requiring breaches of the credit contract to be remedied
[Schedule 1, Part 2, subsection 52(2)];
. requiring the mortgagor and the assignee to enter into an
agreement that the assignee agrees to pay amounts due
under the mortgage and perform all other requirements of
the mortgage [Schedule 1, Part 2, subsection 52(3)]; and
. requiring the mortgagor and assignee to pay specified
reasonable costs incurred by the credit provider [Schedule
1, Part 2, subsection 52(4)].
Division 2 - Guarantees
Meaning of guarantees
1338. Division 2 applies to a guarantee (under which the guarantor is a
natural person or a strata corporation) to the extent it guarantees
obligations under a credit contract or related guarantee (see
section 8 which sets out guarantees to which the Code applies)
[Schedule 1, Part 2, section 54]. It is intended that a regulation
will be made that replicates the exclusion under the UCCC
regulations for guarantees under dealer recourse arrangements.
1339. Credit providers commit a strict liability offence when
contravening this Division, or entering into a guarantee that is,
or contains a provisions which is, void or unenforceable. A
maximum penalty of 50 penalty units applies. [Schedule 1, Part 2,
section 62]
Requirements
1340. The Code contains a number of measures aimed at enabling guarantors
to make an informed decision about guaranteeing a credit contract
and making sure that they understand and agree to the nature and
extent of their obligations.
1341. Section 55 provides that a guarantee must be in writing and signed
by a guarantor [Schedule 1, Part 2, section 55]. It is intended
that a regulation be made that replicates the UCCC warning notice.
These form requirements are in addition to State and Territory laws
such as the Statute of Frauds.
1342. Before the guarantee is signed, the credit provider must give the
prospective guarantor a copy of the credit contract (containing the
matters that are required to be included in the contract document
by section 17). Failure to do so makes the guarantee
unenforceable. The guarantor must also be given a statutory
information statement explaining their rights and obligations
[Schedule 1, Part 2, section 56]. It is intended that a regulation
will be made that prescribes the statutory information statement
under the UCCC regulations for the purposes of the Code.
1343. Credit providers are required to provide the guarantor with a copy
of the guarantee and related credit contract within 14 days of the
guarantee being signed and provided to the credit provider. This
does not apply if copies of the respective documents were
previously provided to the guarantor. [Schedule 1, Part 2, section
57]
Guarantor's right to withdraw
1344. Section 58 enables the guarantor to withdraw from the guarantee by
giving the credit provider written notice before the credit is
first provided. The guarantor can also withdraw after credit is
first provided if the credit contract differs in some material
respect from the one given to them before signing. [Schedule 1,
Part 2, section 58]
Extension of guarantee
1345. The Code prohibits 'all accounts or blanket guarantees'. Under the
Code, a guarantee only covers liabilities under the initial debt
and any additional liability that the guarantor agrees will be
covered by the guarantee. An 'all accounts' guarantee is made
unenforceable by section 59 except to the extent the guarantor is
given a copy of the new credit contract, which is provided to be
covered by the guarantee, and accepts the extension of the
guarantee. [Schedule 1, Part 2, section 59]
Limitation of guarantor's liability
1346. Section 60 imposes the following limits on the liability of a
guarantor:
. A guarantee is void to the extent that it exceeds the
debtor's liability plus reasonable expense of enforcing
the guarantee [Schedule 1, Part 2, subsection 60(1)].
. A guarantor's liability is not affected by the debtor's
death insolvency or incapacity (provided this is covered
in the guarantee) [Schedule 1, Part 2, subsection 60(2)].
. A guarantee for the liability of a debtor under 18 years
of age may be unenforceable in certain circumstances
[Schedule 1, Part 2, subsection 60(3)].
. A guarantor may limit liabilities under a continuing
credit contract [Schedule 1, Part 2, subsection 60(4)].
. A guarantee is void to the extent it limits the
guarantor's right to indemnity [Schedule 1, Part 2,
subsection 60(5)].
. A guarantor's liabilities remain unchanged where the terms
of the credit contract are changed, unless the credit
provider gives the guarantor a written notice of the
change and obtains their acceptance to the increased
liabilities. The provision does not apply in specified
circumstances, such as an increase in repayments specified
in the contract [Schedule 1, Part 2, section 61].
Part 4 - changes to obligations under credit contracts, mortgages and
guarantees
1347. The Code contains measures governing changes in obligations under
credit contracts, mortgages and guarantees:
. made unilaterally by the credit provider;
. made by mutual agreement between the parties;
. made on account of hardship by the credit provider or by
the Court.
1348. These provisions generally replicate Part 4 of the UCCC which aim
to facilitate variations to the credit contract. Part 4 is
governed by the general principle that where the contract terms
allow, the Code does not generally restrict the change but does
require notice and a written record of the change to be given.
Division 1 - Unilateral changes by credit provider
1349. The provisions in Division 1 regulate the process where a credit
provider acts on a contractual term to unilaterally change a credit
contract, mortgage or guarantee [Schedule 1, Part 4, subsection
63(1)]. The Division makes it clear that it will not apply to:
. a change to a new annual percentage rate, which is not
determined by reference to a reference rate, if both the
new rate and time of effect are ascertainable from the
contract;
. an increase in repayments, if an automatic increase, as
specified under the contract and both the increase and
time of effect are ascertainable from the contract;
. an increase in the term of the credit contracts, if the
increase occurs only because of an increase in the annual
percentage rate or rates payable under the contract; and
. a change made under Division 3.
[Schedule 1, Part 4, subsection 63(2)]
1350. The Code does not give the credit provider any power, additional to
the contract terms, to unilaterally change a credit contract.
[Schedule 1, Part 4, subsection 63(3)]
Interest rate changes
1351. Section 64 contains procedures for notice by credit providers of
changes to annual percentage rates and changes in the manner in
which interest is calculated or applied under credit contracts.
1352. The credit provider must give written notice to the debtor of
changes in annual percentage rates no later than when the change
concerned takes effect. It is an offence not to provide this
notice, with a maximum penalty of 100 penalty units [Schedule 1,
Part 4, subsection 64(1)]. This notice requirement does not apply
to a rate determined by referring to a reference rate, if the
change is notified in a newspaper circulating throughout each State
and Territory no later than when the change takes effect [Schedule
1, Part 4, subsection 64(3)].
1353. The notice requirement in subsection 64(1) can be met by publishing
the change in a newspaper circulating throughout each State and
Territory. If notice is provided in this form, the credit provider
must give the debtor notice of the change before, or when the next
statement of account is given, after the change takes effect.
[Schedule 1, Part 4, subsection 64(2)]
1354. Notice of changes in the manner in which interest is calculated or
applied must be given at least 20 days before the change concerned
takes effect. It will be an offence not to comply with the
appropriate procedure (a maximum penalty of 100 penalty units
applies). [Schedule 1, Part 4, subsection 64(4)]
1355. The notice requirements in subsections 64(1) and (4) do not apply
to changes that reduce the obligations of the debtor. [Schedule 1,
Part 4, subsection 64(5)]
1356. The offences in subsections 64(1), (2) and (4) are offences of
strict liability. [Schedule 1, Part 4, subsection 64(6)]
Repayment changes
1357. Section 65 sets out the notice requirements where a credit provider
makes a unilateral change to the repayment obligations of the
debtor under a contract. A credit provider is required to give at
least 20 days notice in writing of:
. a change in the amount or frequency or time for payments
by the debtor; or
. a change in the method of calculation of instalments or
minimum repayments under a credit contract - this
particularly applicable to credit cards. [Schedule 1,
Part 4, section 65(1)]
1358. This requirement is modified in the following circumstances:
. where the change reduces the obligations of the debtor, or
results in an extension of time for payment - the credit
provider can give notice in the next statement of account
sent to the debtor after the change in the contract terms
[Schedule 1, Part 4, section 65(2)]; and
. where the amount or frequency or time for payments of
instalments or minimum repayments is determined according
to a calculation and only the calculation is included in
the credit contract - the credit provider is only
required to give notice of the way in which the
calculation has been changed [Schedule 1, Part 4, section
65(3)]
1359. The offences in subsections 65(1) and (2), which carry a maximum
penalty of 100 penalty units, are offences of strict liability.
[Schedule 1, Part 4, subsection 65(4)]
1360. The procedures do not apply to changes that occur while no
repayments are required to be made. [Schedule 1, Part 4,
subsection 65(5)]
Credit fees and charges changes
1361. Section 66 sets out procedures for notice by credit providers of
changes relating to credit fees or charges under credit contracts.
1362. A credit provider must give written notice to a debtor of any such
changes relating to credit fees and charges at least 20 days before
the change concerned takes effect. It is an offence not to comply
with the appropriate procedure (a maximum penalty of 100 penalty
units applies). [Schedule 1, Part 4, subsection 66(1)]
1363. The notice requirement in subsection 66(1) may be met by publishing
the change in a newspaper circulating throughout each State and
Territory. If notice is provided in this form, the credit provider
must give the debtor notice of the change before, or when the next
statement of account is given, after the change takes effect (a
maximum penalty of 100 penalty units applies). [Schedule 1, Part
4, subsection 66(2)]
1364. The notice requirements in subsection 66(1) do not apply to changes
that reduce the obligations of the debtor or extend the time for
payment. However, the credit provider must notify the debtor of
these changes before or when the next statement of account is
given, after the change takes effect (a maximum penalty of 100
penalty units applies). [Schedule 1, Part 4, subsection 66(3)]
1365. The offences in section 66 are strict liability. [Schedule 1, Part
4, subsection 66(4)]
Changes to credit limits etc. in continuing credit contracts
1366. Section 67 deals with the decision by a credit provider not to
provide any further credit under a continuing credit contract and
the ability to increase credit limits.
1367. The credit contract continues in force for any credit previously
provided under the contract, noting that this provision does not
prevent termination of the credit contract if permitted by the Code
or contract. [Schedule 1, Part 4, subsection 67(1)]
1368. Notice of the decision must be given by the credit provider to the
debtor as soon as practicable after the decision is made, as well
as after any decision to reduce the overall credit limit under the
credit contract. This notice requirement does not apply if the
debtor is in default. It is a strict liability offence not to
comply with the appropriate procedure (a maximum penalty of 100
penalty units applies). [Schedule 1, Part 4, subsections 67(2) and
(3)]
1369. A credit provider cannot unilaterally increase a credit limit under
a continuing credit contract unless it is upon the request of the
debtor or with their written consent. [Schedule 1, Part 4,
subsection 67(4)]
Other unilateral changes by credit provider
1370. Section 68 prohibits a credit provider from unilaterally changing a
credit contract, mortgage or guarantee without first giving the
other party no less than 20 days written notice setting out
particulars of the change. It is a strict liability offence with a
maximum penalty of 100 penalty units. [Schedule 1, Part 4, section
68]
1371. Section 69 allows a credit provider to comply with sections 64, 65,
66 or 68, by only giving a person notice of a matter as it has been
changed, rather than particulars of the change. The credit
provider can only rely on this modification of the other provisions
where the notice to the person makes clear that the matter has
changed, or the credit provider issues to the person a new set of
terms and conditions relating to the credit contract, mortgage or
guarantee. [Schedule 1, Part 4, section 69]
1372. Unless regulations prescribe otherwise, early termination charges
or prepayment charges may also not be unilaterally increased by a
credit provider if the annual percentage rate under a contract is
currently fixed for a specified term (including the whole term) of
the contract. [Schedule 1, Part 4, section 70]
Changes by agreement of parties
1373. Section 71 sets out notice procedures for credit providers
regarding changes agreed by the parties to credit contracts,
mortgagees and guarantees. Notice of any such changes must be
given not later than 30 days after the agreement. It will be a
strict liability offence not to comply with the appropriate
procedure (a maximum penalty of 100 penalty units applies).
[Schedule 1, Part 4, subsections 71(1) and (6)]
1374. The notice requirements in subsection 71(1) do not apply where the
change defers or reduces the obligations of the debtor for a period
of not more than 90 days or to an agreement to increase the amount
of credit. [Schedule 1, Part 4, subsection 71(2)]
1375. A credit provider must also give the debtor a written notice
containing the information required by the regulations if the
parties agree to increase the credit provided under a credit
contract (a strict liability offence with a maximum penalty of 100
penalty units applies). [Schedule 1, Part 4, subsections 71(3) and
(6)]
1376. It is intended that a regulation will be made, which replicates the
UCCC, requiring the following information to be contained in the
warning notice:
. date of change in the contract;
. unpaid daily balance amount of credit increase;
. the total and to whom the amounts are payable;
. changes to the annual percentage rate;
. credit fees and charges payable after the change;
. current and future repayment details;
. any commission information under subsection 17(4); and
. any proposed increase in the term of the contract and new
expiry date for the contract.
1377. These notice provisions do not apply to changes on the grounds of
hardship and unjust transactions. [Schedule 1, Part 4, subsection
71(4)]
Changes on grounds of hardship and unjust transactions
1378. A debtor can seek the credit provider's agreement to changes to the
period of a credit contract together with postponement or
reductions of repayments, or postponement of repayments under the
contract, if the debtor:
. is unable reasonably (because of illness, unemployment or
other reasonable cause) to meet obligations under the
contract; and
. reasonably expects to be able to discharge its obligations
if the terms of the contract were changed.
[Schedule 1, Part 4, subsections 72(1) and (2)]
1379. A debtor's right to seek a change on the grounds of hardship is
limited to credit contracts under which the maximum amount of
credit does not exceed $500,000. This amount may be increased by
regulation. [Schedule 1, Part 4, subsection 72(5)]
1380. Where a debtor does seek a change on the grounds of hardship, the
credit provider must, within 21 days, respond to the application
including the reasons for rejecting the application. The credit
provider must also provide details of the external dispute
resolution scheme it is a member of, and the debtor's rights under
that scheme (a strict liability offence with a maximum penalty of
30 penalty units applies). [Schedule 1, Part 4, subsections 72(3)
and (4)]
1381. Where the credit provider agrees to the debtor's application, it
must provide a notice of the change to the debtor and guarantor no
later than 30 days after the date of the agreement (a strict
liability offence with a maximum penalty of 50 penalty units
applies). [Schedule 1, Part 4, section 73)]
1382. If the credit provider refuses an application for changes under
section 72, the debtor may apply to the Court for change the terms
of the credit contract. The Court may make orders to change the
terms of the credit contract after giving the debtor, credit
provider and any guarantor a reasonable opportunity to be heard.
The Court is also empowered to stay enforcement proceedings and to
make other orders until it determines the application. A credit
provider is entitled to apply to the Court to vary the original
order. [Schedule 1, Part 4, sections 74 and 75]
Reopening of unjust transactions
1383. The Court can reopen transactions giving rise to a contract,
mortgage or guarantee or a change to a contract, mortgage or
guarantee, if satisfied that the circumstances in which it was
entered into or changed were unjust, where unjust includes
unconscionable, harsh or oppressive [Schedule 1, Part 4,
subsections 76(1) and (7)]. However, the Court cannot reopen a
transaction on the basis of it being unjust where an application
may be made for the Court to review unconscionable interest or
other charges under section 78 [Schedule 1, Part 4, subsection
76(6)].
1384. The following principles apply to the interpretation of the term
'unjust' and the phrase 'unconscionable, harsh and 'oppressive':
. they should be given a construction consistent with the
beneficial policy intentions of the legislation;
. the meanings of each concept may overlap but each word may
also have an independent operation (so that a contract may
be unjust because a term is oppressive or burdensome but
not unconscionable); and
. the reference to 'unconscionable' encompasses both common
law and statutory unconscionability.
1385. In determining whether or not a contract, mortgage or guarantee is
unjust, the Court must have regard to the public interest. The
'public interest' is a term that can bear different interpretations
and is not fixed in meaning. In the lending context it can involve
competing interests such as:
. the need for certainty in the determination of when a
contract will be unjust (Dale v Nichols Constructions Pty
Ltd [2003] QDC 453); or
. the desirability of protecting consumers where their sole
residence is at risk (Perpetual Trustee Company Ltd v
Albert and Rose Khoshaba [2006] NSWCA 41].
1386. The Court must also consider 'all the circumstances of the case'.
This may include consideration of the following factors listed in
subsection 70(2):
. consequences of compliance and non-compliance with all of
the provisions of the contract, mortgage or guarantee;
. relative bargaining power of the parties, including
whether terms were or could be negotiated at the time of
the contract;
. whether provisions of the contract were unreasonably
difficult to comply with or not reasonably necessary for
the protection of the legitimate interests of the parties;
. impact of age or physical and mental condition on
protecting rights of the debtor, mortgagor or guarantor;
. the legibility of the contract;
. whether independent legal or other expert advice was
obtained;
. whether the terms were adequately explained and
understood;
. the adequacy of the credit provider's measures to ensure
the transaction was understood;
. whether unfair pressure, undue influence or unfair tactics
were exerted over the debtor, mortgagor, or guarantor;
. whether the credit provider could have reasonably known at
the time of entering or varying the contract that the
debtor could not pay without substantial hardship;
- An assessment by a licensee made under the obligations
of Chapter 3 of the Credit Bill may be taken into
consideration in determining whether the credit provider
could have reasonably known at the time of entering or
varying the contract the debtor could not have paid
without substantial hardship. (See Chapter 3 of the
explanatory memorandum for a detailed discussion of
these assessments);
- A contract may be found to be unjust for reasons other
than it being unsuitable for the consumer. Conversely a
not unsuitable contract may be found to be unjust.
While there are similarities in the wording between this
paragraph and the obligations in Chapter 3, it may be
that a contract will be unjust even where it is not
unsuitable, or that a contract may be unsuitable but
will not necessarily be unjust; or
- the provision applies to all payments due under the
credit contract, including balloon payments (Zhang v
Mercedes-Benz Financial Services Australia Pty Ltd
[2008] VCAT 1939);
. whether the contract terms are justified given the risk
undertaken by the credit provider;
. for a mortgage - void provisions under section 50;
. terms of other comparable transactions; and
. any other relevant factors.
[Schedule 1, Part 4, subsection 76(2)]
1387. A contract, mortgage or guarantee will not necessarily be unjust
because one or more of these criteria applies to the transaction.
Conversely it may still be unjust even where none of these factors
is made out.
1388. The application of the unjust contract provisions requires a two
step inquiry. First, the Court must determine whether the contract
is unjust; and, second, where this is the case, the Court must
decide what relief if any is appropriate. [Schedule 1, Part 4,
subsection 76(5)]
1389. The Court can only consider any injustice from circumstances that
were reasonably foreseeable when the contract, mortgage or
guarantee was entered into or changed. [Schedule 1, Part 4,
subsection 76(4)]
Orders on reopening of the transaction
1390. Where a transaction is reopened as unjust, the Court is given power
to make a range of orders that allow it flexibility in refashioning
the bargain (for example, a partial setting aside of the agreement
or varying the repayment obligations of a borrower or guarantor).
[Schedule 1, Part 4, section 77]
The Court may review unconscionable interest and other charges
1391. The Court can annul or reduce a change to the annual percentage
rate or rates under a credit contract, or annul or reduce an
establishment fee or charge or a fee or charge payable on early
termination of a credit contract or for prepayment of an amount
under a credit contract, if satisfied that it is unconscionable.
The Court may also make ancillary or consequential orders which
could result in refunded interest or fees charged. [Schedule 1,
Part 4, subsection 78(1)]
1392. The only circumstances in which a change to the annual percentage
rate or rates or a fee or charge payable on early termination or
prepayment of an amount are unconscionable are where it appears to
the Court that:
. in relation to changes to the annual percentage rate or
rates - the change is unreasonable or unjustifiably
discriminates the debtor [Schedule 1, Part 4, paragraphs
78(2)(a) and (b)]; and
. in relation to an establishment fee or charge - the fee or
charge is not equal to the credit provider's reasonable
costs, or average reasonable costs in respect of the class
of credit, of determining an application for credit and
the initial administrative costs of providing the credit
[Schedule 1, Part 4, subsection 78(3)]; and
. in relation to early termination fees or charges or
prepayment of amounts - where the fees or charges or
prepayment exceeds a reasonable estimate of the credit
provider's loss [Schedule 1, Part 4, subsection 78(4)].
Representative proceedings
1393. ASIC may make (and has standing to make) an application to the
Court in relation to an unjust or unconscionable contract if it
believes it is in the public interest. Such an action may only be
brought within two years after the relevant contract is rescinded,
discharged or otherwise comes to an end. It is not intended that
an application by ASIC would oust the rights of a debtor, mortgagor
or guarantor to bring an action; for example, if ASIC succeeds in
obtaining a declaration that certain conduct is unjust, then
individual borrowers or guarantors may be able to rely on that
finding to seek individual relief according to the facts of their
situation. [Schedule 1, Part 4, sections 79 and 80]
Joinder of parties
1394. Section 81 enables the Court to join third parties to proceedings,
if they have an interest in the profits of a credit contract or
mortgage, or a beneficial interest in a credit contract or
mortgage. The Court may make orders affecting the persons if it
holds the credit contract or mortgage to be unjust. [Schedule 1,
Part 4, section 81]
Part 5 - ending and enforcing credit contracts, mortgages and guarantees
1395. Part 5 ensures that a single set of rules applies to the
termination and enforcement of credit contracts and mortgages
regardless of the form of the transaction. The aim of the
provisions in Part 5, which largely replicate Part 5 of the UCCC,
is to ensure the credit provider is not able to make a windfall
from early termination or default by the debtor. These provisions
are related to Part 3 which contains measures regulating the form
and content of mortgages and guarantees.
Division 1 - Ending of credit contract by debtor
Debtor's or guarantor's right to pay out contract
1396. The consumer has a statutory right to pay out the credit contract
at any time, without needing to meet any formal conditions. The
Code sets out the process for calculating the pay-out figure for
fixed-term contracts. The pay-out figure includes the amount of
credit and interest and other charges but only up to the date of
termination. Reasonable enforcement expenses can be included. The
credit provider can also charge an early termination fee if the
contract provides for this. These provisions link to section 78
under which the court may set aside or vary an early termination
fee on the grounds that it is unconscionable. The pay-out figure
is reduced by any payments made and any rebate of the premium for
consumer credit insurance and mortgaged property insurance (see
section 148). [Schedule 1, Part 5, section 82]
1397. The debtor or a guarantor is entitled to a statement of the pay-out
figure for fixed-term contracts on providing a written request to
the credit provider. A credit provider must give the statement
within seven days after the request (a maximum penalty of 50
penalty units applies). The debtor or a guarantor may apply to the
Court to determine this if the credit provider does not comply.
This enables the debtor to find out exactly what is owed under the
credit contract. [Schedule 1, Part 5, sections 83 and 84]
1398. Any failure to provide the statement in accordance with the
requirements of the Code, within seven days of the request, will be
an offence of strict liability. [Schedule 1, Part 5, subsection
83(5)]
Surrender of mortgaged goods and goods subject to sale by
instalments
1399. Sometimes the seller of goods allows the buyer time to pay. In
such cases the seller remains the owner of the goods until the
final payment is made. Apart from the Code, this arrangement would
be treated differently from the case where the buyer becomes the
outright owner of the goods and gives a mortgage to secure the
purchase price, for example, the owner would retain any surplus on
sale. Consistent with the policy of treating functionally similar
arrangements alike, section 85 contains measures to ensure the same
principles apply to mortgages and sales by instalments:
. The buyer can return the goods to the credit provider or
require the credit provider to sell the goods where they
are in the credit provider's possession [Schedule 1, Part
5, subsections 85(1) and (2)].
. Where the goods are returned or the credit provider is
required to sell the goods, the credit provider must give
the debtor or mortgagor a written notice containing the
estimated value of the goods and other information
prescribed by the regulations. It is intended that a
regulation will be made that replicates the UCCC
prescribed written notice. Within 21 days after this
notice the debtor or mortgagor is entitled, on request, to
the return of the goods provided they are not in default
under the credit contract [Schedule 1, Part 5,
subsections 85(3) and (4)].
. The debtor can nominate a purchaser and the credit
provider must sell the goods for the best price reasonably
obtainable [Schedule 1, Part 5, subsections 85(5)].
. The credit provider must sell the goods (if not required
to return them) as soon as reasonably practicable (or at a
time agreed between the credit provider and the debtor or
mortgagor) for the best price reasonably obtainable
[Schedule 1, Part 5, subsection 85(6)].
. The sale proceeds (less any amounts the credit provider
can deduct) must be credited to the debtor or mortgagor.
The credit provider is entitled only to deduct from sale
proceeds [Schedule 1, Part 5, subsections 85(7) and (8)]:
- the amount required to discharge the contract or
guarantee;
- the amount payable to discharge any prior mortgage to
which the goods were subject;
- the amount payable in successive discharge of any
subsequent mortgages to which the goods were subject and
of which the credit provider had notice;
- reasonable enforcement expenses; and
- reasonable expenses relating to possession and sale of
mortgaged goods.
1400. It is a strict liability offence for a credit provider not to
comply with section 85 (a maximum penalty of 50 penalty units
applies). [Schedule 1, Part 5, subsections 85(10) and (11)]
1401. The Court may award compensation if it is not satisfied that the
credit provider sold the goods as soon as reasonably practicable
for the best price reasonably obtainable. The onus of proving that
the section was complied with is on the credit provider. [Schedule
1, Part 5, section 86]
One-off notice to be given the first time a direct debit default
occurs
1402. Many credit products are offered on the basis that the debtor
authorises repayment under a credit contract by direct debiting
amounts against an account held by the debtor. As direct debits
occur automatically at pre-arranged intervals (for example,
monthly), the debtor may not become aware that they are in default
for some time, where there are insufficient funds in the debtor's
account. This may result in the debtor accruing numerous charges
before they become aware of the default.
1403. Section 87 aims to address this issue by requiring the credit
provider to give the debtor (and any guarantor) a notice within 10
business days of the first direct debit payment failing in relation
to a direct debit instruction.
1404. Failure to do so is a strict liability offence with a maximum
penalty of 50 penalty units. The default notice must contain the
prescribed information. It is intended that a regulation will be
made that prescribes the form and information to be contained in
the direct debit default notice. [Schedule 1, Part 5, section 87]
Division 2 - Enforcement of credit contracts, mortgages and guarantees
1405. A credit provider's enforcement rights and obligations depend on
the contract and security document and general law including State
and Territory property laws. The Code overlays these rights and
obligations so that regardless of the form of the transaction, the
same outcomes occur.
1406. The Code specifically:
. sets out the default notice procedures to be followed by a
credit provider before the credit provider can begin
enforcement proceedings against a defaulting debtor or
mortgagor. Before enforcement proceedings, the credit
provider must give a default notice, which provides the
debtor or guarantor or mortgagor a period of 30 days from
the date of the notice to remedy the default. Failure to
do so attracts strict liability offence with a maximum
penalty of 50 penalty units. The default notice must
contain a number of matters under subsection 88(3)
including information prescribed by the regulations
directed at ensuring the person in default has relevant
information relating to the default, date after which
enforcement action may begin, debtors' rights and
consequences of default. It is intended that a regulation
will be made prescribing the form and information to be
included in the notice under the UCCC [Schedule 1, Part 5,
subsections 88(1) to (4)];
. sets out certain circumstances where a default notice is
not required, such as where the credit provider has made
reasonable attempts to locate the debtor or mortgagor
without success or the court has authorised the start of
enforcement proceedings [Schedule 1, Part 5, subsection
88(5)];
. provides for the right of a debtor or mortgagor to remedy
a default within the period specified in a default notice.
This has the effect of reinstating the contract or
mortgage rendering inoperative any acceleration clause
[Schedule 1, Part 5, section 89];
. sets out the procedures to be followed by a credit
provider before the credit provider can enforce a judgment
against a guarantor. Generally, the creditor provider
must obtain a judgment against the debtor which remains
unpaid for 30 days after the written demand for payment
(strict liability offence with a maximum penalty of 50
penalty units applies). There are circumstances where a
judgment is not required, such as where the debtor is
insolvent [Schedule 1, Part 5, section 90];
. prevents a credit provider from repossessing mortgaged
goods, without the consent of the Court, if the amount
owing is less than 25 per cent of the amount of credit or
$10,000 (whichever is the lesser) (a maximum penalty of
100 penalty units applies) [Schedule 1, Part 5, subsection
91(1)]. This is also an offence of strict liability
[Schedule 1, Part 5, subsection 91(3)]. This restriction
does not apply to continuing credit contracts or where the
credit provider reasonably believes:
- the debtor has or intends to remove or dispose of the
goods; or
- that urgent action is necessary to protect the goods
[Schedule 1, Part 5, subsection 91(2)];
. restricts the operation of acceleration clauses until a
default notice is provided, unless a default notice is not
required under subsection 93(2). Section 92 defines an
acceleration clause as a clause that allows the credit
provider, either on default, or at the lender's
discretion, to require repayment of the loan, therefore
requiring the debtor to pay the outstanding balance of the
loan immediately. An acceleration clause does not include
any such term in a credit contract or mortgage that is an
'on demand facility', defined in subsection 92(2). An on
demand facility is a credit contract or mortgage where the
total amount outstanding is repayable on demand by the
credit provider and no agreement, arrangement or
understanding exists that repayment will only be demanded
on the occurrence or non-occurrence of a particular event
[Schedule 1, Part 5, section 93];
. gives the debtor, mortgagor or guarantor a right to
request the credit provider to postpone enforcement
proceedings where the maximum amount of credit is not more
than $500,000 (unless the regulations set a higher
amount). The credit provider must respond to the request
within 21 days. Failure to do so attracts a penalty of 30
penalty units [Schedule 1, Part 5, section 94]. This is
an offence of strict liability [Schedule 1, Part 5,
subsection 94(3)]. Section 95 sets out the effect of the
negotiated postponement. The default notice is taken to
not have been given if the debtor, mortgagor or guarantor
complies with the conditions of postponement. Generally a
credit provider must give written notice of the agreed
conditions no later than 30 days after the agreement is
reached. Failure to do so attracts a penalty of 100
penalty units [Schedule 1, Part 5, section 95]. This is
an offence of strict liability [Schedule 1, Part 5,
subsection 95(3)]. The debtor may apply to the Court for
a postponement if unable to negotiate a postponement with
the credit provider [Schedule 1, Part 5, section 96]; or
. the credit provider may apply to the Court for a variation
to a Court order made under this Division [Schedule 1,
Part 5, section 97].
Enforcement procedures for goods mortgages
1407. The Code contains a range of consumer protection measures directed
at mortgages of goods, however, it does not regulate the
enforcement of mortgages over land, which is left to the general
law and State and Territory legislation, except where it relates to
default notices.
1408. These provisions aim to address prevalent abuses and also reflect
the fact that goods depreciate rapidly in value and therefore a
forced sale is likely to result in a substantial shortfall against
the amount of credit outstanding. The provisions:
. restrict entry to residential premises to seize mortgaged
goods, unless the occupier has given written consent to
enter or the Court has authorised entry. The regulations
may prescribe procedures for obtaining and giving consent.
It is intended that regulations will be prescribed which
replicate the UCCC prescribed procedures. A contravention
of this section is a strict liability offence with a
penalty of 50 penalty units [Schedule 1, Part 5, section
99];
. allow the Court to order entry to residential premises to
allow the credit provider to take possession of the
mortgaged goods [Schedule 1, Part 5, section 100]. The
Court may also order a person to deliver the mortgaged
goods to a credit provider at a specified time or place or
within a specified period [Schedule 1, Part 5, section
101]. This is an offence of strict liability [Schedule 1,
Part 5, subsection 101(4)];
. require the mortgagor to inform the credit provider of the
location of the goods or assist the credit provider in
locating the goods. A mortgagor who does not comply
commits a strict liability offence. A maximum penalty of
50 penalty units applies [Schedule 1, Part 5, section 98];
. require the credit provider to give the mortgagor, within
14 days after repossession and before the sale, a notice
setting out the estimated value of the goods, enforcement
expenses and a statement of the mortgagor's rights and
obligations in the prescribed form. It is intended that a
regulation will be made that replicates the form and
information requirements under the UCCC regulations for
the statement of mortgagor's rights and obligations
[Schedule 1, Part 5, subsection 102(1)];
. specify that, after repossession, a credit provider must
not dispose of the goods within 21 days after the date of
the notice (unless the Court otherwise authorises) and
enable the debtor to recover the goods by reinstating the
contract by paying out the arrears and enforcement
expenses or paying out the contract in full [Schedule 1,
Part 5, subsections 102(2) and (4)];
. prohibit the credit provider from disposing of the goods
after the 21 days if a stay of enforcement proceedings is
in force, or an application under section 70 has not been
determined, and until any appeal period has elapsed
[Schedule 1, Part 5, subsection 102(3)];
. a contravention of section 94 is a strict liability
offence and attracts a penalty of 50 penalty units
[Schedule 1, Part 5, subsection 102(5)];
. give the mortgagor a right to nominate a buyer at the
estimated value or higher at which the credit provider
must offer to sell to the nominated buyer. A
contravention of subsection 103(2) is a strict liability
offence with a maximum 50 penalty units [Schedule 1, Part
5, section 103];
. specify if payment is not made 21 days after the notice
under section 102 is given, the credit provider must sell
the goods for the best price reasonably obtainable. The
credit provider must account for the proceeds and to give
the debtor a further notice after the sale, setting out
the gross amount realised on the sale, the net proceeds of
the sale, the amount required to pay out the credit
contract or the amount due under the guarantee, any
further recovery action proposed to be taken by the credit
provider, and any further information prescribed by the
regulation. It is intended that a regulation will be made
replicating the UCCC regulation requiring an itemised
account of each deduction made from the gross amount
realised on sale. A contravention of section 103 is a
strict liability offence and attracts a penalty of 50
penalty units [Schedule 1, Part 5, section 104]; and
. allow a credit provider that sells mortgaged goods to only
deduct specified amounts from sale proceeds, for example,
the amounts required to discharge the contract and the
credit provider's reasonable enforcement expenses
[Schedule 1, Part 5, section 105].
1409. The Code also provides for rights to compensation if the
requirements for the sale of mortgaged goods are not met. Section
106 gives the debtor or mortgagor and a mortgagee under a previous
mortgage the right to apply to the Court for an order for
compensation or payment by a credit provider for any loss suffered.
The Court may make an order if it is not satisfied that the credit
provider complied with the procedures for the sale of mortgaged
goods. The onus of proving that a sale was exercised in accordance
with this Division is on the credit provider that exercised it.
[Schedule 1, Part 5, section 106]
Enforcement expenses
1410. Section 107 prohibits a credit provider from recovering any more
than reasonable enforcement expenses from a debtor, mortgagor or
guarantor and imposes a civil penalty if the credit provider does
not comply. The court may determine liability to a dispute about
the amount of enforcement expenses that may be recovered by the
credit provider. [Schedule 1, Part 5, section 107]
Mortgagor's remedies
1411. The Code inserts a new Division 6 dealing with a mortgagor's
remedies. The new provisions give a mortgagor additional rights
against a credit provider who takes possession of mortgaged goods
in breach of the requirements in Division 2 (enforcement of credit
contracts, mortgages and guarantees) or Division 4 (enforcement
procedures for goods mortgaged).
1412. The new sections enable a mortgagor to apply to the Court to regain
possession of the goods even though the relevant default has not
been remedied. A person who contravenes an order under
subsection 108(1) commits a strict liability offence, which
attracts a penalty of 30 penalty units. [Schedule 1, Part 5,
section 108]
1413. If an order is made under section 108, the court may order a person
who has possession of the goods to deliver them to the mortgagor at
a specified time or place or within a specified period. A person
who contravenes an order under subsection 109(1) commits a strict
liability offence, which attracts a penalty of 30 penalty units.
[Schedule 1, Part 5, section 109]
1414. The Court may make other ancillary or consequential orders the
Court considers appropriate where it makes an order under this
Division. [Schedule 1, Part 5, section 110]
Part 6 - civil penalties for defaults of credit providers
1415. Part 6 sets out a civil penalty regime which generally replicates
the civil penalty provisions in Part 6 of the UCCC. The provisions
support the 'truth in lending' objective of the Code by deterring
contraventions of the Code. In addition, Part 6 provides an avenue
for debtors to be compensated for loss suffered as a contravention
of a provision.
Civil penalties for breach of key disclosure and other requirements
1416. Under the Code a civil penalty may be ordered where the credit
contract fails to disclose a key requirement. The key requirements
are different depending whether the credit contract is or is not a
continuing credit contract.
1.
|Key requirements in connection with a credit |
|contract |
|(other than a continuing credit contract) |
|Non-disclosure in the credit contract |
|Subsection 17(3) |amount of credit |
|Subsection 17(4) |annual percentage rate or rates|
|Subsection 17(5) |calculation of interest charges|
|Subsection 17(6) |total amount of interest |
| |charges payable |
|Paragraphs 17(8)(a) |only in respect of retained |
|and (b) |credit fees and charges |
|Subsection 17(9) |changes affecting interest and |
| |credit fees and charges |
|Subsection 17(11) |default rate |
|Paragraphs 17(15)(a)|name and amount payable to the |
|and (b) |insurer |
|Excessive obligation imposed by a credit contract |
|at the time a contract was entered into |
|Subsection 23(1) |prohibited monetary |
| |obligations |
[Schedule 1, Part 5, subsection 111(1)]
2.
|Key requirements in connection with a continuing |
|credit contract |
|Non-disclosure in the credit contract |
|Paragraph 17(3)(b) |maximum amount of credit or |
| |credit limit |
|Subsection 17(4) |annual percentage rate or |
| |rates |
|Subsection 17(5) |calculation of interest |
| |charges |
|Paragraphs 17(8)(a) |only in respect of retained |
|and (b) |credit fees and charges |
|Subsection 17(9) |changes affecting interest and|
| |credit fees and charges |
|Excessive obligation imposed by credit contract |
|Subsection 23(1) |prohibited monetary |
| |obligations |
|Non-disclosure in the periodic statement of account|
|Subsection 34(6) |amount of the interest charge |
| |debited to account, timing of |
| |the debit, annual percentage |
| |rate details |
|Section 35 |opening balance not to exceed |
| |closing balance of last |
| |statement. |
[Schedule 1, Part 5, subsection 111(2)]
1417. A key requirement relating to a disclosure or statement of account
extends to requirements set out in Part 2 as to the manner in which
the disclosure or statement is to be made. [Schedule 1, Part 5,
subsection 111(3)]
Who can apply for a civil penalty?
1418. The Code gives a party to a credit contract or a guarantor or ASIC
the right to apply for a civil penalty. However, a debtor or
guarantor cannot seek a civil penalty order where the credit
provider or ASIC has applied for an order in respect of the same
contravention. However, this does not prevent an application from
being made for compensation under section 118. [Schedule 1, Part
5, section 112]
1419. Where a credit provider makes an application under Part 6, it must
notify ASIC [Schedule 1, Part 5, subsection 119(3)]. ASIC may then
apply to be joined as a party in order to represent the public
interest and the interests of debtors [Schedule 1, Part 5, section
120].
The Court's discretion regarding civil penalties
1420. Where an application to the Court is made, the Court must declare
whether or not the credit provider has contravened a key
requirement. [Schedule 1, Part 5 subsection 113(1)]
1421. However, where the Court decides a key requirement has been
contravened, it has the discretion to impose a civil penalty. The
purpose of this provision is to allow the credit provider, in the
course of their application, to seek a declaration as to whether or
not their conduct has in fact breached a key requirement; that is,
a credit provider can bring an application without having to first
concede that they have breached the Code. [Schedule 1, Part 5,
subsection 113(2)]
Other relevant matters in civil penalty proceedings
General matters
1422. The Code requires the Court to consider a number of factors when
determining whether to impose a civil penalty and the quantum of
any such penalty. The Court must take into account the following
factors:
. the conduct of the credit provider and the debtor before
and after the credit contract was entered into;
. whether the contravention was deliberate;
. the loss, if any, suffered by the debtor because of the
contravention;
. when the credit provider first became aware, or ought
reasonably to have become aware, of the contravention;
. any systems or procedures of the credit provider to
prevent or identify contraventions;
. whether the contravention could have been prevented by the
credit provider;
. any action taken by the credit provider to remedy the
contravention or compensate the debtor or to prevent
further contraventions;
. the time taken to make the application and the nature of
the application; and
. any other matter the court considers relevant.
[Schedule 1, Part 5, subsection 113(4)]
Related contraventions
1423. Where a contravention of a key requirement occurs because of
another contravention of a key requirement, the Court must consider
it a contravention of the same kind. Where a key requirement
contains several requirements (for example, subsection 17(5)
requires the contract document to contain the method of calculation
and frequency with which interest is charged), the Court must treat
contraventions of more than one of those requirements as a single
contravention. [Schedule 1, Part 5, subsection 113(5)]
Prudential standing
1424. When considering whether or not to impose any penalty on the credit
provider for contravening a key requirement, the Court must have
regard primarily to the prudential standing of the credit provider
(or any of its subsidiaries) if the credit provider takes deposits
or is a borrowing corporation; and requests the Court to have
regard to its prudential standing. The aim of this provision was
to protect smaller credit providers who take deposits (for example,
credit unions) from the impact of a civil penalty that may affect
the viability of the entity and the investments of its depositors.
[Schedule 1, Part 5, subsection 113(3)]
Suppression of publication of application
1425. If the Court considers it appropriate, it may order that
particulars of, or any matters relating to, an application for an
order under this Division may not be published. [Schedule 1, Part
5, subsection 113(6)]
The amount of the civil penalty
1426. The Code imposes different maximum limits on the amounts that may
be ordered as a civil penalty depending on who makes the
application.
Applications by the debtor or guarantor
1427. Where the debtor or guarantor makes the application, the maximum
civil penalty is generally the interest payable under the contract,
or the interest payable for the relevant billing cycle if the
contravention was in respect of a statement of account. The Court
may impose a greater civil penalty that is not less than the amount
of the loss suffered where it is satisfied that the debtor has
suffered loss. [Schedule 1, Part 5, section 114]
1428. The Code enables any order to pay a debtor or guarantor a civil
penalty may be set off against any amount that is due or becomes
due under the credit contract. Where there is no such amount, the
amount of the civil penalty is a debt due by the credit provider to
the debtor or guarantor. The Court may include any other
directions it considers appropriate in relation to the payment of
the amount owed as a result of the order. [Schedule 1, Part 5,
section 115]
1429. To make these provisions operational in the Commonwealth context, a
special appropriations provision has been introduced. This is to
ensure that it is compliant with Section 81 of the Australian
Constitution.
Applications by the credit provider or ASIC
1430. If the credit provider or ASIC makes the application, the Code caps
the maximum penalty at $500,000 for all contraventions of the same
key requirement in Australia. Payment of a civil penalty, where
the credit provider or ASIC makes the application, is to be paid to
ASIC on behalf of the Commonwealth. [Schedule 1, Part 5, sections
116 and 117]
1431. Notwithstanding an application being made by the credit provider or
ASIC, the debtor or guarantor may make a separate application for
compensation for loss arising from convention of a key requirement.
The amount of compensation cannot exceed the loss suffered and
does not affect the amount of the civil penalty imposed under
section 116. [Schedule 1, Part 5, section 118]
1432. Where a credit provider or ASIC applies to the Court for an order,
the application may apply to:
. any one or more credit contracts; and
. all or any class of credit contracts entered into during a
specific period.
[Schedule 1, Part 5, subsection 119(1)]
1433. The Court can require such applications to be published in a
newspaper circulating throughout one or more States or Territories.
[Schedule 1, Part 5, subsection 119(2)]
Directions pending the Court's decision
1434. The Court may, before finalising an application by a debtor or
guarantor, make interlocutory orders to protect the interest of
debtors or guarantors that may be affected by the application.
Such directions may include restrictions on credit providers taking
enforcement action under a credit contract affected by the
application. In the absence of such directions, no restrictions
apply on the credit provider's ability to enforce a debtor's
obligations under an affected contract, or to assert their rights
over any property taken as security. Credit providers may apply to
the Court for a variation of the direction. [Schedule 1, Part 5,
section 121]
Time limit for applications
1435. The Code imposes a time limit of six years (from the date of the
breach) in which a person may bring an application relating to a
contravention of a key requirement. The aim of this provision is
to provide a suitable time period in which contravention can be
uncovered while the credit provider is still liable for a civil
penalty. [Schedule 1, Part 5, section 123]
Effect of civil penalty on criminal liability
1436. An order for a credit provider to pay a civil penalty under the
Code does not affect their criminal liability for any other
offences against the Code or the regulations. [Schedule 1, Part 5,
section 122]
Civil effect of other contraventions
1437. Where a credit provider contravenes a requirement under the Code
(other than a key requirement), the Court may make orders (on the
application of ASIC or any person affected by the contravention)
that the credit provider make restitution or pay compensation to
any person affected by the contravention and any other
consequential orders it considers appropriate. [Schedule 1, Part
5, section 124]
Part 7 - related sale contracts
1438. Part 7 establishes a statutory scheme of linked credit provider
liability, with the aim of protecting the consumer from insolvency
of a supplier by ensuring the consumer has at least one defendant
(the credit provider) capable of compensating it for loss.
1439. The related sale contract provisions in Part 7 substantially
replicate Part 7 of the UCCC.
1440. The main elements of the linked credit provider provisions are:
. the supplier remains the party primarily liable to
customers for breach of the contract of sale;
. the customer has the additional right of claiming damages
from the linked credit provider up to the amount payable
by the customer under the credit contract;
. where a customer brings an action against a linked credit
provider the supplier must generally be joined in the
proceedings;
. judgments against linked credit provider are only
enforceable to the extent that the judgment against the
supplier is unsatisfied; and
. the supplier is liable to indemnify the credit provider
for any loss or liability incurred.
Definitions and application of Part 7
Sale contracts
1441. Part 7 applies to sale contracts (or proposed sale contracts) for
the sale of goods or supply of services financed (or proposed to be
financed) by consumer credit. [Schedule 1, Part 7, sections 125
and 126]
Linked credit provider
1442. A linked credit provider means a credit provider:
. with whom the supplier has a contract, arrangement or
understanding to supply credit to consumers in respect of
goods or services it supplies;
. to whom the supplier regularly refers persons for the
purpose of obtaining credit;
. whose credit is offered or made available (including
making available contracts or application forms) to
consumers by the supplier; or
. with whom the supplier has a contract, arrangement or
understanding under which contracts, applications or
offers for credit from the credit provider may be signed
by persons at the supplier's premises.
[Schedule 1, Part 7, subsection 127(1)]
Tied continuing credit
1443. For the purposes of the Code, subsection 127(2) defines tied
continuing credit as credit provided to a debtor for the purchase
of goods or services supplied by a supplier where the credit
provider is a linked credit provider. [Schedule 1, Part 7,
subsection 127(2)]
Tied loan contract
1444. Subsection 127(3) defines a tied loan contract as a credit contract
(other than a continuing credit contract) between the debtor and
the credit provider where the credit provider (is a linked credit
provider of a supplier) and knows or ought to know that the credit
is to finance goods and services supplied by the supplier.
[Schedule 1, Part 7, subsection 127(3)]
Liability of credit providers for suppliers' misrepresentations
1445. Section 128 makes a credit provider liable for representations,
warranties or statements made by a supplier of goods or services to
a debtor in relation to a relevant tied loan contract or tied
continuing credit contract. The credit provider is entitled to be
indemnified by the person who made the representation, warranty or
statement and any person on whose behalf it was made. [Schedule 1,
Part 7, section 128]
Liability of credit providers in relation to goods
1446. The provisions in sections 129 to 133 are generally in the same
terms as section 73 of the Trade Practices Act 1974, except that
they also apply to unincorporated credit providers.
Right to damages
1447. Section 129 establishes the joint liability of a credit provider
(together with a supplier) for loss or damage suffered by a debtor
as a result of misrepresentation, breach of contract or failure of
consideration in relation to a credit contract for the supply of
credit by a linked credit provider in respect of the supply of
goods or services. [Schedule 1, Part 7, subsection 129(1)]
1448. The provision also sets out the circumstances for credit providers'
defences to proceedings about contracts that are linked:
. Where the debtor independently approached the credit
provider - this is a complete defence;
. For a tied loan contract:
- before it became linked, the credit provider after due
inquiry, was satisfied as to the supplier's good
financial standing and business conduct; and
- after becoming linked, but before the contract was
entered into, the credit provider had no reason to
suspect that the debtor might be entitled to recover for
loss or damage suffered as a result of the supplier's
conduct, or that the supplier might be insolvent;
. For a tied continued credit contract, because of the
nature and volume of the business carried on by the linked
credit provider and any other relevant matters, if the
linked credit provider had no reason to suspect that a
breach might occur.
[Schedule 1, Part 7, subsection 129(2)]
Limits on debtor's right of action
1449. Section 130 contains provisions about the limits on the debtor's
right of action against the linked credit provider under section
129.
1450. The debtor may set off the credit provider's liability under that
provision in proceedings [Schedule 1, Part 7, subsection 130(1)].
The rights of the debtor to bring proceedings solely against the
credit provider are limited (but not in the case of an insolvent
supplier that cannot be located or where a judgment would not be
satisfied) as is the amount of the liability of the credit provider
[Schedule 1, Part 7, subsections 130(2) to (4)]. The amount is not
to exceed the sum of:
. the amount of credit under the tied loan contract or tied
continuing credit contract;
. the interest (if any) or damages in the nature of interest
allowed or awarded against the linked credit provider by
the Court; and
. the amount of costs (if any) awarded by the Court against
the linked credit provider or supplier or both.
[Schedule 1, Part 7, subsection 130(4)]
1451. Procedures for enforcement of judgments against the linked credit
provider in relation to the liability are also set out. If a
debtor obtains judgment against both the supplier and the linked
credit provider, it may not be enforced against the credit provider
unless demand has been made on the supplier and the demand remains
unsatisfied for 30 days. [Schedule 1, Part 7, subsections 130(5)
and (6)]
Liability of supplier
1452. Section 131 establishes the liability of the supplier to the linked
credit provider (unless otherwise agreed between the parties) for
the loss suffered by the credit provider as a result of liability
under section 129. Unless the Court otherwise determines, the
liability of the supplier includes the linked credit provider's
cost of defending the claim. [Schedule 1, Part 7, section 131]
Interest
1453. Courts may award interest to debtors against a supplier or a linked
credit provider from the time when the debtor becomes entitled to
recover the amount until the date of the judgment at a rate
prescribed by the regulations. It is intended that a regulation
will be made that replicates the UCCC prescribed rate of interest
(that is, the annual percentage rate under the relevant credit
contract as at the date of the judgment or the date immediately
before the contract was terminated if the contact is no longer in
force). [Schedule 1, Part 7, section 132]
Subrogation of credit provider
1454. Section 133 subrogates a linked credit provider found liable in
proceedings under section 129 (to the extent that the judgment is
enforced against the credit provider) to the rights that the debtor
would have had against the supplier or any other person but for the
judgment as a result of the cause of the liability. [Schedule 1,
Part 7, section 133]
Termination of related transactions
Contract conditional on obtaining credit
1455. A right to terminate a sale contract is conferred by section 134 on
a purchaser of goods or services where the purchaser failed to
obtain credit on reasonable terms and made it known to the supplier
that the credit was required. This applies to contracts where the
goods and services have been supplied, but does not apply to a sale
contract for real property unless the supplier was aware that the
purchaser intended to obtain the credit from the supplier or the
linked credit provider. [Schedule 1, Part 7, subsections 134(1),
(2) and (4)]
1456. Table 8.3 sets out the rights resulting from termination.
1.
|Supplier|If goods returned - entitled to |
| |reasonable compensation for damages |
| |or deterioration of goods (other than|
| |fair wear and tear) and the |
| |reasonable value of the service |
| |supplied under the sale contract. |
| |If goods not returned - entitled to |
| |cash price of goods. |
|Purchase|Entitled to a refund of the money |
|r |paid under the sale contract (subject|
| |to the supplier's entitlement). |
[Schedule 1, Part 7, subsection 134(3)]
Termination of tied credit contract where sale contract terminated
1457. Section 135 entitles a debtor to terminate a tied loan contract or
a tied continuing credit contract if the related sale contract is
rescinded or discharged. The termination has the effect of
terminating any related guarantee or mortgage. The termination
provisions do not apply if the credit provided was not induced by
the supplier or credit provider. [Schedule 1, Part 7, subsections
135(1), (2) and (7)]
1458. Table 8.4 sets out the rights resulting from the termination.
1.
|Credit provider |Entitled to recover from the |
| |debtor any part of the amount|
| |of credit that has not been |
| |paid to the supplier, from |
| |any mortgagor or guarantor, |
| |any secured amount of credit |
| |not paid to the supplier, and|
| |from the supplier any amount |
| |of any loss suffered as |
| |previously agreed. |
|Debtor |Entitled to recover from the |
| |credit provider any interest |
| |charges or other amounts |
| |paid. |
|Any mortgagor or |Entitled to recover from the |
|guarantor |credit provider any amounts |
| |paid. |
[Schedule 1, Part 7, subsections 135(3) to (5)]
1459. A supplier must notify a linked credit provider that a sale
contract has been rescinded or discharged. Failure to do so is an
offence which carries a maximum penalty of 50 penalty units.
[Schedule 1, Part 7, subsection 135(6)]
Termination of a linked maintenance services contract if a credit
contract is terminated
1460. Section 136 entitles a debtor to terminate a sale contract to
supply maintenance services, and to recover a proportionate rebate
of the consideration paid, if a related tied loan contract or tied
continuing credit contract is rescinded or discharged before the
end of the sale contract. The termination provisions do not apply
if the credit provided was not induced by the supplier or credit
provider.
1461. The regulations may prescribe how and when the debtor must be
informed and the manner of calculating the proportionate rebate.
It is intended that a regulation will be made that replicates the
time, form, content and formula used in the UCCC regulations. It
is an offence for a credit provider not to notify a debtor of their
rights in the prescribed manner. It is intended that a regulation
will be made that replicates the form and time (that is, 21 days)
prescribed under the UCCC regulations. A strict liability offence
with a maximum penalty of 50 penalty units applies. [Schedule 1,
Part 7, section 136]
Termination of contracts under this Part
1462. An entitlement to terminate a sale contract or credit contract
under Part 7 is to be exercised in writing [Schedule 1, Part 7,
section 137]. The Court has power to make orders about the
termination of a contract under Part 7 [Schedule 1, Part 7, section
138]. Part 5, relating to ending and enforcing credit contracts,
mortgages and guarantees, does not apply to the termination of a
contract under Part 7 [Schedule 1, Part 7, section 139].
Other provisions
1463. A supplier is prohibited from:
. requiring a purchaser of goods or services to apply for,
or obtain, credit from a particular credit provider (the
offence carries a maximum penalty of 100 penalty units)
[Schedule 1, Part 7, section 140]; or
. demanding or accepting payment for goods or services in
the form of a post-dated bill of exchange or promissory
note with a face value of more than the cash price of the
goods or services (the offence carries a maximum penalty
of 100 penalty units) [Schedule 1, Part 7, section 141].
1464. In bringing the UCCC into the Commonwealth jurisdiction, breaches
of these provisions have also been made offences of strict
liability. [Schedule 1, Part 7, subsections 140(2) and 141(3)]
Part 8 - related insurance contracts
1465. Part 8 of the Code deals with insurance contracts that are
connected with the credit being provided to the debtor. The cost
of insurance is often financed under a credit contract and can add
substantially to the cost of credit. Further, insurance over
mortgaged property is usually required to be taken out under the
terms of the mortgage document.
1466. Part 8 of the Code complements the Insurance Contracts Act 1984 by
providing targeted measures directed at credit providers, suppliers
and insurers that limit the way in which insurances are packaged
with credit, to address inappropriate sales. Their aim is to
ensure that consumers turn their minds to the best insurance
product at the point of sale.
1467. The measures replicate Part 8 of the UCCC and include:
. restrictions on requiring that insurance be taken out or
arranged by the credit provider or supplier;
. restrictions on financing insurance premiums under a
credit contract;
. limits on commissions paid by an insurer; and
. automatic termination of an insurance contract where the
credit contract is terminated.
Meaning of a credit-related insurance contract
1468. Section 142 defines a credit-related insurance contract, for the
purposes of the Code:
. as insurance over mortgaged property, where the mortgaged
property secures the obligations of the debtor under the
credit contract; and
. consumer credit insurance (as defined in Part 13), where
the insurance insures the obligations of the debtor under
the credit contract.
. the Code does not apply to insurance over mortgaged
property that is insurance for an extended period of
warranty for goods.
[Schedule 1, Part 8, section 142]
1469. Insurance is voluntary under section 143 except for compulsory
insurance (as defined by Part 13), mortgage indemnity insurance and
insurance over mortgaged property. The aim of this provision is to
prevent 'insurance forcing' where credit is made available on
condition that insurance is also taken out or taken out with a
particular insurer. This means the consumer cannot be required to
take out consumer credit insurance. [Schedule 1, Part 8,
subsection 143(1)]
1470. There is no requirement for the debtor or guarantor to take out
insurance or pay the cost of insurance if the credit provider or
supplier has already arranged insurance. Nor can the credit
provider or supplier misrepresent that voluntary insurance is
required. Where the credit provider or supplier can lawfully
insist on insurance, the debtor or guarantor cannot be required to
take out insurance with a particular insurer, or to take out
insurance, where any of the terms on which the insurance is
provided are unreasonable. A breach of the section is an offence
of strict liability and a criminal offence, with a maximum penalty
of 100 penalty units. [Schedule 1, Part 8, subsections 143(1) to
(3)]. The insured is also entitled to recover the whole premium
paid under the contract from the credit provider or supplier.
[Schedule 1, Part 8, subsections 143(4)]
1471. Credit providers or suppliers often offer reductions in the cost of
credit as an incentive for consumers to acquire credit and
insurance products together (that is, this combination of products
is usually referred to as 'bundling'). Section 143 does not
prohibit credit providers or suppliers offering or agreeing to
reduce the cost of credit only on the condition that a prospective
debtor or guarantor takes out insurance (or takes out that
insurance with a particular insurer) provided that where the
prospective debtor or guarantor declines to take out the insurance
or to take out insurance with a particular insurer, the credit is
still available (albeit without the proposed reduction in the cost
of that credit). [Schedule 1, Part 8, section 143]
Financing of insurance premiums over mortgaged property
1472. Section 144 prevents a credit provider from financing premiums for
insurance over mortgaged property for more than one year at a time.
Restrictions also apply on knowingly debiting the premium to the
debtor's account more than 30 days before the commencement of the
insurance. A maximum penalty of 100 penalty units applies for a
contravention of these restrictions. The insured is also entitled
to recover the premium. [Schedule 1, Part 8, section 144]
Commission for consumer credit insurance
1473. Section 145 limits commissions payable by the insurer in respect of
consumer credit insurance to 20 per cent of the premium. The key
aspect of the definition of consumer credit insurance is that it
insures the capacity of the debtor to make repayments under the
credit contract. That is, it is insurance in respect of a risk
relating to the borrower's capacity to make repayments (for
example, due to a change in income or their financial circumstances
(see Part 13)). [Schedule 1, Part 8, section 145]
1474. The cap was imposed in response to the unnecessary or forced
'packing' of loan contracts with insurance premiums where high
commissions are offered to encourage intermediaries to distribute
their products. An increase in the percentage of commission
correspondingly reduces the benefits that can be offered under the
policy to the insured.
1475. The cap applies to a credit provider, a supplier under a sale
contract in relation to which there is a tied loan contract or tied
continuing credit contract, or an agent of the credit provider or
supplier. A contravention of this provision is a strict liability
offence with a maximum penalty of 100 penalty units. The insured
is also entitled to recover the commission. [Schedule 1, Part 8,
section 145]
Supply of copy of credit-related insurance contract by insurer
1476. Copies of insurance policies for credit-related insurance contracts
financed by credit contracts must be given to debtors within
14 days after acceptance of the insurance proposal by the insurer.
It is intended that the prescribed particulars of the credit-
related insurance contract under the UCCC regulations will also be
required to be given to debtors where they have a beneficial
interest in such contracts of insurance. This is a strict
liability offence with a maximum penalty of 100 penalty units
applies. [Schedule 1, Part 8, section 146]
Rejection of debtor's proposal for insurance
1477. Section 147 sets out procedures to be followed when an insurer
rejects a proposal for credit-related insurance to be financed by a
credit contract. This includes informing the debtor and credit
provider and refunding or crediting in full any amount paid. This
is a strict liability offence with a maximum penalty of 100 penalty
units applies. [Schedule 1, Part 8, section 147]
Termination
1478. On termination of the credit contract any relevant credit-related
insurance contract financed under the credit contract is also
terminated. The credit provider must pay or credit the debtor with
a rebate of the premium paid under such a credit insurance contract
in force immediately before the termination. The regulations may
prescribe the manner of calculating the rebate. It is intended
that the formula used in calculating the rebate under the UCCC
regulations will be prescribed for the purposes of section 148.
This does not apply to a credit-related insurance contract that
provides death cover, if the credit contract is terminated on the
death of a debtor. [Schedule 1, Part 8, section 148]
1479. Section 149 entitles a debtor to terminate a relevant credit-
related insurance contract over mortgaged property on the
termination of a credit contract and recover from the insurer the
proportionate rebate of premium paid. Credit providers must inform
debtors of their rights in accordance with the regulations. The
regulations may also prescribe the manner of calculating the
rebate. It is intended that a regulation will be made that
replicates the form of notice and the formula for calculating the
premium rebate prescribed under the UCCC regulations. It is an
offence for a credit provider not to notify a debtor of their
rights on any such termination of a credit contract (this is a
strict liability offence with a maximum penalty of 50 penalty units
applies). [Schedule 1, Part 8, section 149]
Part 9 - advertising and related conduct
1480. Part 9 of the Code regulates the promotional activities of persons
offering credit. These provisions substantially replicate Part 9
of the UCCC which are generally intended to protect consumers from
misleading advertising and other undesirable conduct, such as
harassment and credit hawking.
Advertising
1481. Advertising the availability of credit is prohibited unless the
advertisement complies with certain requirements in relation to the
cost of the credit and any other requirements prescribed by the
regulations. A maximum fine of 100 penalty units applies.
[Schedule 1, Part 9, section 150]
1482. Specifically, advertisements stating the amount of any repayment
must include the annual percentage rate (expressed as a nominal
percentage rate per annum) and information about credit fees and
charges if they are payable. Alternatively, the advertisement can
contain the comparison rate. A breach of this provision is an
offence of strict liability. [Schedule 1, Part 9, subsection
153(2)]. Advertisements containing comparison rates must also
comply with the disclosure requirements in Division 2 of Part 10 of
the Code. It is a defence to non-compliance with this disclosure
requirement if the person proves they could not, by exercising
reasonable care, have prevented the non-compliance. [Schedule 1,
Part 9, sections 150 and 153 and subsection 151(2)]
1483. A presumption exists, in the absence of proof to the contrary, that
a person has caused an advertisement to be published where the
person has an interest in the goods and services promoted or the
supply of those goods and services, and the advertisement specifies
relevant details of the person. [Schedule 1, Part 9, section 151]
1484. Section 152 contains a defence against contraventions of the
advertising requirements. This defence only applies to printers,
publishers or proprietors of newspapers, licensees of broadcastings
or television stations, exhibitors of films or any person acting
with their authority where the person did not suspect or had no
reason to suspect the advertisement would constitute an offence.
[Schedule 1, Part 9, section 152]
False or misleading representations
1485. Section 154 creates an offence for making false or misleading
representations. The offence applies to any persons who make
representations about matters material to entry into a credit
contract or a related transaction or attempts to induce a person to
enter such a contract or transaction. It therefore applies to
debtors or guarantors, to brokers, and to third parties (including,
for example, valuers). A maximum fine of 50 penalty units applies.
[Schedule 1, Part 9, section 154]
Harassment
1486. The Code also contains a prohibition in section 155 on credit
providers or suppliers harassing a person in attempting to have
them apply for credit or enter into a credit contract or related
transaction. A maximum fine of 100 penalty units applies.
[Schedule 1, Part 9, section 155]
Credit hawking
1487. The Code contains measures aimed at restricting door-to-door
canvassing. These measures prohibit a credit provider from
visiting a residence for the purpose of inducing a person to apply
for, or obtain credit, except by prior arrangement with the person
who normally resides there. A maximum fine of 100 penalty units
applies. This restriction does not apply where the person is
visiting a residence to offer goods or services for sale where
credit is offered to finance the sale. [Schedule 1, Part 9,
section 156]
Recovery of loss
1488. A person may recover loss resulting from a breach of the
advertising rules or as a result of false and misleading
representations. [Schedule 1, Part 9, subsection 150(5) and
section 154]
Part 10 - comparison rates
1489. In addition to the advertising requirements in Part 9, the Code
requires the mandatory use of comparison rates in promotional
material that advertise an interest rate. Part 10 sets out when
the comparison rate is to be included, how to calculate the
comparison rate and other disclosure requirements. A comparison
rate reflects the total cost of credit arising from interest
charges and other fees and charges. The object of the measures is
to help consumers identify the true cost of credit, which allows
for much easier comparison between loan products.
1490. The comparison rate requirements are based on Part 9A of the UCCC.
A review of the comparison rate disclosure requirements (enabled by
an extension of the sunset provision) has resulted in Division 3 of
Part 9A of the UCCC (dealing with comparison rate schedules) not
being enacted as Commonwealth law.
Key definitions and application of comparison rates provisions
1491. A comparison rate reflects the total cost of credit per annum
arising from interest charges and any other prescribed credit fees
and charges [Schedule 1, Part 10, subsections 157(3) and 166(2)].
It is intended that a regulation will be made that replicates the
comparisons rate formula prescribed in the UCCC regulations. That
formula excluded a government fee, charge or duty from the
comparison rate calculation.
1492. Under the UCCC, valuation fees were also included in the comparison
rate calculation where there was no uncertainty over whether a
consumer would be charged a valuation fee, even though the exact
amount of the fee to be charged was not known at the time the
comparison rate was disclosed. In such cases, a reasonable
estimate of the likely valuation fee was included for the purposes
of calculating the comparison rate. It is intended that the same
approach be applied to valuation fees under the Code once the
formula has been prescribed.
1493. Also under the UCCC, where a Government agency to which a fee or
charge must be paid deals with the public only through a contracted
service provider, any service charges paid to this service provider
were considered to be a government fee or charge for the purposes
of the comparison rate formula. It is intended that the same
approach be applied to government fees or charges under the Code
once the formula has been prescribed.
1494. To assist consumers to understand the true cost of credit, a
comparison rate must be disclosed in advertisements for consumer
credit if an interest rate is advertised. [Schedule 1, Part 10,
subsection 157(2)]
1495. Part 10 applies to consumer credit products, meaning any form of
facility for the provision of credit. However, Part 10 does not
apply to continuing credit contracts. [Schedule 1, Part 10,
sections 159 and 158]
Comparison rate in advertisements
1496. Where a credit advertisement contains an annual percentage rate, it
must contain the comparison rate for the amounts and terms that
represent the typical amount and term offered by the credit
provider. The regulations may prescribe the amounts and terms for
which the comparison rate is to be calculated. It is intended that
the same amounts and terms as prescribed in the UCCC regulations be
prescribed for the purposes of the Code. [Schedule 1, Part 10,
sections 160 and 161]
1497. For the purposes of Part 10, credit advertisement is broadly
defined to include any medium that states or implies the
availability of credit (but does not include a notice or document
required to be provided under the Code or a publication that only
lists reference rates). [Schedule 1, Part 10, section 159]
Information about comparison rate
1498. Sections 162 to 164 set out the following disclosure requirements
where credit advertisements contain comparison rates:
. disclosing the name of the consumer credit product, the
amount and term of credit to which each comparison rate
applies;
. stating if the loan is secured or unsecured if the
comparison rate is calculated for a prescribed amount. It
is intended that the same amounts and terms as prescribed
in the UCCC regulations be prescribed for the purposes of
the Code;
. including a prescribed warning. It is intended that a
warning about the accuracy of the comparison rate will be
prescribed similar to warning statements under the UCCC
regulations;
. identifying the comparison rate as a comparison rate;
. not disclosing a comparison rate less prominently than any
advertised annual percentage rate or repayment amount; and
. relating to electronic display media (including television
and the internet), specific requirements apply to
comparison rates and the warning where the credit
advertisement is spoken or uses text.
[Schedule 1, Part 10, sections 162 to 164]
Comparison rate in other documents
1499. Section 165 applies (with necessary changes) the comparison rate
requirements in Division 2 to other documents that contain a
comparison rate. [Schedule 1, Part 10, section 165]
Grace period following changes in interest or fees
1500. If there is a change in any advertised annual percentage rate or
credit fee or charge, section 167 provides a seven-day grace period
before the credit advertisement contravenes this Part. [Schedule
1, Part 10, section 167]
Part 11 - Consumer leases
1501. Part 11 of the Code sets out a separate regime to regulate consumer
leases of goods where no right or obligation to purchase the leased
goods exists. This is because these types of leases are ordinarily
not regarded as involving the provision of credit. However, they
have not been exempted completely from the Code as this would
increase the level of regulatory difference between leases and
other similar forms of finance, and encourage the inappropriate use
of leases to avoid the Code completely.
1502. Where a lease contains a right or option to purchase the goods the
outcome is functionally the same as a credit contract. For this
reason the Code deems these transactions credit contracts (see
section 9).
1503. The regulation of consumer leases under Part 11 of the Credit Bill
largely replicates Part 10 of the UCCC. It contains separate
disclosure requirements and applies some of the consumer protection
measures that apply to consumer credit contracts. These measures
are generally considered necessary because:
. lessees can mistakenly believe that they have an ability
to buy the goods when they do not;
. the amount paid under the lease may be considerable (that
is, equivalent to that paid under a credit contract) but
the lessee has no right to the goods when the lease ends;
and
. a level playing field is necessary for financiers who
provide consumer credit and those that finance goods
through consumer leases.
Meaning of consumer lease
1504. A consumer lease under section 169 is a contract of hire entered
into by a natural person or a strata corporation where they do not
have a right or option to purchase the goods. [Schedule 1, Part
10, section 169]
Consumer leases to which Part 11 applies
1505. Section 170 restricts the application of Part 11 only to those
consumer leases with the following features:
. the goods are hired wholly or predominantly for personal,
domestic or household purposes. The predominate purpose
for which goods are hired is defined in subsection 170(5);
. a charge is, or may be made, for the hiring of the goods
and the charge, together with any other amount payable
under the consumer lease, exceeds the cash price of the
goods; and
. the lessor hires the goods as part of a business carried
on in Australia.
[Schedule 1, Part 11, section 170]
1506. Section 171 excludes short-term or indefinite leases and employment
leases. [Schedule 1, Part 11, section 171]
1507. ASIC is given power to effect exemptions and modifications to the
Code. The application of the Code can be modified or changed in
respect of:
. a consumer lease specified by ASIC [Schedule 1, Part 11,
subsection 171(4)]; and
. a class of consumer leases [Schedule 1, Part 11,
subsection 171(6)].
1508. An exemption of a consumer lease as specified by ASIC is stated not
to be a legislative instrument. This statement is declaratory of
the law, consistent with section 5 of the Legislative Instruments
Act 2003. [Schedule 1, Part 11, subsection 171(5)]
1509. Section 172 sets out a presumption that the Part 11 regime applies
to a consumer lease unless the contrary is established. Similarly,
a presumption exists that goods are hired for business (rather than
personal, household or domestic) purposes if the lessee makes a
declaration, before hiring the goods, in the prescribed form and
accompanied by the prescribed warning. [Schedule 1, Part 11,
section 172]
1510. The presumption created by the declaration has been amended
consistently with the approach taken to credit contracts in section
13. [Schedule 1, Part 11, subsection 172(3)]
1511. The amendment will provide an effective response to the problems
previously associated with the abuse of declarations as:
. where, before the contract was entered into, goods are
hired for domestic purposes it would be unlikely that this
would not be known or ascertainable by reasonable inquiry
by the lessor; and
. lessors who do not make any reasonable inquiries into the
use of the goods will find it difficult to rely on a
declaration where they were in fact used for a domestic
purpose.
1512. Section 172 also creates a defence against any Part 10 offence
where the lessor has made reasonable enquiries as to the purpose of
the lease and does not believe the goods were hired other than
wholly or predominantly for business or investment purposes.
[Schedule 1, Part 11, subsection 172(4)]
1513. An offence for inducing a person to make a false or misleading
business purpose declaration in relation to consumer leases has
been inserted as there was no penalty in the UCCC which applied in
these circumstances. The penalty for this offence is 100 penalty
units, two years imprisonment, or both. The strict liability
attached to this penalty will significantly enhance the role of
ASIC in enforcing the provision. [Schedule 1, Part 11, subsection
172(6)]
Form of and information to be included in consumer leases
1514. Section 173 prohibits lessors entering into a lease that is not in
writing, signed by the lessee and discloses certain details of the
transaction. This is a strict liability offence with a maximum
penalty of 100 penalty units. [Schedule 1, Part 11, section 173]
1515. Lessors also face a strict liability offence with a maximum penalty
of 100 penalty units if they enter into a consumer lease that does
not disclose the following matters where ascertainable:
. a description of the goods;
. the amount of any charges payable (including government
charges);
. the amount of each rental payment;
. the number of payments required;
. details as to when the payments are due; and
. information as to when the lease may be terminated and a
statement of liabilities (if any) on termination.
[Schedule 1, Part 11, section 174]
1516. Section 175 requires the lessor to give the lessee a copy of the
consumer lease, together with a statement in the prescribed form
explaining the rights and obligations of the lessee. It is
intended that the prescribed statement under the UCCC regulations
will also be prescribed for the purposes of the Code. This is a
strict liability offence with a maximum penalty of 50 penalty
units. [Schedule 1, Part 11, section 175]
1517. The provision of further goods under a consumer lease or a change
made to a consumer lease (resulting from a deferral or waiver of
payment) is treated by section 176 as not creating a new consumer
lease or a credit contract. [Schedule 1, Part 11, section 176]
Other provisions applicable to consumer leases
1518. Section 177 applies the following provisions (relating to credit
contracts) to consumer leases:
. changes to credit contracts on the grounds of hardship and
unjust transactions (except for section 78 dealing with
unconscionable interest and other charges) (see Division 3
of Part 4);
. information as to leased goods (see section 98);
. entry to residential premises to take possession of goods
(see section 99);
. orders by the Court for entry and repossession (see
sections 100 and 101); and
. miscellaneous matters such as tolerances and assumptions
(see Part 12).
[Schedule 1, Part 11, section 177]
Notice of repossession
1519. A restriction on taking repossession action is set out in
section 178. This requires the lessor to give 30 days written
notice of an intention to repossess goods which are the subject of
a consumer lease. This is a strict liability offence with a
maximum penalty of 50 penalty units. [Schedule 1, Part 11,
subsections 178(1) and (3)]
1520. However, notice is not required where:
. repossession at the end of the term is a right under a
fixed term lease;
. the lessor believes on reasonable grounds that the lessee
has, or intends to dispose of leased goods;
. the lessor cannot locate the lessee, having made
reasonable attempts;
. the lessee is insolvent; or
. the Court authorises repossession.
[Schedule 1, Part 11, subsection 178(2)]
Termination of lease
1521. Section 179 enables a lessee to end a consumer lease at any time by
returning the goods hired. The amount payable on such termination
is the lesser of the amount payable under the consumer lease or as
determined by regulation. [Schedule 1, Part 11, section 179]
Part 12 - Miscellaneous
Tolerances and assumptions
1522. Division 1 of Part 12 sets out certain assumptions that may be made
in relation to disclosures required by the Code. It also gives
power for regulations to be made providing for further assumptions.
The assumptions relate to:
. pre-contractual statements;
. credit contracts;
. mortgage documents or guarantees;
. statements of account;
. notices; and
. consumer leases.
[Schedule 1, Part 12, subsection 180(1)]
1523. Information disclosed by a credit provider will be taken to be
correctly disclosed if it is within the tolerances allowed by
regulations and where disclosure is made at a stated date. The
Credit Bill specifies assumptions for:
. disclosures of interest charges;
. disclosures of repayments;
. disclosures of credit fees and charges;
. disclosures in consumer leases;
. when information is ascertainable; and
. disclosures of names.
[Schedule 1, Part 12, section 180]
1524. The regulations may vary an assumption or provide for additional
assumptions. It is intended that the assumptions prescribed under
the UCCC regulations will also be prescribed for the purposes of
the Code. For example, permitting rounding off and permitting
disclosures to be made at a stated date. [Schedule 1, Part 12,
sections 181 and 182]
Documentary provisions
1525. Specific documentary requirements are placed on the credit provider
by Division 2 of Part 12. These measures require the credit
provider to provide copies of certain documents at the written
request of a debtor, mortgagor or guarantor and for the documents
to be legible, clearly expressed and comply with any prescribed
requirement. For example, the print or type must not be less that
10 point. In addition, this Division makes provision for signing
documents on another person's behalf. The requirements relate to
the following documents:
. any notice required under the Code;
. any credit contract;
. any mortgage;
. any guarantee; and
. any credit-related insurance contract.
[Schedule 1, Part 12, sections 183 to 186]
1526. If the Court is satisfied, on application of ASIC, that the
documents did not confirm with the legibility and language
requirements of section 184, the Court may prohibit the credit
provider from using a provision of the credit contract in the same
or similar terms in future documents [Schedule 1, Part 12,
subsection 184(2)]. It is an offence to contravene subsection
184(2), attracting a maximum penalty of 100 units [Schedule 1, Part
12, subsection 184(3)].
1527. It is an offence of strict liability for a credit provider to fail
to provide a debtor, mortgagor or guarantor with a copy of a credit
contract, mortgage, guarantee, a credit-related insurance policy or
a notice under the Code requiring a person to take action.
[Schedule 1, Part 12, subsection 185(4)]
1528. In addition, the Code permits any contract, mortgage or guarantee,
and some documents to be made, given or provided in accordance with
laws relating to electronic disclosure except where it has been
prescribed that it not be so made, given or provided. Because of
the importance of some transactions, documents or information and
to ensure that these are received by the recipient, the regulations
may prohibit certain classes of transactions, documents or
information being made, given or provided by electronic
communication. It is intended that the classes of transactions,
documents or information prohibited under the UCCC regulations also
be prohibited under the regulations made under the Electronic
Transactions Act 1999. These include a guarantee to which the Code
applies, copies of a guarantee, a credit contract, or a contract
document given under section 57, and default notices under section
88. [Schedule 1, Part 12, section 187]
General provisions
Assignments
1529. The Code facilitates assignments of credit providers' rights by
providing that the Code applies to the assignee with no further
obligation imposed on the credit provider. Debtors', mortgagors'
or guarantors' rights are also unchanged. Similar provisions exist
for assignments by debtors, mortgagors or guarantors. [Schedule 1,
Part 12, sections 188 and 189]
Apportionment of payments
1530. The debtor can specify in writing how the credit provider should
apply a payment where there are several credit contracts, but this
is subject to any prior agreement. It is a strict liability
offence to contravene this section. A maximum penalty of 30
penalty units applies. [Schedule 1, Part 12, section 190]
Contracting out
1531. To ensure that the consumer protections created by the Code are not
circumvented, section 191 prohibits a provision of a contract or
other instrument from avoiding or modifying the effects of the
Code. Similarly, indemnities by debtors or guarantors for a
creditor's loss or liability are also prohibited. Credit providers
who are a party to such contracts or instruments contravene the
Code (is a strict liability offence with a maximum penalty of 100
penalty units). [Schedule 1, Part 12, section 191]
Indemnities
1532. This provision addresses some particular difficulties that arose
from the application of the UCCC to certain types of mortgage
securitisation programs. The difficulties were seen to arise from
the possible application of a rule of law which, on the grounds of
public policy, rendered void any attempt by a person to obtain or
enforce an indemnity given by another person in respect of
liability for an act or omission by the first person which
constitutes an offence at law. Section 192 statutorily sets the
common law rule aside. [Schedule 1, Part 12, section 192]
Effect of non-compliance
1533. A credit contract, mortgage or guarantee is not illegal, void or
unenforceable, merely because of a contravention of the Code,
unless the Code contains an express provision to that effect.
[Schedule 1, Part 12, section 193]
Giving notice or other document
1534. The Code requires documents such as credit contracts, mortgages and
guarantees to be in writing. In some cases a credit provider will
be excused from their obligation to give a notice or other document
to a person that they have reasonably been unable to contact.
[Schedule 1, Part 12, subsections 194(1) and (2)]
1535. The Code also contains provisions that aim to ensure that joint
borrowers and guarantors have reasonable flexibility in choosing
how many identical copies of notices and statements of account they
require. Where there are two or more joint debtors, mortgagors or
guarantors one of them can be nominated by all or any of them to
receive notices or other documents (except default notices) and the
notice need not be addressed to all of them. However, where they
live at the same address they can jointly consent to receiving a
single copy at that address which is to be addressed jointly to
them. The regulations may prescribe the form of the nomination or
consent. It is intended that the nomination and consent form
prescribed under the UCCC regulations will also be prescribed for
the purposes of the Code. [Schedule 1, Part 12, subsections 194(3)
to (9)]
Manner of giving notice or other document
1536. The Acts Interpretation Act 1901 makes provision for how a notice
or other document required or permitted by the Code may be given to
a person or required to be given to another person under the Code.
1537. A written notice (or other document) may be given to individuals:
. by delivering it to the person personally; or
. by leaving it at or sending it by pre-paid post to, the
address of the place of residence or business of the
person last known to the person serving the document.
1538. A written notice (or other document) may be given to bodies
corporate by leaving it at, or sending it by pre-paid post to, the
head office, a registered office or a principal office of the body
corporate (section 28A of the Acts Interpretation Act 1901).
1539. Section 195 provides for more specific provisions which allows the
person who is a debtor, mortgagor or guarantor to nominate in
writing an appropriate address. These provisions apply in priority
over the Acts Interpretation Act 1901 provision.
1540. The Electronic Transactions Act 1999 provides that consent is
required for notices to be given electronically (section 9 of the
Electronic Transactions Act 1999).
Date of notice or other document
1541. Section 196 modifies the 'postal rule' by providing for the date on
which the notice or other document will be taken to have been
given. These are:
. by personal service - the date it is received or the date
that the notice or document bears (whichever is the
later);
. by post - on the date it bears or the date when it would
have been delivered in the ordinary course of post
(whichever is the later); and
. by electronic communication - at the time the electronic
communication enters the information system (section 14 of
the Electronic Transactions Act 1999).
[Schedule 1, Part 12, section 196]
Extension of time
1542. The Court may extend a period if authorised by the Code to do so
even though the period has elapsed. [Schedule 1, Part 12, section
197]
Orders of the Court
1543. An order of the Court in force under the Code, (including as
varied) has effect according to its tenor. [Schedule 1, Part 12,
section 198]
Conduct of agents and related matters
1544. Section 199 restates the general law that the conduct of an
officer, agent or employee of a credit provider acting within his
or her actual or ostensible authority will be imputed to the credit
provider. However, it limits this general law principle by
providing that the credit provider will not be taken to know (or
have reason to know) where the officer's, agent's or employee's
belief was not acquired in that capacity and they were the actual
person dealing with the transaction. [Schedule 1, Part 12,
subsections 199(1) and (5)]
1545. A credit provider or person associated with a credit provider is
also prohibited from purporting to act as an agent of a debtor,
mortgagor or guarantor in entering into a credit contract, mortgage
or guarantee. For example, a debtor may not authorise a loan
officer of a credit provider to sign a contract on its behalf.
However, this does not prevent the common commercial practice of
credit providers authorising associated persons (for example, under
agencies and like arrangements) from entering into contracts with
the debtor on the creditor provider's behalf. [Schedule 1,
Part 12, subsection 199(2)]
Deletion of provision regarding reciprocal conferral of powers and
jurisdictions
1546. Section 177 of the UCCC, which enables regulation to be made to
give effect to a cross-vesting scheme of administrative and
judicial powers has not been transferred to the Code as it is not
necessary under the Commonwealth regime.
Provisions relating to offences
Deleted sections of the UCCC
1547. Sections 178 to 182 of the UCCC have been deleted as equivalent
Commonwealth penalty provisions already exist.
1.
|Topic |Existing |UCCC |
| |Commonwealth law | |
| |- Crimes Act 1914| |
|Penalty at end of|Section 4D |Section 178 |
|provision | | |
|Penalty units |Section 4AA |Section 179 |
|Summary offences |Section 4H |Section 180 |
|Double jeopardy |Section 4C |Section 181 |
|Aiding and |Sections 11.1 and|Section 182 |
|abetting, |11.2 of the | |
|attempts |Criminal Code | |
Division 4 - offences by officers, agents or employees
1548. Proceedings may be taken against an officer, agent, or employee of
a credit provider or other person irrespective of whether
proceedings have been taken against the credit provider or other
person. [Schedule 1, Part 12, section 200]
Offences by corporations
1549. If a corporation contravenes the Code or the regulations, each
officer of the corporation is taken to have contravened the
provision if the officer knowingly authorised or permitted the
contravention. Proceedings may be brought against an officer even
if proceedings are not brought against the corporation or if the
corporation is not convicted. [Schedule 1, Part 12, section 201]
Limitations
1550. A three-year limitation period exists for bringing proceedings for
an offence against the Code or the regulations. The period may be
extended with the consent of the Attorney-General. [Schedule 1,
Part 12, section 202]
Application of section 4K of the Crimes Act 1914
1551. To maintain the interpretative effect of the UCCC, section 4K of
the Crimes Act 1914 does not apply in relation to an offence
against this Code or the regulations. [Schedule 1, Part 12,
section 203]
Part 13 - principal definitions
General definitions
1552. Section 204 contains definitions of words and expressions used in
the Code. In some cases, the definition expands the usual meaning
of the word. For example, the definition of 'mortgage' extends the
general definition to include all forms of possessory and non-
possessory security. It also catches a seller's retention of
title, the terms sale of land and the conditional sale of goods.
[Schedule 1, Part 13, section 204]
Part 14 - miscellaneous provisions relating to interpretation
1553. Part 14 contains miscellaneous provisions relating to
interpretation.
1554. These were previously contained in Schedule 2 of the UCCC which
contained uniform interpretation provisions of a kind that are
usually contained in the Interpretation Act of a State or
Territory.
1555. Most of those provisions have not been transferred to the Code
because they are covered by the Acts Interpretation Act 1901. The
provisions that are not addressed by the Acts Interpretation Act
1901 and thus remain in the Code are:
. preliminary matters including displacement of Part 14
where contrary intention appears in the Code [Schedule 1,
Part 14, section 205];
. material that is not part of the Code (for example,
headings, punctuation, and notes) [Schedule 1, Part 14,
section 206];
. how Commonwealth, State and Territory Acts should be cited
in the Code (for example, use of short titles) [Schedule
1, Part 14, section 207]; and
. compliance with prescribed forms [Schedule 1, Part 14,
section 208].
1556. Division 3 contains the definitions of general interpretive terms
and references used in the Code where they not already covered by
the Acts Interpretation Act 1901. [Schedule 1, Part 14, sections
209 to 213]
1557. Division 4 sets out the functions and powers conferred by the Code
where they are not already covered by the Legislative Instruments
Act 2003. These are:
. the power to make instruments or decisions includes power
to amend or repeal [Schedule 1, Part 14, section 214];
. matters for which statutory instruments may make provision
[Schedule 1, Part 14, section 215];
. presumption of validity and power to make a statutory
instrument [Schedule 1, Part 14, section 216]; and
. exercise of powers under the Code between enactment and
commencement [Schedule 1, Part 14, section 217].
1558. Section 218 deals with the interpretation of provisions in the Code
relating to distance, time and age. [Schedule 1, Part 14, section
218]
Chapter 9
Regulation impact statement
Part 1: Introduction
1559. The National Consumer Credit Protection Bill 2009 (Bill) is the
centrepiece of a legislative package that implements the first
phase of decisions by the Australian Government and the Council of
Australian Governments (COAG) in 2008.
1560. COAG reached an in-principle agreement on 26 March 2008 that the
Australian Government would assume responsibility for regulating
mortgage credit and mortgage advice, including non-deposit taking
institutions and mortgage brokers, as well as margin loans. On
3 July 2008, COAG agreed that the Australian Government would also
assume responsibility for regulating all other consumer credit
products and requested the COAG Business Regulation and Competition
Working Group report back at the 2 October meeting with a detailed
implementation plan for other credit.
1561. Against that backdrop, in September 2008 the Australian Government
decided to:
. first, enact the Uniform Consumer Credit Code (UCCC) of
the States and Territories and, where relevant, proposed
amendments to the UCCC, as Commonwealth legislation;
- the new national framework would be administered by the
Australian Securities and Investments Commission (ASIC),
which would be given enhanced enforcement powers;
. secondly, to extend the scope of the current regulatory
framework so that the new national consumer credit
framework would:
- include consumer lending for investment properties;
- regulate the provision of margin loans;
- require all providers of consumer credit and credit-
related brokering services and advice to be members of
an external dispute resolution body;
- provide for a licensing regime requiring all providers
of consumer credit and credit-related brokering services
and advice to obtain a licence from ASIC;
- require licensees to observe a number of general conduct
requirements, including responsible lending practices;
- regulate the provision of credit for small businesses;
and
- introduce specific conduct obligations, where warranted,
for particular credit activities or products.
1562. On 2 October 2008, COAG agreed to an implementation plan for the
regulation of of consumer credit. COAG agreed to a phased approach
to reform, beginning with the transfer of responsibility key credit
regulation, including the UCCC as phase one. COAG also agreed to
an implementation plan for phase two, the regulation of remaining
areas of consumer credit, including pay day lending (for example,
pawnbrokers), credit cards, store credit, investment and small
business lending, and personal loans, so that the reform package is
completed in the first half of 2010.
1563. A regulation impact statement (RIS) was prepared and considered in
the context of consideration of the decisions by the Australian
Government in September 2008. A copy of that RIS is in Chapter 10
of the explanatory memorandum. The September 2008 RIS includes
background information, including the market and regulatory
environment for consumer credit and margin lending, and
consultation processes that had been carried out to that date. It
also includes a diagram of the two-phased approach to
implementation, that was endorsed by COAG.
1564. This RIS should be read in conjunction with the September 2008 RIS.
It focuses on analysis of key measures in the Bill that
substantively change the regulatory framework. The following
measures are discussed:
. ASIC's enforcement power;
. consumer lending for residential investment properties;
. licensing of participants; and
. responsible lending practices.
1565. The issues of credit for small business, and specific conduct
obligations, are part of the second phase and are not dealt with in
the Bill or in this RIS.
Part 2: Consultation
Consumer credit
Green Paper on Financial Services and Credit Reform
1566. On 3 June 2008, the Government released the Green Paper on
Financial Services and Credit Reform: Improving, Simplifying and
Standardising Financial Services and Credit Regulation.
1567. The Green Paper discussed the regulation of mortgages, mortgage
brokers and margin loans, and proposed options for the Commonwealth
taking over regulation in this area. With respect to other
consumer credit products such as credit cards, personal loans and
micro loans, the Green Paper asked for submissions on whether these
products should also be regulated solely by the Commonwealth or
whether there is a role for the States and Territories in this
area.
1568. Some 150 submissions were received in response to the Green Paper,
and an overwhelming majority supported the Commonwealth assuming
responsibility for the regulation of all consumer credit:
. From the industry's perspective, this support was driven
by the reduction in compliance burden that would be
achieved by reducing the number of different regulatory
regimes under which they are required to operate.
. From the consumer advocates' perspective, this support was
driven by the better protections and efficiencies a
consistent national regime offers.
1569. Most submissions supported the enactment of the UCCC, including the
outstanding projects, as Commonwealth legislation and identified
ASIC as the appropriate regulator:
. Licensing (with compulsory membership of External Dispute
Resolution (EDR) Schemes) and disclosure requirements were
seen as key features. In addition, several submissions
highlighted the need for the concept of responsible
lending, and consideration of capacity to repay
requirements.
. A common view was that putting lenders and brokers into
the Financial Services Reform Act 2001 (FSR) regime was
inappropriate as selling and/or providing credit was
fundamentally different to providing and/or advising on
investments (Mortgage & Finance Association Australia;
Gadens lawyers; ABA).
. Of the few submissions that suggested Chapter 7 of the
Corporations Act 2001 (Corporations Act) would be
appropriate, most commented that the existing requirements
would require modification to apply appropriately to
credit products and providers (AXA Asia Pacific).
. Several submissions supported, or understood need for,
staged implementation (Financial Services Ombudsman,
Financial Planning Association).
. It was suggested that the implementation costs would be
minimised if the Commonwealth adopted the UCCC with
minimal changes (Legal Aid NSW and QLD and Australian
Finance Conference).
Other consultations, reviews and regulation impact statements
1570. The NSW Government has undertaken extensive consultation on the
draft NSW National Finance Brokers Package, and prepared a
regulation impact statement. That package has been a reference
point for many of the proposals in this package, particularly the
responsible lending conduct provisions.
1571. In late 2003, the Ministerial Council on Consumer Affairs (MCCA)
took submissions on its Discussion Paper, Fringe Credit Providers.
Thirty-eight responses were received. Following consideration of
submissions, the proposals were substantially reworked and included
in a Decision-Making Regulatory Impact Statement and Final Public
Benefit Test, dated March 2006.
1572. An inquiry in 2007 into home lending practices and procedures by
the House of Representatives Standing Committee on Economics,
Finance and Public Administration recognised the importance of
consistently regulating non-bank lenders and mortgage brokers by
recommending that the Commonwealth take over the regulation of
credit including the regulation of mortgages. The Committee
suggested that credit be included in the definition of a financial
product for the purposes of the Corporations Act.
1573. The Productivity Commission released its final report on
Australia's Consumer Policy Framework (including regulation of
consumer credit) on 8 May 2008. It recommended that the
Commonwealth take over the regulation of credit and develop generic
consumer law.
1574. KPMG Consulting undertook consultation and released a report NCP
Review of the Consumer Credit Code in December 2000, which has been
the catalyst for the proposed amendments to the default notices and
vendor terms provisions.
1575. The Australian Government, through the Treasury, established an
implementation taskforce consisting of officials from the
Commonwealth Treasury, ASIC and the States and Territories in order
to progress the COAG decisions in relation to consumer credit.
That taskforce has met regularly to discuss policy approaches on
various aspects and consider draft provisions. In addition, a
consultative group of industry and consumer representatives has
been involved in considering draft provisions as they have been
prepared. The Industry and Consumer Consultative Group has
involved representatives from the following bodies:
. Finance industry - Australian Finance Conference,
Australian Bankers' Association, Abacus - Australian
Mutuals (the Association of Building Societies and Credit
Unions), National Financial Services Federation, Mortgage
and Finance Association of Australia, Finance Brokers
Association of Australia, Investment and Financial
Services Association, Financial Planning Association,
Insurance Council;
. Consumer advocate - Australian Consumers Association
(CHOICE), Consumer Law Action Centre;
. Dispute resolution - Financial Ombudsman Service, Credit
Ombudsman Service Ltd; and
. Legal - Consumer Credit Legal Centre (NSW), Law Council of
Australia.
1576. Consultations with the Industry and Consumer Consultative Group
were not conducted in public. The consultations ranged from higher
level discussions on broader policy matters through to
consideration of draft provisions. Members gave feedback at a
combination of face-to-face and telephone meetings, and by
providing written comments. The consultations were conducted on a
confidential basis. The first meeting was held on 31 October 2009
with meetings held on a monthly basis thereafter.
1577. Key aspects of the feedback from the consultations with the
Industry and Consumer Consultative Group has been factored into the
final form of the proposals on consumer credit and is described in
more detail under the relevant headings below.
Part 3: Regulation impact assessments
1578. This part includes individual regulation impact assessments for the
following measures in the Bill:
. ASIC's enforcement power;
. consumer lending for residential investment properties;
. the licensing requirements; and
. responsible lending conduct.
Impact assessment methodology
1579. Impacts can be divided between three impact groups (consumers,
business and government). Typical impacts of an option on
consumers might be changes in access to a market, the level of
information and disclosure provided, or prices of goods or
services. Typical impacts of an option on business would be the
changes in the costs of compliance with a regulatory requirement.
Typical impacts on government might be the costs of administering a
regulatory requirement. Some impacts, such as changes in overall
confidence in a market, may impact on more than one impact group.
1580. The assessment of impacts in this regulation statement is based on
a seven-point scale (-3 to +3). The impacts of each option are
compared with the equivalent impact of the 'do nothing' option. If
an impact on the impact group would, relative to doing nothing, be
beneficial, the impact is allocated a positive rating of +1 to +3,
depending on the magnitude of the relative benefit. On the other
hand, if the impact imposes an additional cost on the impact group
relative to the status quo, the impact is allocated a negative
rating of -1 to -3, depending on the magnitude of the relative
cost. If the impact is the same as that imposed under the current
situation, a zero score would be given, although usually the impact
would not be listed in such a case.
1581. The magnitude of the rating of a particular impact associated with
an option has been assigned taking into account the overall
potential impact on the impact group. The reference point is
always the status quo (or 'do nothing' option). Whether the cost
or benefit is one-off or recurring, and whether it would fall on a
small or large proportion of the impact group (in the case of
business and consumers), is factored into the rating. For example,
a cost or benefit, even though large for the persons concerned, may
not result in the maximum rating (+/-3) if it is a one-off event
that only falls on a few individuals. Conversely, a small increase
in costs or benefits might be given a moderate or high rating if it
would be likely to recur or if it falls on a large proportion of
the impact group. The rating scale for individual impacts is
explained in the Table.
Rating an individual impact
1.
|+3 |+2 |+1 |0 |-1 |-2 |-3 |
|Large |Moderat|Small |No |Small |Moderate |Large |
|benefit|e |benefit|substan|cost/ |cost/ |cost/ |
|/ |benefit|/ |tial |disadvant|disadvant|disadvant|
|advanta|/ |advanta|change |age |age |age |
|ge |advanta|ge |from |compared |compared |compared |
|compare|ge |compare|'do |to 'do |to 'do |to 'do |
|d to |compare|d to |nothing|nothing' |nothing' |nothing' |
|'do |d to |'do |' | | | |
|nothing|'do |nothing| | | | |
|' |nothing|' | | | | |
| |' | | | | | |
1582. The ratings for the individual impacts compared to the status quo
are then tallied to produce an overall outcome for the option. If
it is positive, it indicates that the option is likely to produce a
more favourable cost/benefit ratio than the status quo. If it is
zero there would be no overall benefit from adopting the option,
and if negative the option would provide overall a less favourable
cost/benefit ratio than the 'do nothing' option. Ordinarily,
options that have the highest positive score would be the favoured
courses of action.
1583. What is classed as a 'large', 'moderate' or 'small' cost or benefit
depends on the nature of the problem and options being considered.
Of course, the costs and benefits associated with options to
address a problem costing billions of dollars per year are likely
to be of a much greater absolute magnitude than the costs and
benefits of options for dealing with a rather modest issue that
affects only a handful of persons. However, as all the ratings are
made relative to the status quo/ do nothing option for a particular
problem, the absolute value of 'large' or 'moderate' or 'small' is
not really important. All that matters is that within a problem
assessment, the impacts of each option are given appropriate
ratings relative to the status quo and each other. If that occurs,
it will be sufficient for the methodology to yield an overall
rating that assists in assessing the relative merits of options,
from a cost/benefit perspective, to address the particular problem.
1584. An example of the rating calculation for an option, using the seven-
point scale ratings of impacts, is in the Table below. The example
is based on a purely hypothetical scenario that a new type of long-
wearing vehicle tyre is being sold and marketed, but it has become
apparent that the new style of tyres have a higher risk of
exploding while in motion than conventional tyres. The example is
designed merely to illustrate how the rating scale might be used to
compare a proposal's costs and benefits option to the 'do nothing'
option - it is not intended to be a comprehensive or realistic
assessment of options to address such a problem.
Illustrative rating for the problem of a long-wearing tyre that may fail
Option A: Do nothing
1.
| |Benefits |Costs |
|Consumers |Access to a cheaper |Risk of tyre failure |
| |solution for vehicle|that can result in |
| |tyres. |personal and property|
| | |damage as a result of|
| | |collision. Damage |
| | |can be severe but |
| | |cases are rare. |
|Industry | |Some compensation |
| | |payments to persons |
| | |as a result of |
| | |collisions caused by |
| | |the tyre. |
|Government |Advantages for waste| |
| |management | |
| |perspective. | |
Option B: Ban on sale of the new tyre
2.
| |Benefits |Costs |
|Consumers |No persons will be |Lack of access by |
| |affected by tyre |consumers to |
| |failure and |long-wearing vehicle |
| |resultant damage. |tyres, increasing the|
| |(+3) |cost of vehicle |
| | |maintenance. (-2) |
|Industry |No compensation |Transitional costs |
| |payments for |involved with |
| |accident victims. |switching back all |
| |(+1) |manufacturing/marketi|
| | |ng operations to |
| | |conventional tyres. |
| | |(-3) |
|Government | |Conventional tyres |
| | |produce more waste |
| | |which is costly to |
| | |deal with. (-1) |
|Sub-rating |+4 |-6 |
|Overall rating |-2 |
Option C: Industry - developed quality control standards
3.
| |Benefits |Costs |
|Consumers |Much lower risk of | |
| |tyre failure and | |
| |resultant damage | |
| |than status quo. | |
| |(+2) | |
|Industry |Significantly less |Developing and |
| |compensation |monitoring |
| |payments for |industry-wide quality|
| |accident victims. |control standards. |
| |(+1) |(-2) |
|Government | | |
|Sub-rating |+3 |-2 |
|Overall rating |+1 |
1585. In the above hypothetical example, Option C appears to have a
better impact for consumers and a better overall cost/benefit
rating than Option B.
3.1: ASIC enforcement powers (including penalties and sanctions)
1586. As mentioned above, a decision has been made to enact the UCCC of
the States and Territories and, where relevant, proposed amendments
to the UCCC, as Commonwealth legislation. Further, a licensing
framework for credit service providers will be introduced. It has
also been decided that the new national framework will be
administered by ASIC, which would be given enhanced enforcement
powers.
1587. This part of the assessment focuses on options for enhanced
enforcement powers for ASIC.
Problem identification
1588. The UCCC relies heavily on criminal sanctions to encourage
compliance. The sanctions are fines expressed in penalty units,
with a maximum of 30, 50 and 100 units. Section 179 of the UCCC
defines each penalty unit as $100, so the maximum penalties are
$3,000, $5,000 or $10,000.
1589. In addition, a regime known in the UCCC context as 'civil
penalties' apply to a range of breaches, particularly those that
relate to a failure to undertake appropriate disclosure. These
breaches may also permit the debtor or guarantor to make an
application for an order relating to a breach by the lender. It is
important to note that these types of orders under the UCCC are
distinct from the 'civil penalty' regime under the Corporations
Act. Under the UCCC, the penalty amount is applied for by, and the
penalty can be payable to, a private person (such as an affected
consumer), whereas a 'civil penalty' order under the Corporations
Act involves a regulator applying for a pecuniary penalty payable
to the government. For the purposes of the discussion in this RIS,
the UCCC-type order will be described as 'consumer enforcement'.
Civil penalty orders are intended to mean the type of civil penalty
order found in the Corporations Act, which involves a regulator
applying for a penalty amount to be paid to the government.
1590. The UCCC does not include any infringement notice provisions.
1591. In addition to reenacting the UCCC as Commonwealth law, it is also
proposed to introduce a licensing framework, similar to that
applying under Chapter 7 of the Corporations Act.
1592. The limitations of some of the Corporations Act sanctions have been
noted in the Final Report of the Regulation Taskforce, Rethinking
Regulation (2006) and in the Review of Sanctions in Corporate Law
(Treasury, 2007). In summary, disadvantages of criminal sanctions
in the context of financial sector regulation is that they:
. can result in an overly cautious approach by businesses to
compliance, which can stifle innovative approaches which
would otherwise be desirable to encourage; and
. are time-consuming and costly to prosecute for the
regulator and the defendant.
1593. Accordingly, reliance solely or too heavily on criminal sanctions
and pecuniary penalties can lead to:
. some behaviours that would otherwise contribute to overall
economic efficiency and dynamism not occurring, because
business is too cautious to risk criminal prosecution
(especially for breach of rules against 'higher level'
undesirable behaviours); and
. some 'lower level' undesirable behaviours persisting
because it is too costly and/or time consuming for
regulators to address it.
1594. The costs of responding to actions for consumer enforcement under
the UCCC were raised by industry groups as a problem in the context
of the National Compensation Policy (NCP) review of the Consumer
Credit Code (December 2000).
1595. In the recent consultations, it was reported that the relevant
authorities were not consistent in their approach to
compliance/enforcement activity in relation to the UCCC. Some have
prosecuted matters in court. Queensland authorities reported
prosecuting one or two matters per year, at a cost of $50,000 to
$60,000 per matter. Authorities in some other jurisdictions have
reported relying on other methods, such as direct approaches to
credit providers seeking variations on behalf of affected
consumers. This issue was noted in the March 2006 RIS on Fringe
Credit Providers (see 'Consultation' above). The different
approaches among jurisdictions to compliance activities is likely
to be due to a combination of factors. The resources associated
with pursuing court action is likely to be one of those factors.
Objectives
1596. The main objective of the enforcement power regime is to provide
ASIC with enforcement options that help to minimise losses from:
. undesirable behaviour that the laws permit;
. desirable behaviour that the laws deter;
. the costs of enforcement.
Options
Status quo
1597. ASIC does not currently have enforcement powers in relation to
consumer credit (except for being able to take action in relation
to any misleading, deceptive and/or unconscionable conduct on the
part of financial product providers and intermediaries in their
advertising and sale of consumer credit products). That position
could not be maintained - there would have to be some enforcement
powers in the national credit framework.
1598. However, an equivalent to a status quo position would be to import
the existing penalty regime of UCCC to cover breaches of that part
of the new credit framework, and duplicate the enforcement regime
of Chapter 7 of the Corporations Act for the new licensing
framework. The enforcement provisions in the Australian Securities
and Investments Commission Act 2001 would also apply. Accordingly,
there would be a combination of criminal offences and civil
penalties (derived from the Corporations Act equivalents), plus the
criminal offences and consumer enforcement provisions currently in
the UCCC.
Option A: A combination of criminal (including infringement
notices), civil penalties and consumer enforcement
1599. Under Option A, there would not simply be a duplication of the
penalties in the UCCC and Chapter 7. Instead, the enforcement
structure would include a tiered approach to sanctions, which would
reflect considerations of the Review of Sanctions in Corporate Law
(Treasury, 2007) and the Commonwealth Guide to Framing Commonwealth
Offences, Civil Penalties and Enforcement Powers (AGD, 2007).
. Criminal penalties would continue to apple to offences
which constitute serious or substantial wrongdoing, for
example predatory lending or equity stripping. Such
behaviour would have the effect or potential effect that
warrants the strongest deterrent or punishment, or that
market participants would expect an element of retribution
for the wrongdoing. Criminal penalties would reflect
those for similar offences in the Corporations Act.
. Civil penalties would be applied to offences which
constitute conduct where it is considered that a criminal
sanction is not warranted, because the wrongdoing is not
'serious' or 'substantial' in nature.
. The consumer enforcement regime in the UCCC would also be
maintained for the breaches equivalent to those that they
currently apply to in the UCCC.
. Infringement notices would be applied to offences for
relatively minor offences, where a high volume of
contraventions is expected, and where a penalty must be
imposed immediately to be effective.
Impact analysis
Affected groups
1600. The groups affected by the new regime of ASIC enforcement powers
would be: consumers of credit; industry participants, including
lenders and advisers; and the Government and ASIC.
1601. In terms of industry participants, the licensing system existing in
Western Australia provides some guidance as to the regulatory
population. Western Australia has reported that there are
approximately 190 credit providers registered in that jurisdiction,
of whom approximately 100 operate nationally. These figures does
not include approved-deposit taking institutions (ADIs) registered
under the Banking Act 1959 (approximately 500 nationally) that may
operate in Western Australia, as ADIs are not required to be
licensed under the Western Australian legislation. However, many
ADIs would be subject to the proposed consumer credit framework
regulatory.
1602. In addition to credit providers, the proposed regulatory framework
also covers persons whose business involves suggesting consumers
enter credit contracts, and assisting them enter contracts. Such
participants would primarily (though not exclusively) be comprised
of finance brokers. There are approximately 3,000 licensed finance
brokers in Western Australia, and of those, around 200 have
addresses outside Western Australia.
1603. Persons other than brokers that are part of the credit supply chain
and may be covered by aspects of the proposed regulatory framework
include aggregators and mortgage managers. It is estimated that
between one and two hundred persons would fall into those groups.
Persons whose business is the collection of debts (either as
assignee or as agent of a credit provider) will also be subject to
aspects of the proposed regime, including licensing.
1604. Based on the above, it is estimated that the affected population,
in terms of industry participants, could be as high as 10,000
nationally.
1605. As to consumers, almost all the adult population are users or
potential users of credit facilities. The Dun and Bradstreet
consumer credit expectation survey for the March 2009 quarter
(published in January 2009) reports that 18 per cent of Australians
intended to seek new credit, or increase the limits of existing
credit, in the March 2009 quarter.
Summary of expected impacts
1606. In comparison with the status quo, the distinction between Option A
and the status quo position is the use of infringement notices.
1607. There are direct and indirect costs and benefits associated with
those facilities. In terms of direct benefits, the costs for both
the regulator and the regulated population would be far less than
using the criminal and civil enforcement avenues already there.
For example, the legal costs of defending a consumer enforcement
case under the UCCC are reported to be in the range of $40,000 to
$140,000 (see NCP Review of Consumer Credit Code, December 2000, at
p134). It is reasonable to assume the costs of bringing the action
are similar. If administrative actions were used as an alternative
they would potentially save much of those costs, although defended
matters may ultimately require a court process.
1608. Lower-level (that is, less serious) transgressions are more likely
to be pursued by the regulator under Option A. This outcome has
benefits for consumers because it would improve overall standards
of industry behaviour, but it carries some potential additional
compliance costs for industry participants in comparison with the
status quo.
1609. In the 2008-09 Additional Estimates process, the proposed
regulator, ASIC, was allocated $66.7 million in funding over four
years to administer the new national consumer credit function. A
proportion of that funding will be allocated to enforcement
functions. Including the more flexible avenues under Option A
would enable the enforcement budget to be used more effectively
than under the status quo option.
Status Quo
1.
| |Benefits |Costs |
|Consumers | |Some lower level |
| | |undesirable |
| | |behaviours by |
| | |credit industry |
| | |participants that |
| | |have a negative |
| | |impact on consumers|
| | |may remain |
| | |unaddressed. |
|Business |Consistency with |May have a |
| |Chapter 7 of the |'freezing effect' |
| |Corporations Act |on responsible risk|
| |enforcement regime |taking and |
| |will facilitate |commercial decision|
| |familiarity with the |making by industry |
| |new regime and |participants. |
| |limited transitional |High costs of |
| |costs. |defending court |
| | |proceedings for |
| | |breaches. |
|Government |Consistency with |High costs for |
| |Chapter 7 of the |pursuing |
| |Corporations Act |enforcement action |
| |enforcement regime |in individual cases|
| |will facilitate |may restrict ASIC's|
| |ASIC's familiarity |enforcement |
| |with the new regime. |capacity |
Option A
2.
| |Benefits |Costs |
|Consumers |Greater likelihood | |
| |that low level and | |
| |minor breaches that | |
| |nevertheless impact | |
| |on consumers will be| |
| |addressed by the | |
| |regulator. (+1) | |
|Business |Reduced costs of |Transitional costs |
| |responding to |associated with |
| |enforcement action |becoming familiar |
| |for lower level |with a new |
| |breaches. (+1) |compliance regime. |
| |Less rigorous and |(-1) |
| |costly compliance |More likely to |
| |management systems |become subject to |
| |for lower level |enforcement action |
| |breaches. (+1) |for lower level |
| | |breaches. (-1) |
|Government |Lower cost options |Transitional costs |
| |for responding to |to become familiar |
| |lower level |with new compliance|
| |breaches. (+2) |regime. (-1) |
|Sub-rating |+5 |-3 |
|Overall rating |+2 |
Consultation
1610. In the context of the NCP Review of the Consumer Credit Code
(December 2000), the role of consumer enforcement under the UCCC
was considered (see page 133ff). At that time, industry groups
criticised inclusion of consumer enforcement because:
. the penalty was disproportionate to the gravity of the
breach, and therefore was inefficient;
. there were significant costs associated with defending
consumer enforcement proceedings that may discourage some
entrants to the market;
. there were already a range of remedies available to
officials and consumers - consumer enforcement does not
produce any improved industry behaviour;
. the consumer enforcement regime has a number of functions
other than encouraging compliance (for example, provision
of compensation and licensing) and the multiple functions
can create tensions;
. consumer enforcement encourages excessive disclosure and
skews industry resources toward compliance with
obligations that, in relative terms, may be deserving of
less attention than other obligations that are not subject
to those actions.
1611. On the other hand, the report noted that consumer groups strongly
supported the role of consumer enforcement as assisting produce
competition in the credit market, arguing that consumer enforcement
has been fundamental in ensuring a compliance culture among credit
providers.
1612. The report concluded (at page 137) that the consumer enforcement
regime in the UCCC facilitates the objective of truth in lending,
as well as providing a significant redress mechanism for borrowers.
They facilitate fair trading outcomes including:
. provision of redress mechanisms for consumers; and
. minimal misleading, deceptive or unconscionable conduct by
market participants.
1613. The report did not recommend removal of the consumer enforcement
regime in the UCCC.
1614. In the development of the national credit framework, options for
ASIC's enforcement powers and the inclusion of criminal, civil and
infringement notices was discussed with ASIC, the Criminal Law
Branch of Attorney-General's Department and the Financial Services
and Credit Reform Implementation Taskforce (FSCRIT). FSCRIT is
chaired by Australian Treasury and comprises officials from the
States and Territories. The State and Territory officials were
mainly from agencies responsible for administration of the UCCC,
but also included some central agency representatives.
Enforcements issues were also raised more generally with the
Industry and Consumer Consultation Group (see discussion above
under the 'Consultation' heading).
1615. A theme of the discussions was a concern, particularly on the part
of FSCRIT members, that the proposed new regulator ASIC would have
sufficient regulatory tools to take action to address undesirable
behaviours, and do so in a consistent manner across jurisdictions.
ASIC favoured including infringement notices in the combination of
enforcement tools and those views were taken into consideration.
1616. In relation to these issues, the main matters raised by industry
and consumer groups were that the sanctions are commensurate with
the level of undesirable behaviour and that the regulator has
appropriate enforcement,
1617. These concerns have been considered in the development of ASIC
enforcement powers and penalties and are reflected in the inclusion
of infringement notices in the proposed enforcement regime.
Conclusion and recommended option
1618. The main disadvantage of Option A compared to the status quo are
transitional costs for the regulator and the regulated population
in becoming familiar with a different compliance regime, including
developing associated procedures. However, those costs are
outweighed by the benefits to government, business and consumers
associated with having a wider range of enforcement options
available to the regulator, particularly in relation to the lower
level breaches.
1619. The recommended option is Option A.
3.2 Consumer lending for residential investment properties
Problem identification
1620. Loans for the purchase of residential investment properties for
investment purposes (that is, not for owner-occupied properties)
are currently excluded from the scope of the UCCC.
1621. There have been long-standing concerns in respect of the conduct of
credit providers in connection with the provision of credit for
residential investment properties. Examples of conduct that has
adversely impacted on consumers include the provision of credit for
properties that are sold as part of a 'scheme' operations that
might include the following aspects:
. inflated prices for the residential investment property,
including two-tiered property schemes where prospective
borrowers are cold-called and flown interstate, and sold a
property that is significantly above the market value;
. misrepresentations and misleading information provided to
consumers about residential property investments,
including future taxation and income streams;
. arrangements that involve consumers putting their homes at
risk by using it as security in respect of the investment
property loan, especially low or middle income borrowers
who would otherwise not be eligible for a loan.
1622. One or more of the above features have, in many cases, produced
negative financial consequences for consumers - in particular, an
inability to make the required repayments as required and facing
forfeiture of the investment property and/or the consumer's home as
a result.
1623. To address those concerns, the Government has decided to extend the
scope of the consumer credit framework to cover credit provided for
the purpose of purchasing residential investment properties. The
effect of that extension would be to subject credit providers for
residential investment properties to registration and licensing
requirements and responsible lending conduct obligations.
1624. Having regard to that decision, the problem to be addressed in this
RIS is the scope of the extension to residential investment
property.
Objective
1625. The objective in regulating credit for residential investment
properties is to significantly reduce the frequency of negative
financial outcomes for consumers in the residential investment
credit market without imposition of unnecessary regulatory costs
and impositions.
Options
Status quo
1626. Retaining the status quo position (that is, no regulation of
consumer credit for residential investment properties) is not a
feasible option in light of the Government's decision. However, a
description of the costs and benefits associated with the status
quo are included as a benchmark against which the other options may
be measured.
Option A: Broad scope
1627. Under Option A (the broad approach), all scenarios involving the
provision of credit to consumers (as that term is defined in the
UCCC) for the purpose of residential investment properties would be
covered by the new regulatory framework. In particular, the credit
provision would be covered:
. regardless of the quantum of the loan;
. even if more than one investment residence is to be
purchased;
. even when the residence to be purchased is under
construction or bought 'off the plan';
. whether or not the consumer provides security over their
existing property (particularly their own home) to provide
additional collateral for the credit.
Option B: Narrow scope
1628. Under Option B (the narrow approach), there could be one or more
exclusions from the scope of the additional regulation, on the
basis that participants in such transactions do not require the
protections that would be provided under the consumer credit
regulatory framework. For example, the exemptions that might be
given would be including:
. for loans of amounts exceeding a specified (high) value,
or to purchase more than one residential investment
property;
. purchases for residences that have not been constructed or
construction is not complete;
. loans for investment properties that do not involve the
consumer providing additional security over existing
assets, particularly their own residences.
Impact analysis
1629. The groups affected by the new regime for would be consumers of
credit; industry participants (principally lenders and, indirectly,
advisers); and the Government and ASIC.
1630. The businesses that would be potentially affected by the extension
of the scope of the arrangements to residential investment
properties would include a subset of the credit providers referred
to under the 'ASIC enforcement powers' section. Not all credit
providers would be affected because some providers do not deal in
home loans. Also affected would be advisers in respect of
investment home loans, such as mortgage brokers. Persons
conducting business as 'property spruikers', whose business model
includes encouraging or assisting clients to obtain credit from a
particular source for an investment property purpose, would also be
affected.
1631. In its 2005 report Property Investment Advice - Safe as houses, the
Parliamentary Joint Committee on Corporations and Securities noted
that about 13 per cent of Australian households receive rental
income (up from about 9 per cent in 1995), compared with about 6.5
per cent in both the United States of America and Canada, and 2 per
cent in the United Kingdom. A large proportion of those investment
properties would be financed with credit. The Committee noted
that, in 2005, more than 30 per cent of home loans are for
investment purposes. Figures from the Reserve Bank Bulletin from
January 2009 (table D5) indicate that the proportion of home loans
for investment purposes is still just above 30 per cent.
1632. Both the providers of investment home loans, and persons assisting
others to enter investment home loans (such as mortgage brokers)
would be affected by a regulatory framework that includes
investment home loans within its scope. If a broad scope were
adopted, they would be required to comply with the same obligations
as participants in providing other types of consumer credit under
the new framework, including:
. obtaining a licence to carry on the business;
. as a consequence of licensing, being required to be
members of external dispute resolution facilities and meet
other obligations, such as conducting their business
honestly and fairly;
. making assessments prior to entering into arrangements of
whether clients are likely to be have the capacity to meet
certain obligations, including obligations to repay.
1633. Most of the participants in the investment home loan credit market
would also offer their products and services in relation to loans
for owner-occupied dwellings, which are clearly within the scope of
the existing regulatory framework and the proposed new national
credit framework. Accordingly, they would be required to meet
obligations such as obtaining a licence in any event. However, the
incorporation of investment home loans within the scope of the
framework would mean that the transaction-based obligations, such
as disclosure and assessment, would need to be met in relation to a
wider class of transactions. The transaction-based disclosure and
assessment obligations are described in detail in the regulation
impact assessment under the 'Responsible lending conduct
requirements' section below (Part 3.4).
1634. The distinction between Options A and B would mean that the
transaction-based obligations would only need to be met in a
narrower range of transactions. However, few, if any, participants
would be relieved of the 'one-off' obligations, such as obtaining a
licence. That is because few, if any, participants have a business
model that only involves dealing in the types of loan transactions
that would fall within the possible exempt categories. Under
Option B, almost all participants would deal with both exempt and
non-exempt classes of transactions.
1635. Accordingly, the difference in compliance costs between the status
quo and Option A is likely to be very great for those participants
that deal exclusively in investment home loans, as they would not
fall outside the regulatory framework altogether under the status
quo. Only a small proportion of participants would fall in that
category. Most would fall within the scope of the framework for
their other business activities (for example, owner/occupier home
loans), and the additional compliance costs would result from the
regime being applied to a wider range of transactions. The
difference in compliance costs for industry participants between
Options A and B is not likely to be significant as few participants
would have businesses that operate solely or largely in the
transaction classes proposed for exemption under Option B.
1636. For consumers considering investment properties, the benefits of
the regulatory framework for credit applying to investment
properties will be:
. access to enhanced pre-contractual disclosure;
. remedies, including remedies for unjust conduct; and
. statutory rights to apply for a hardship variation.
1637. Consumers will also be protected through the application of the
national credit laws in that:
. unscrupulous operators may be excluded from the market due
to the licensing requirements; and
. participants will be under obligations to ensure the
credit contracts for borrowers are not unsuitable and that
they can afford the repayments.
1638. Consumers that suffer serious adverse financial outcomes, including
loss of their homes, due to default on credit contracts regarding
investment properties can occur in large groups in cases where a
major investment property scheme fails. Among the affected groups
are some who, as a result of their losses, are likely to utilise
government assistance in the form of, for example, the age pension.
Minimising such occurrences produce a small financial benefit for
government.
1639. The difference Options A and B is that, under Option B, some
transactions would not be covered by the regulatory framework due
to exemptions being applied. For consumers, in cases where they
have no need for the protections of the regulatory framework,
Option B would be slightly preferable because they would not have
to deal with disclosure information or respond to assessment
queries. This benefit is offset by the risk that the exemptions
might extend to some cases where the consumer would be protected
from suffering loss due to the protections offered by the
regulatory framework.
Status quo
1.
| |Benefits |Costs |
|Consumers |Access to a wide |Some consumers |
| |range of property |suffer negative |
| |investment |financial |
| |opportunities using |consequences, |
| |credit to |sometimes of a |
| |significantly or |severe nature (such |
| |wholly fund the |as losing home), as |
| |investment. |a result of entering|
| | |into non-viable |
| | |credit arrangements |
| | |for the purchase of |
| | |residential |
| | |investment |
| | |properties. |
|Industry |Low compliance costs.|Publicity for high |
| | |profile negative |
| | |cases impacts on |
| | |consumer confidence |
| | |in the residential |
| | |investment sector. |
|Government |Low |Providing financial |
| |supervisory/enforceme|assistance to |
| |nt costs. |affected consumers |
| | |who would otherwise |
| | |not have required |
| | |it. |
Option A
2.
| |Benefits |Costs |
|Consumers |Enhanced access to |Compliance costs of |
| |information before |the regulatory |
| |entering contracts |framework are likely|
| |for higher quality |to be passed through|
| |decision-making. |to consumers. |
| |(+2) |However, many major |
| |Significant |credit providers |
| |reduction of |also operate in the |
| |misconduct causing |regulated sector |
| |negative financial |already, so could |
| |outcomes for |apply their existing|
| |borrowers (including|compliance |
| |foreclosure on |procedures to |
| |investment |investment loans |
| |properties and/or |(noting that in some|
| |homes due to a |cases they may |
| |failure to properly |already do so |
| |assess capacity of |voluntarily). (-1) |
| |the borrowers to | |
| |meet repayments | |
| |before entering into| |
| |the loan). (+2) | |
| |Some borrowers will | |
| |be able to negotiate| |
| |hardship variations | |
| |during financial | |
| |stress, enabling | |
| |them to avoid having| |
| |to sell the property| |
| |at a loss or for a | |
| |discounted value. | |
| |(+1) | |
|Industry |Lower instances of |Overall higher |
| |negative outcomes |compliance costs. |
| |for consumers are |Providers not |
| |likely to increase |already in the |
| |overall consumer |regulated market |
| |confidence in the |would need to make |
| |sector. (+2) |significant changes |
| | |to their compliance |
| | |programs and |
| | |business practices. |
| | |(-2) |
|Government |Lesser need for |Increased resources |
| |financial assistance|will be required to |
| |for negatively |enforce and maintain|
| |impacted consumers. |this extension of |
| |(+1) |the existing |
| | |regulatory regime. |
| | |Most of these costs |
| | |will fall on ASIC. |
| | |(-2) |
|Sub-rating |+8 |-5 |
|Overall rating |+3 |
Option B
3.
| |Benefits |Costs |
|Consumers |Same benefits as for|Same or similar |
| |Option A but to a |costs as for Option|
| |lesser extent, due |A. (-1) |
| |to the narrower | |
| |scope. (in total | |
| |+4) | |
|Industry |Same benefits as for|Same or similar |
| |Option A but to a |costs as for Option|
| |lesser extent, due |A but to a lesser |
| |to the narrower |extent, due to the |
| |definition. (+1) |narrower scope. |
| | |(-1) |
|Government |Same benefits as for|Same or similar |
| |Option A. (+1) |costs as for Option|
| | |A but to a lesser |
| | |extent, due to the |
| | |narrower scope. |
| | |(-1) |
|Sub-rating |+5 |-3 |
|Overall rating |+2 |
1640. The tables which compare be reference to the status quo appear to
indicate that regulation of residential investment credit has the
greatest overall benefit to consumers, in the form of a reduction
of negative outcomes. For government and industry, both would
indirectly benefit from a reduction in negative consumer outcomes
but there are offsetting costs as a result of the regulation.
Overall, a broad definition, while it has increased costs, has a
higher overall benefit relative to the status quo than a narrow
approach.
1641. It is also noted that broader approach has some benefits relative
to a narrow approach because:
. it avoids costs associated with resolving disputes around
the 'edges' of the exemptions about whether a particular
transaction is covered or not; and
. it avoids arbitrary rules (such as dollar thresholds) to
govern which transactions by the regulatory framework and
which fall outside, which might be exploited by
unscrupulous providers.
Consultation
1642. In the course of the consultations with the Industry and Consumer
Consultation Group, referred to in the 'Consultation' heading
above.
1643. Options A and B were discussed in detail. Stakeholders generally
favoured inclusion of investment property credit without any
significant modifications or variations, so that participants may
apply the same procedures to these investment loans for other home
loans. Stakeholders agreed that:
. there was no particular exemption or circumstance
associated with consumer credit for residential investment
purposes for which the protection offered by regulation
was not required; and
. the definition of the type of investment credit to be
regulated should be broad.
Conclusion and recommended option
1644. Within the parameters of the decision to extend the application of
the UCCC to credit for residential investment properties, the
preferred position is to adopt a broad definition of the activity
to be regulated (Option A).
3.3 Licensing of participants
Problem identification
1645. In general, licensing a regulated population is intended to ensure
that a particular product or service is provided to the public with
a certain assurance of competence and quality. Licensing systems
are common in financial services, where there are considerable
information asymmetries that justify regulatory intervention.
1646. These issues are particularly evident in respect of finance brokers
and intermediaries. They were documented in detail in the RIS
developed in the preparation of the Finance Brokers Bill drafted by
New South Wales. That Bill was superseded by the proposal for the
Commonwealth to take over the regulation of credit. The RIS noted
that undesirable market practices included:
. recommending products that give higher commissions to
brokers but which are inappropriate, higher cost and/or
unaffordable for clients;
. misrepresenting applicants' financial details to ensure
they qualify for loans in order that brokers obtain
commissions, and when, if the lender was aware of the
borrower's actual financial position, they would reject
the application;
. 'upselling' loans to higher amounts to increase
commissions;
. engaging in 'equity stripping' with lenders, that is,
arranging emergency loans for borrowers in financial
difficulty (particularly those facing foreclosure of the
family home) with high-cost credit providers, in the
expectation that the borrower will ultimately default
permitting subsequent transfer of equity in a consumer's
home to the broker and the lender.
1647. Concerns such as those were considered in the context of the
decisions of the Australian Government and COAG in 2008 that
providers of credit and of advice relating to credit are to become
subject to a national licensing system administered by ASIC.
1648. The issue discussed in this RIS is the preferred form of the
licensing framework.
Objectives
1649. The main objectives in establishing a licensing system for lenders
and brokers of credit is to have a market environment for credit in
which:
. lenders and brokers/intermediaries act honestly and have
adequate resources and competency to carry on their
businesses;
. borrowers who suffer losses because of a breach of their
obligations by lenders or brokers/intermediaries are able
to obtain compensation; and
. dishonest or incompetent lenders and
brokers/intermediaries are prevented from continuing to
operate.
Options
Status quo
1650. Under the current State-based regulatory framework there is no
consistent requirement for providers of credit and services related
to credit to be licensed. Some, but not all, states have
established requirements in this area. Western Australia has a
comprehensive licensing system for mortgage lenders and brokers.
Victoria and the Australian Capital Territory have registration
systems covering credit providers and brokers.
1651. In light of the terms of the decisions by the Australian Government
and COAG to introduce a national licensing system for credit
administered by COAG the status quo is not a feasible option, but
it has been included as a reference point against which the costs
and benefits of other options can be compared.
Option A: Establish a new licensing system modelled on Chapter 7 of the
Corporations Act
1652. The issues raised above in relation to credit and credit-related
advice are of a similar nature to those that prompted the
establishment of the licensing system in Chapter 7 of the
Corporations Act for investment products and related advice.
Accordingly, a licensing model along those lines, adapted to suit
credit, would clearly be an option for consideration in this
context.
1653. Key elements of this option would include:
. The licensing framework would be included in the new
consumer-credit legislation.
. Any individual or entity proposing to provide credit
(lenders) or credit-related services
(brokers/intermediaries) would be required to obtain a
licence from ASIC.
. Licensees would be subject to a range of general conduct
obligations modelled on the obligations in the
Corporations Act, including that the business is run
honestly, efficiently and fairly.
. Competency/training requirements would be included,
particularly for providers of credit-related advice.
. Licensees would be required to implement appropriate
compensation arrangements such as professional indemnity
insurance.
. ASIC would be provided with appropriate enforcement
powers, including powers to suspend or cancel licences and
to issue bans.
Option B: Expand the existing Chapter 7 of the Corporations Act licensing
framework to include providers and brokers/intermediaries of credit
1654. Rather than establish a new framework, another option would be to
simply expand the existing Chapter 7 licensing system to include
credit and credit-related services. Key elements of this option
would include:
. The main elements of the existing Chapter 7 licensing
framework (Australian Financial Services Licence - AFSL)
would be expanded to incorporate participants providing
credit and credit-related services.
. Participants would be licensed by obtaining an AFSL, but
there would be new categories of AFSLs to encompass credit-
related services.
. The requirements regarding AFSLs (training, compensation,
ASIC enforcement) would apply.
Impact analysis
1655. The groups affected by the new regime for licensing would be
consumers of credit; industry participants including lenders and
advisers; and the Government and ASIC. Reference should also be
made to the discussion in Part 3.1 under the heading of Impact
Analysis, in respect of the likely regulated population.
1656. The main group affected is industry participants who will need to
become holders of an Australian credit licence (ACL) in order to
continue engaging in credit activities. Currently there is a
licensing scheme in Western Australia and a registration scheme in
the Australian Capital Territory and Victoria for lenders and
brokers. For persons operating across jurisdictions, or
nationally, the position will be simplified in that they will now
only need to hold a single licence.
1657. The most significant impact will be on those who only conduct
business in States or Territories where there is currently no
licensing or registration scheme. It can be anticipated that these
businesses will face significant transitional costs. However,
within this group the impact will be less on those persons
(predominantly brokers but also some lenders) who are members of an
industry body, the Mortgage and Finance Association of Australia,
as these persons, in order to qualify for membership, must already
meet some of the proposed obligations (for example, they must be a
member of an EDR Scheme and hold professional indemnity insurance).
1658. From the participant perspective, licensing will involve one-off
costs in applying for a licence, together with ongoing licence
fees. There will be also be one-off costs of preparing the
application and the costs of complying with the ongoing obligations
associated with the licence, including, in particular:
. training and supervision costs; and
. maintaining adequate compensation arrangements
(for example, professional indemnity insurance).
1659. In respect of training and supervision, it is proposed that the
Bill will include clauses requiring licensees to ensure that
representatives understand and adhere to compliance arrangements.
It is expected that ASIC will provide guidance on what it considers
are the relevant competency standards.
1660. It is proposed that the Bill will provide for an obligation to
maintain such compensation arrangements as are specified, either in
the regulations or formally by ASIC. It is likely that
professional indemnity insurance is one type of compensation
arrangement likely to be specified.
1661. The costs of the above will vary greatly with the size of the
licensee's business and the extent to which external advisors are
engaged to assist with the process. However, guide, the one-off
costs under the existing licensing regime for financial services
would be a minimum of several hundred dollars in up-front and
annual expenditure for a small firm with no employees or external
advisors, through to many thousands of dollars for a large firm.
1662. It is not considered that there would be any significant difference
in the compliance cost impact for industry between Option A and
Option B. As noted above, the submissions in response to the
Government's Green Paper on Financial Services and Credit Reform
indicated a reasonable level of industry support for Option A.
1663. Consumers will benefit from licensing in that:
. unscrupulous operators will be excluded from the market
where they fail to meet the licensing requirements
(whereas at present they can move to a jurisdiction with
no or minimal entry requirements if they are banned in
another State or Territory); and
. the standards of conduct in the industry should improve
over time due to the obligations attached to licensing.
1664. Establishing a licensing regime, or extending the existing regime
to cover credit advice, would involve significant resources on the
part of the regulator. In the 2008-09 Additional Estimates
process, the proposed regulator, ASIC, was allocated $66.7 million
in funding over four years to administer the new national consumer
credit function. A proportion of that funding will be used in
connection with the establishing the licensing framework for
consumer credit, including processing applications.
Status quo
1.
| |Benefits |Costs |
|Consumers | |Many reported cases |
| | |of consumers being |
| | |overcharged or |
| | |becoming victims of |
| | |equity-stripping as |
| | |a result of 'sharp' |
| | |practices by some |
| | |providers of credit |
| | |and related |
| | |services. |
|Industry |Limited compliance |Differences in |
| |costs for industry |regulatory |
| |in most |requirements across |
| |jurisdictions. |jurisdictions |
| | |results in increased|
| | |compliance costs for|
| | |national businesses.|
|Government | | |
Option A: Establish a new licensing system modelled on Chapter 7 of the
Corporations Act
2.
| |Benefits |Costs |
|Consumers |Significantly reduced |Costs of products |
| |risk of losses to |and services may |
| |consumers not properly|increase as |
| |advised of risk, and |industry passes on |
| |access to suitable |higher compliance |
| |remedies in cases when|costs. (-1) |
| |it occurs. (+4) |No measurable |
| | |impact on costs or |
| | |accessibility of |
| | |credit or related |
| | |services as a |
| | |result of exits by |
| | |market participants|
| | |reacting to the |
| | |licensing |
| | |requirements is |
| | |expected. |
|Industry |Greater integrity in |Higher compliance |
| |the market may lead to|costs due to new |
| |greater confidence and|obligations |
| |participation by |relating to |
| |consumers. (+1) |licensing, |
| |Uniformity of rules |training, PI |
| |across borders would |insurance and |
| |provide opportunities |conduct |
| |for efficiencies for |obligations. |
| |national credit |System can be |
| |businesses. (+1) |specifically |
| | |tailored to credit,|
| | |but holders of |
| | |AFSLs also |
| | |providing credit |
| | |services would have|
| | |to comply with |
| | |separate |
| | |requirements. (-3)|
|Government | |Resources would be |
| | |required to |
| | |establish and |
| | |maintain the |
| | |licensing |
| | |framework. (-1) |
|Sub-rating |+6 |-5 |
|Overall rating |+1 |
Option B: Expand the existing Chapter 7 of the Corporations Act licensing
framework to include providers and brokers/intermediaries of credit
3.
| |Benefits |Costs |
|Consumers |Significantly |Costs of products |
| |reduced risk of |and services may |
| |losses to consumers |increase as industry|
| |not properly advised|passes on higher |
| |of risk, and access |compliance costs. |
| |to suitable remedies|(-1) |
| |in cases when it |No measurable impact|
| |occurs. (+4) |on costs or |
| | |accessibility of |
| | |credit or related |
| | |services as a result|
| | |of exits by market |
| | |participants |
| | |reacting to the |
| | |licensing |
| | |requirements is |
| | |expected. |
|Industry |Greater integrity in|Higher compliance |
| |the market may lead |costs due to new |
| |to greater |obligations relating|
| |confidence and |to licensing, |
| |participation by |training, PI |
| |consumers. (+1) |insurance and |
| |Uniformity of rules |conduct obligations.|
| |across borders would|As compared to |
| |provide |Option A, there may |
| |opportunities for |be some synergies |
| |efficiencies for |arising from |
| |national credit |combining the |
| |businesses. (+1) |licensing |
| | |requirements with |
| | |the existing AFSL |
| | |regime, but there |
| | |would be additional |
| | |costs because the |
| | |AFSL framework is |
| | |not tailored to |
| | |credit. (-3) |
|Government | |Resources would be |
| | |required to |
| | |establish and |
| | |maintain the |
| | |licensing framework.|
| | |(-1) |
|Sub-rating |+6 |-5 |
|Overall rating |+1 |
Consultation
1665. Licensing was a key focus of the Industry and Consumer Consultation
Group, referred to in the 'Consultation' heading above.
Stakeholders discussed:
. the desirability of a separate licensing scheme for credit
providers, rather than including credit in the definition
of 'financial products' in the existing AFSL regime in the
Corporations Act:
- stakeholders generally opposed the incorporation of
consumer credit into the AFSL regime as credit was
fundamentally different to other financial products
(note that margin loans were an exception because of
their close connection with investment products
regulated under the Corporations Act), so the favoured
option was the creation of a tailored framework for
consumer credit including a standalone licensing scheme;
. ways to minimise costs to industry where the same entity
holds an AFSL and an ACL (including, for example, the
desirability of having the same licence number where
possible);
. transitional arrangements, including the desirability of
the legislation being supplemented by regulatory guidance
from ASIC; and
. a range of technical issues, such as:
- the circumstances in which a person who is assigned a
loan by a licensed credit provider should be required to
become licensed; and
- a number drafting options for draft legislative clauses.
1666. Feedback received from the group has been factored in to the design
of Option A. In particular, it is proposed that a streamlined
mechanism for licensing will be incorporated for persons that
already hold an AFSL, or certain licences under State-based
regulatory frameworks.
1667. It should be noted that some stakeholders were also members of the
consultation group in relation to margin loans (which is addressed
in a separate Bill), where the unique aspects of this product, and
its intermingling with shares or other financial products, led to a
different approach to regulation.
Conclusion and recommended option
1668. Options A and B would both offer significant benefits to consumers
and overall benefits in comparison with the status quo. The cost-
benefit profiles for both yield identical outcomes using this
methodology, so the choice between them is finely balanced.
1669. The advantages of Option A are that incorporating a licensing
framework into the existing AFSL system in Chapter 7 of the
Corporations Act would offer potential efficiencies for government
in establishing and maintaining the framework and, for those
businesses that already hold an AFSL for other products, they would
already be familiar with the system.
1670. The disadvantage, in comparison with Option B, is that the existing
framework was not designed with credit products in mind. It would
require significant tailoring to ensure it applied appropriately,
though both exemptions and variations. Those would result in
introduce additional complexities and costs for participants, as
well as introduce perceived anomalies.
1671. An independent system can be tailored to its purpose at the outset,
and reduce the risk of elements that are unnecessary in the credit
context to be applied unnecessarily. For example, the arguably
requirements in the AFSL licensing framework for licensees to have
compensation arrangements in place may not need to be of the same
nature or size when the consumer has received credit as when they
have invested funds. Similarly, remedies for consumers associated
with unlicensed conduct are likely to need to be different, as
remedies such as rescission are most appropriate in the investment
rather than the credit environment.
1672. On balance, Option A is preferred.
3.4 Responsible lending conduct requirements
Problem identification
1673. According to the May 2008 final Productivity Commission's report on
the Review of Australia's Consumer Policy Framework (the PC Report)
there has been an increased use of credit in Australia over the
last 20 years.
1674. This growth has contributed to historically high levels in the
stock of debt held by households as well as increased commitments
required to service debt. Evidence suggests that these increases
have come about mostly as a result of the growth in the size of
home loans.
1675. The distribution channels for the provision of credit to consumers
(such as the use of various intermediaries) and the development of
products such as no and low documentation loans have often resulted
in a separation from the borrower from the lender and limited or
filtered the documentation and enquiries made regarding a
consumer's financial position when seeking to apply for credit.
1676. Concerns have been expressed that this 'separation' factor, when
combined with incentives for persons in the distribution chain to
issue loans, have resulted in many consumers entering into credit
transactions that are unsuitable for their credit requirements
and/or are unsuitable, in the sense that they are, or become,
unable to meet the relevant obligations without suffering hardship.
1677. Consumer defaults, particularly on home loans, can cause intense
personal hardship to individuals and families and, due to the flow-
on effects on such issues as housing prices, can have broader
economic implications if they occur on a large scale.
1678. In response to those concerns, in September 2008 the Australian
Government decided that the phase one of the implementation plan on
national consumer credit regulation framework should include the
regulation of responsible lending conduct. This decision was
endorsed by COAG on 2 October 2008.
1679. The problem addressed in this RIS is, what the key elements of the
new regulatory framework for responsible lending conduct should be.
Objectives
1680. The key objective is to establish a regulatory framework for
responsible lending conduct (in accordance with the decisions of
the Australian Government and COAG) in a manner that strikes a
reasonable balance between the goals of minimising the incidence of
consumers entering unsuitable credit contracts, and the goal of
maximising access to credit for consumers who have the desire and
ability to service it.
Options
Status quo
1681. Retaining the status quo position (that is, no formal regulatory
framework for responsible lending conduct) is not an option in
light of the 2008 decisions of the Australian Government and COAG.
However, a description of the costs and benefits associated with
the status quo are included as a benchmark against which the other
options may be measured.
Option A: Regulation of the provision of credit advice
1682. Under Option A, advice to consumers about credit would be regulated
in the same way to the regulation of advice about financial
products under the Corporations Act. This option would include
regulatory elements such as:
. requiring the adviser to undertake sufficient inquiries
into the consumer's personal circumstances (not only
financial circumstances) and conducting sufficient
investigation;
. requiring the adviser to have a reasonable basis for any
financial product advice;
. requiring the advice to be of a standard that is
appropriate for the client;
. requiring the adviser to document all advice and the basis
for that advice in a Statement of Advice to a level of
detail that allows the consumer to decide whether to act
on the advice and requiring a number of prescribed
mandatory inclusions in the statement;
. requiring disclosure of any commissions that are payable
or receivable by the adviser or the adviser's employers,
and any other interests that might be capable of
influencing the advice given for every financial product
recommended;
. requiring mandatory provision of a Statement of Advice to
the consumer within five working days; and
. imposing higher level obligations on advice that
recommends the replacement of one product with another.
Option B: Responsible lending conduct obligations
1683. Under Option B, there would be regulation of certain conduct in
relation to credit contracts, which would be known as 'responsible
conduct' obligations. Those rules would provide for persons
involved in the credit supply chain to observe a number of
obligations, chiefly that:
. persons providing credit (credit providers), persons
suggesting credit or assisting persons to obtain credit
(credit assisters); representatives of such persons and
debt collectors would all be required to issue to
consumers a credit guide, which includes basic information
about the identity of the participant, dispute resolution,
and compensation arrangements;
. credit assisters suggesting persons enter credit contracts
would be required to make preliminary assessments about
the suitability of the contract, in terms of whether it
meets the consumers' requirements and also whether the
consumer can meet the financial obligations under the
proposed contract; and
. credit providers would, before entering into a credit
contract with the consumer, be required to conduct a
suitability assessment.
Impact analysis
1684. The groups affected by the amendments are consumers of credit;
industry participants including credit providers and credit service
providers; the Government and ASIC.
1685. In terms of benefits to consumers, regulation of credit advice and
applying responsible conduct obligations both offer the prospect of
preventing consumers entering unsuitable contracts. However, as
the responsible conduct obligations would apply to advisers and
lenders, it is likely to be somewhat more effective at achieving
that goal. Option A, however, offers consumers the prospect of
higher quality advice more generally (rather than merely preventing
unsuitable contracts). Overall, the benefits for Options A and B
are of a similar magnitude.
1686. The costs of complying with the obligations for the type of
regulation under Chapter 7 (Option A) are familiar to businesses
that provide financial product advice. The RIS for the
Corporations Legislation Amendment (Simpler Regulatory System) Bill
(2007) noted that the industry has indicated that the cost of
preparing an statement of advice is approximately $260 on average.
That estimate was based on cost estimates provided by industry for
producing a Statement of Advice, which primarily consists of the
time that an adviser would spend on documenting the client's
information and the advice provided. It does not include the costs
of making appropriate inquiries of the client and doing the
analysis.
1687. The costs associated with complying with Option B would primarily
relate to the obligations to prepare and provide a credit guide and
undertake the suitability assessments.
1688. The provision of a credit guide is expected to be of a similar
compliance cost to the Chapter 7 requirement to provide a Financial
Services Guide. The major costs associated with the guide for most
licensees would be in compiling and checking that the information
is accurate and meets the requirements of the legislation. Many
licensees may choose to use external advisors in that process. If
in printed form, it would cost the same to produce as a small
pamphlet or brochure - the unit cost being dependent on volume.
1689. The requirement to undertake a suitability assessment will involve
making reasonable inquiries about how the proposed credit would
impact on the consumer's financial situation. Such inquiries might
include obtaining information regarding:
. the consumer's current income and expenditure, and the
maximum amount the consumer is likely to have to pay under
the proposed contract;
. any expected significant changes in the consumer's
financial circumstances.
1690. The extent of the required inquiries will be dependent on the
circumstances of the individual case, in particular the
significance of the proposed credit in the context of the
consumer's overall finances. Prudent lenders and credit
brokers/advisers would ordinarily make inquiries along similar
lines as of their normal business operations, in order to assess
the customers' capacity to repay. It is proposed that provision
will be made to minimise duplication of inquiries where a consumer
deals with intermediaries rather than with the lender directly.
1691. Industry groups expressed significant concern about the compliance
costs associated with applying an advice regime for credit similar
to the advice framework in Chapter 7. As between Option A and B,
the least costly option in terms of compliance costs is likely to
be Option B.
Status quo
1.
| |Benefits |Costs |
|Consumers |Ready access to advice |Relatively high rates of |
| |and credit. |consumers suffering |
| | |financial hardship due to|
| | |over indebtedness or |
| | |default on consumer |
| | |credit contracts. |
|Industry | |Costs associated with |
| | |managing default cases |
| | |and resulting disputes. |
|Government| |Costs associated with |
| | |supporting consumers in |
| | |financial hardship as a |
| | |result of credit |
| | |default/foreclosures. |
Option A: Regulation of the provision of credit advice
2.
| |Benefits |Costs |
|Consumers |Less risk of entering |Costs of, and access to, |
| |unsuitable transactions |credit advice is likely |
| |that include obligations |to increase. (-2) |
| |that consumers are not | |
| |able to meet without | |
| |hardship. (+2) | |
| |Higher quality of credit | |
| |advice generally, which | |
| |is likely to lead to | |
| |better financial outcomes| |
| |from credit transactions.| |
| |(+1) | |
|Industry |Higher consumer |Increased compliance |
| |confidence in quality and|costs associated with |
| |professionalism of credit|credit advice, such as |
| |advisers. (+1) |statements of advice. |
| |Reduced costs associated |(-3) |
| |with managing default | |
| |cases and resulting | |
| |disputes. (+1) | |
|Government|Reduced costs associated |Regulatory and |
| |with supporting consumers|enforcement associated |
| |suffering hardship as a |with establishing and |
| |result of credit |maintaining regulation of|
| |default/foreclosure. |consumer credit advice. |
| |(+1) |(-1) |
|Sub-rating|6 |-6 |
|Overall | 0 |
|rating | |
Option B: Responsible lending conduct obligations
3.
| |Benefits |Costs |
|Consumers |Reduced frequency of |The cost of complying |
| |consumers entering credit|with the conduct |
| |contracts that are |requirements Is likely to|
| |unsuitable for them |be passed on in the cost |
| |and/or they do not have |of credit related fees |
| |the capacity to repay. |and charges. (-1) |
| |(+3) | |
| |Access to remedies for | |
| |damage in certain cases | |
| |of unsuitable credit | |
| |contracts. (+1) | |
|Industry |Reduced costs associated |Increased compliance |
| |with managing default |costs regarding |
| |cases and resulting |unsuitability and limited|
| |disputes. (+1) |record keeping (less than|
| | |Option A). (-2) |
|Government|Reduced costs associated |Regulatory and |
| |with supporting consumers|enforcement associated |
| |suffering hardship as a |with establishing and |
| |result of credit |maintaining regulation of|
| |default/foreclosure. (1)|conduct standards. (-1) |
|Sub-rating|+6 |-4 |
|Overall | +2 |
|rating | |
Consultation
1692. The Industry and Consumer Consultative Group (referred to in the
Consultation section above) was consulted in relation to this
issue.
1693. Industry participants were very strongly opposed to a proposal that
would apply a regulatory framework similar to Chapter 7 of the
Corporations Act to advice relating to credit. Participants cited
high compliance costs and complexity of the advice framework under
Chapter 7 and submitted that it would be in appropriate to apply a
framework designed primarily to an investment context to advice in
relation to credit.
1694. Consumer advocates expressed the view that responsibility
for making responsible lending decisions should rest with the
credit providers - not only those providing advice.
1695. The views of stakeholders on this issue were a key consideration in
development of the alternative Option B, which is based on
responsible lending conduct and unsuitability assessments.
Conclusion and recommended option
1696. Option B is preferred. As it requires persons suggesting consumers
enter contracts, and persons actually entering contracts, to
consider suitability, it is likely to be more effective than Option
A at reducing the incidence of consumers entering unsuitable credit
contracts and suffering hardship. Further, the overall compliance
costs of associated with the option are likely to be lesser than
the costs associated with regulating advice in a similar manner to
advice regarding financial products similar to the current
framework in the Corporations Act.
Part 4: Implementation and review
1697. The recommended options would be implemented primarily through the
introduction of the National Consumer Credit Protection Bill 2009
and consequential amendments to legislation including the
Corporations Act and the Australian Securities and Investments
Commission Act 2001. Associated regulations would also be
required.
1698. There will be an opportunity to refine the framework established in
phase one of the project in the course of developing phase two,
which is proposed to include investment credit.
1699. The new credit laws would, like the regulatory framework for
regulation of corporate regulation and financial services, be the
subject of ongoing monitoring and review by the Australian
Government.
Chapter 10
Attachment A: Regulation impact statement
Executive summary
1700. This is the regulation impact statement (RIS) referred to in
paragraph 9.5 of Chapter 9 of this explanatory memorandum. This
RIS discusses:
. The development and implementation of a national regulatory
framework for consumer credit (including margin loans) to be
undertaken in two stages. The key components of the
proposed framework seek to establish consumer protection
across all consumer credit products and services. The
framework is proposed to be developed by enacting relevant
State and Territory based consumer credit regulations as
Commonwealth statute; and consolidating and enhancing the
framework as necessary to reduce the regulatory burden on
business and strengthen protection in specific areas.
. Consultation on aspects of the proposed framework including
the need for any enhancements (as outlined in the high level
implementation plan and discussed herein) and its
implementation.
Background
Consumer credit
1701. Consumer credit is credit given by shops, banks and other financial
institutions to consumers so that they can buy goods and services
for personal, household or domestic purposes. Consumer credit
encompasses for example, credit cards, payday loans and personal
loans as well as mortgages.
1702. The provision of consumer credit is a significant industry in
Australia. As of June 2008, total consumer credit on issue,
including securitisations, was $1,113.4 billion. Of this, housing
credit on issue stood at $957.8 billion and other personal credit
on issue was $155.6 billion. The largest sector of consumer credit
is residential mortgages, which are estimated to account for over
86 per cent of all consumer loans.[4]
1703. Industry participants include providers (also known as lenders and
issuers) and brokers/advisers who act as intermediaries between
providers and consumers. Providers are increasingly relying on
brokers to originate loans - in 2003 25 per cent of home loans were
originated by mortgage brokers, this rose to 37 per cent in
2007.[5]
1704. The States and Territories currently regulate the provision of
consumer credit by any provider through the Uniform Consumer Credit
Code (UCCC).
1705. While the provision of consumer credit is currently excluded from
being a financial product under Chapter 7 of the Corporations
Act 2001 (Corporations Act), Australian Securities and Investment
Commission (ASIC) does regulate some consumer protection aspects of
consumer credit. Specifically, the Australian Securities and
Investment Commissions Act 2001 (ASIC Act) prohibits conduct that
is misleading or deceptive, or is likely to mislead or deceive, in
relation to the provision of credit products and services.
1706. The Council of Australian Governments (COAG) reached an in-
principle agreement on 26 March 2008 that the Australian Government
would assume responsibility for regulating mortgage credit and
mortgage advice, including non-deposit taking institutions and
mortgage brokers, as well as margin loans. Subsequently, on 3 July
2008, COAG agreed that the Australian Government would also assume
responsibility for regulating all other consumer credit products
and requested the Business Regulation and Competition Working Group
report back at the 2 October meeting with a detailed implementation
plan for other credit.
Current regulation of consumer credit
1707. The UCCC's scope is limited to the provision of consumer credit for
personal, household or domestic purposes. As such consumer credit
sought for investment purposes and credit-related advice is not
regulated.
1708. The main provisions contained in the UCCC include the following:
. provisions relating to the credit contract, including the
form and content of the contract, how information about
the contract is disclosed to the consumer, and how the
contract may be changed;
. special provisions relating to circumstances where
consumers are affected by hardship, including powers of a
court to intervene in such circumstances;
. provisions relating to the enforcement of credit
contracts, in particular what steps creditors must
undertake before they can enforce a contract against a
defaulting debtor;
. extensive provisions relating to civil penalties for
breaches of the UCCC;
. special provisions regarding related sales and insurance
contracts, as well as consumer leases; and
. provisions relating to the advertising of credit,
including requirements for including a comparison rate.
History of the Uniform Consumer Credit Code
1709. In 1993, the States and Territories agreed that consumer credit
laws should be nationally uniform. They entered a Uniform Credit
Laws Agreement (the Uniformity Agreement) under which the UCCC was
developed. The UCCC is template legislation, substantially uniform
in all Australian States and Territories. It was enacted in
Queensland by the Consumer Credit (Queensland) Act 1994 pursuant to
the Uniformity Agreement, and in the other States and Territories
through various arrangements.
1710. Under the Uniformity Agreement, amending the consumer credit
legislation requires approval by two thirds of the members of the
Ministerial Council for Uniform Credit Laws (the Council), which is
a subcommittee of the Ministerial Council on Consumer Affairs
(MCCA). Membership of the Council consists of the State and
Territory Ministers responsible for consumer credit laws. Changes
to the Uniformity Agreement itself require the unanimous approval
by the Council.
1711. The Australian Government is not a member to the Uniformity
Agreement and does not have a formal vote in matters relating to
the UCCC. It is however invited to comment on all matters relating
to the UCCC considered by the Council.
Outstanding UCCC projects
1712. To address gaps in the UCCC and changes in the credit environment,
MCCA has already decided to implement some specific amendments to
the UCCC. These amendments are expected to be introduced prior to
the Commonwealth assuming responsibility and therefore reflected in
the UCCC which will be transferred over at that time. These are:
. 'Instalment' lending - amendments will ensure that vendor
finance contracts for the purchase of land, 'conditional
sale agreements' and 'tiny terms contracts' are brought
within the scope of the Code.
. Default notices - to improve the enforcement process for
both lenders and borrowers by giving consumers clearer and
more relevant and understandable information when they
default.
. Amendments to address 'fringe' lending practices - to
address avoidance practices, increase the reviewability of
credit fees and charges, improve regulator access to
remedies, prohibit 'blackmail' securities and require
lenders to supply basic direct debit information.
. Reform of Mandatory Comparison Rates - to reform and
streamline the operation of mandatory comparison rates
(MCR) by responding to the independent review.
1713. MCCA is also undertaking a number of projects in relation to the
UCCC, which are in varying stages of development. These projects
will be passed to the Commonwealth when it assumes responsibility
and will be considered in the context of the national approach to
the regulatory framework:
. Reverse mortgages and other equity release products - to
improve consumer outcomes in relation to equity release
products.
. Pre-contractual disclosure - to provide consumers with
simple, accessible, relevant, concise and comprehensible
pre-contract information.
. Universal membership of External Dispute Resolution (EDR)
Schemes - to explore the feasibility of requiring all
credit providers to belong to an approved EDR scheme.
. Credit card responsible lending - to explore options to
address credit card over-indebtedness.
Additional State and Territory specific regulation
1714. By agreement among the States and Territories certain areas are
exempted from the uniformity requirements applying to the UCCC.
Additionally, some jurisdictions have moved unilaterally to address
specific concerns. Accordingly, there are a number of differing
requirements which are intended to augment the operation of the
UCCC in the States or Territories in which they have application.
For example:
. Victoria, New South Wales, Western Australia and the
Australian Capital Territory have some limited broker
specific regulation. The Western Australian legislation
requires all finance brokers to be licensed and members
of an EDR Scheme.
. New South Wales, Australian Capital Territory, Victoria
and Queensland have legislation which limits the rate of
interest and fees which can be charged on consumer credit
products. South Australia expects to pass similar
legislation by the end of 2008.
. Victoria has passed legislation which is to commence in
March 2009 which will subject credit contracts to the
unfair contact terms provisions in the Fair Trading Act.
Victoria has also passed legislation due to take effect
in March 2009 which requires all credit providers to be
members of an external dispute resolution scheme. In
addition, Victoria is examining the requirement for
enhanced registration of credit providers.
. South Australia is expected to pass legislation by the
end of 2008 which will allow credit disputes to be
heard in lower courts.
. Tasmania is expected to introduce a Bill into Parliament
shortly that will restrict the advertising of high cost
credit products.
. The Australian Capital Territory has legislation which
imposes responsible lending requirements on credit cards
providers.
Draft New South Wales National Finance Brokers Package
1715. In addition to the UCCC and specific regulation mentioned above,
the States and Territories have also agreed to national reforms
aimed at regulating the finance broking industry, as recommended in
the relevant decision-making RIS, subject to consultation on a
draft Bill.
1716. To this end, in November 2007, the New South Wales Government
released the Draft National Finance Brokers Package for public
consultation on behalf of all jurisdictions.
1717. The draft Finance Brokers Bill (NSW) proposes to license all
brokers to ensure that only reputable, skilled brokers transact
with consumers and small businesses to obtain credit that suits
their purposes and that they can afford. Applicants would be
required to:
. pass probity checks;
. maintain mandatory membership of an approved EDR Scheme;
. attain prescribed educational qualifications or skills
(not below a Certificate IV); and
. obtain mandatory professional indemnity insurance.
1718. In addition, the draft Bill imposes a requirement that brokers
confirm a person's capacity to repay before applying for credit;
disclose certain information and have a reasonable basis for any
recommendation. Further, brokers would not be able to charge a
fee before credit was obtained.
1719. Over 100 submissions were received and consultations conducted by
NSW have revealed broad support for the draft Bill. However some
concerns remain in relation to a few specific provisions, namely
the capacity to repay, stay of enforcements and professional
indemnity requirements.
1720. In light of the COAG decisions it has been agreed that the
Commonwealth will take over the project, and conduct further
consultation on the remaining concerns. In accordance with the
conditional approval given to the project by the Office of Best
Practice Regulation, an updated assessment of the regulatory impact
of the proposed regime will be undertaken once the details are
established.
Margin loans
1721. Margin lending describes an arrangement under which investors
borrow money to buy financial products (such as listed shares,
fixed interest securities and units in managed funds). The
underlying financial products are then used to secure the loan for
those products. The amount the investor can borrow depends in the
loan to valuation ratio (LVR) offered by a lender of each stock.
1722. As with most other loans, investors must pay interest on the amount
borrowed under a margin loan, however regular repayments are not
generally required. Instead, repayments are only required when the
investment is subject to a 'margin call'. This occurs where the
market value of the investment falls below the level agreed under
the contract. A margin call requires the investor to take
appropriate action to return the LVR to the agreed limits stated
under the contract. This can be done by paying extra cash, selling
some of the assets or giving the lender additional security. The
lender is under no obligation to contact the investor when a margin
call is made. The responsibility falls on the investor to take
appropriate action in accordance with the timeframes, potentially
less than 24 hours, as prescribed in the margin loan agreement.
1723. There has been a rapid growth in the value of margin loans with the
total value increasing from under $5 billion in June 1999 to over
$37 billion in December 2007. More recently the total value of
margin loans has dropped back to around $32 billion in response to
the recent market turbulence. Consistent with the growth over the
past nine years, the number of clients taking out margin loans has
increased from 87,000 in 2000 to 202,000 in 2008.
Current regulation of margin loans
1724. Margin loan facilities are based on complex contractual
arrangements between the lender and the client. Primary disclosure
of the terms and conditions governing the loan occurs through the
lending agreement signed between the two parties.
1725. Margin loans consist of a credit component and an investment
component. Where the investment aspect involves a financial
product such as shares, Australian Government regulation in the
form of Chapter 7 of the Corporations Act applies.
1726. In addition, where the investment aspect involves a listed share,
Australian Securities Exchange (ASX) Listing Rules might apply.
The Listing Rules set standards of behaviour for listed entities
and include ASX's continuous disclosure requirements.
1727. Misleading and deceptive conduct in relation to margin lending is
regulated under the Australian Securities and Investments
Commission Act 2001 (ASIC Act). Under this legislation ASIC can,
for instance, take action against misleading advertising or
misleading statements made by financial advisers in relation to the
provision of margin loans.
1728. The credit component of the margin loan transaction is currently
largely unregulated. Margin loans are not regulated by the States
and Territories under the UCCC, as credit provided for investment
purposes is excluded.
1729. The Corporations Act excludes all credit under the agreement with
the States and Territories. However, where a margin loan is
provided through a financial planner as part of an overall
financial plan, ASIC considers that the Corporations Act applies to
all the elements of the plan, including the margin loan facility as
it is considered to be an investment vehicle.
1730. As margin loans are supplied by a variety of providers, including
banks, various industry standards, such as the Australian Bankers'
Association Code of Banking Practice, may apply.
1731. The Code of Banking Practice, which applies to personal and small
business bank customers, sets out the banking industry's key
commitments and obligations to customers on standards of practice,
disclosure and principles of conduct for their banking services.
This Code is not legislation; however, banks that adopt this Code
are contractually bound by their obligations under this Code.
1732. If the provider of a margin loan has adopted the Code of Banking
Practise there is an obligation on the bank to exercise care and
skill in determining a customer's ability to repay the loan. Under
this Code members are required to provide both an internal and EDR
Scheme for customer disputes.
1733. However, margin loans are increasingly being provided by non-
deposit taking institutions. Clients of these lenders do not
benefit from the protection of the Code of Banking Practice.
Financial Services Reform - Chapter 7 of the Corporations Act
1734. The Financial Services Reform Act 2001 (FSR) put in place a
regulatory framework for the provision of a wide range of
investment and risk management style financial products and advice
related to those products, including securities, derivatives,
general and life insurance, superannuation, deposit accounts and
non-cash payments. This regime was incorporated as Chapter 7 of
the Corporations Act.
1735. The regulatory framework introduced under Chapter 7 sought to
promote confident and informed decision making by consumers of
financial products and services while facilitating efficiency,
flexibility and innovation in the provision of those products and
services; fairness, honesty and professionalism by those who
provide financial services; fair, orderly and transparent markets
for financial products; and the reduction of systemic risk and the
provision of fair and effective services by clearing and settlement
facilities.
1736. The FSR regime provides for:
. All financial services providers are licensed and subject
to uniform obligations and requirements by ASIC in the
provision of the services for which they are licensed.
. All providers of financial services (including issuing,
broking and advice) are uniformly regulated in the
provision of the regulated financial products (noting
tailoring of provisions for specific products and
circumstances).
. Minimum standards such as training, disclosure,
considerations in giving financial product advice, and
general conduct are required of licensees in their
dealings with retail clients:
- there are tiered training requirements, dependent on the
level of advice and type of product being provided;
- membership of an EDR Scheme is compulsory;
- providers are required to conduct their services
efficiently, honestly and fairly;
- there must be a reasonable basis on which providers base
their advice; and
- disclosure of information to retail clients in relation
to the provider's financial services business (in a
Financial Services Guide), financial services advice (in
a Statement of Advice) and financial services products
(in a Product Disclosure Statement) is required.
. All providers must have adequate compensation arrangements
(generally professional indemnity insurance).
1737. The Government has tasked the Financial Services Working Group to
reform financial services disclosure documents in order to
introduce simple, standard and readable documents which are more
easily understood by consumers and allow for greater ease of
product comparability.[6] Once implemented, these reforms may
reduce compliance burden involved in complying with FSR and
therefore produce cost savings.
Problem identification
Consumer credit
1738. The inter-jurisdictional processes for changing the UCCC have led
to prolonged delays in implementing necessary reforms leading in
some cases to their effective abandonment. Amending the UCCC is a
slow and arduous process requiring agreement among all
jurisdictions. The protracted time frames for developing national
finance broker regulation and for closing off some identified
loopholes in the UCCC such as those related to the regulation of
fringe lenders, are cases in point. Such delays have compromised
the capacity of the regulatory regime to respond to market
developments and the effectiveness of protections for those
acquiring credit products and services, particularly in a market
where products and practices are evolving rapidly.
1739. The introduction of various State and Territory specific
regulations has resulted in inconsistent consumer protection and
has added red tape and unnecessary compliance costs on service
providers. While the UCCC notionally provides for consistent
administration and enforcement of a consumer protection code
nationally, jurisdictions have unilaterally imposed additional
requirements separate from the UCCC. Consequently, protections
available to consumers acquiring credit are not uniform across
jurisdictions and have resulted in providers who operate nationally
or in multiple jurisdictions incurring additional compliance costs
arising from the need to vary their business practices. Where this
occurs, complexity and additional costs are imposed on consumers
and businesses.
1740. There is evidence that some consumers who access credit through
brokers are not achieving appropriate outcomes. The concerns with
the lack of regulation of brokers are well documented in the RIS
prepared for the National Finance Broking Regulation. For example,
the number and range of credit products currently offered by
providers are too numerous and too complex to allow the majority of
consumers to make fully informed decisions. As a result many
consumers are turning to brokers. However, the use of a broker may
not produce the best outcome, and could lead to considerable
detriment, for the consumer. This is because consumers are often
dependent on the broker's skill and expertise and therefore
vulnerable to exploitation. Unfortunately, it appears some brokers
may provide inappropriate advice and this occurs for a variety of
reasons, including a lack of skill, remuneration based incentives
and unscrupulousness.
1741. There is evidence that some consumers are experiencing financial
difficulties caused by over-indebtedness. There are a number of
causes of this, for example, some consumers do not appreciate the
implications of obtaining credit, and/or have an unrealistic
appreciation of their capacity to repay. In addition, some
providers' assessment practices maximise the amount of credit able
to be granted but which cannot be repaid by the consumer without
substantial hardship. The concern with the lack of a requirement
on participants to establish a consumer's capacity to repay are
well documented (albeit in a limited context) in the RIS on
responsible lending practices in relation to consumer credit cards.
1742. Consumers' access to dispute resolution mechanisms other than the
Courts is limited under the UCCC as participants are not required
to be members of an EDR Scheme. Therefore consumers who are unable
to resolve a dispute directly with a provider who is not
voluntarily a member does not have access to dispute resolution
services outside of the court process. Court processes are often
complex, time consuming and costly and therefore not a particularly
viable solution.
1743. Currently consumers have only limited protections when obtaining
credit for investment or small business purposes. The UCCC does
not regulate credit provided for investment purposes, nor credit
provided to small businesses. That means, for example, the
mortgage over a person's home is regulated under the UCCC but the
same person's mortgage over another home, for investment purposes,
is not. That person is not necessarily any more knowledgeable when
entering into that contact, and may have used their primary
residence as security, but does not have access to the protections
offered by the UCCC. Furthermore, a loan to small business may
also be used indirectly to fund personal consumption or be secured
by personal assets, particularly in the case of an unincorporated
operator, but is not afforded protections under the UCCC. The FSR
regime only regulates investment in financial products
(for example, shares but not real property) and related advice -
not the credit used to obtain it.
1744. There is evidence that some consumers are poorly informed about the
key features and risks of certain credit products. The UCCC
contains a number of provisions regulating disclosure, mainly pre-
contractual which focuses on the contractual obligations rather
than the features and risks of the actual product. As such, it
appears that the existing disclosure requirements may not be
sufficient to prevent confusion and financial loss.
1745. The penalty provisions in the UCCC are largely limited to civil
remedies for breaches of the legislation. There is no provision
for a regulator to intervene through administrative action. In
addition, the regulator does not have standing in court. This
means the regulator cannot deal with minor breaches of the
legislation in a manner commensurate with their impacts or take
action on behalf of consumers as a general population.
Margin loans
1746. With the strong performance of the ASX over the recent years, the
instance of margin calls has been very low. However, with the
stock market moving into a time of more uncertain growth, there has
been some concern surrounding retail clients' understanding of how
their margin loan product operates. Recent market volatility has
been alarming for small investors, particularly those who have only
experienced positive markets previously. This has highlighted the
current absence of consumer protection regulation concerning margin
loans, particularly in relation to retail investors.
1747. There are serious concerns that consumers are not necessarily aware
of the extent to which margin lending contracts place the risk of
changes to market conditions on them. In particular, some
contracts allow the lender to unilaterally withdraw the facility or
withdraw a particular company's stock from their acceptable list of
equities over which margin lending is accepted, thereby forcing
full repayment.
1748. Furthermore, it is not clear that investors fully understand how
the LVR ratio works and that the loan provider is able to change
this in a very short period of time.
1749. There are also serious concerns that marketing material, separate
from the contract itself, highlighting 'bull market' gains make
margin loans seem much simpler than they in fact are and do not
fully disclose the downside risks.
Policy objectives
1750. To give effect to the COAG decisions of 26 March and 3 July, in
that the Australian Government will assume responsibility for the
regulation of consumer credit and margin loans.
1751. To provide a comprehensive, nationally consistent consumer credit
regime, by addressing conflicts or gaps in the existing consumer
credit regime where there is evidence that consumers are suffering
loss and other detriment or an unnecessary compliance burden is
being placed on business.
1752. To determine the most appropriate way to handle margin loans to
ensure people who invest through them are aware of the associated
risks.
1753. To reduce the regulatory burden on business, better protect the
interests of consumers and ensure the regulatory regime contributes
to ensuring the Australian economy is modern and strong.
Implementation options
Implementation scope
1754. The terms of the COAG agreement are quite broad and allow the
Commonwealth to determine the precise scope and mechanism for
implementing the national regulation of consumer credit and margin
loans. Although the Commonwealth has not previously regulated
consumer credit the States and Territories, as well as industry
participants and consumer groups, have substantial knowledge of the
issues involved and will be used to inform the development of the
national regime.
1755. A primary weakness of the existing UCCC is its inability to respond
to market developments in a timely manner because of the co-
operative amendment process. This will be overcome when enacted as
Commonwealth law, in part because, where possible, it will be
drafted on a principles basis so that it does not necessarily need
to be amended to regulate new products and behaviours. In
addition, a national regime will provide consumers and participants
with consistency by reducing duplication and inconsistent
obligations.
1756. Despite those inherent improvements, given the concerns identified
above it would seem that simply enacting the UCCC as Commonwealth
law will not be sufficient to comprehensively regulate consumer
credit in a way which achieves the Government's objectives. Some
potential enhancements which could be made have been identified
below. Their necessity, and the impacts their introduction would
have, will be evaluated on the basis of views solicited through
further consultations.
Potential enhancements to the regulation of consumer credit under
the national regime
1757. The scope of the regime may need to be framed so as to capture
additional transactions and services.
1758. The UCCC only regulates the provision of consumer credit. That is,
the UCCC does not regulate the provision of credit-related advice,
and excludes credit provided to consumers for investment purposes
and loans made to small businesses. This means that some
transactions undertaken by consumers are outside of the protections
offered by the UCCC.
1759. However, the draft Finance Brokers Bill has been specifically
crafted to regulate the provision of advice by brokers/advisors in
all jurisdictions in relation to all consumer and small business
credit.
1760. The absence of a comprehensive approach for regulating credit
advice is widely acknowledged as a key deficiency of the current
regime. Changes in the credit environment and the increased
availability of a range of products being offered by a range of
lenders have seen consumers rely more heavily on finance
brokers/advisors when considering their lending options, yet there
is no regulation of these transactions. That is, the UCCC only
regulates the actual lending portion of the transaction and not the
advice. There is no regulatory requirement that advice is
appropriate for the consumer and there is evidence that in its
absence consumers have suffered detriment.
1761. Consumer borrowing for investment purposes is not regulated by the
UCCC. Individual investors are often not sophisticated and
consider investing in real property to be a lower risk activity
than other investments. Such investment is often long term and
involves large sums of debt. Past increases in property prices and
average household incomes have promoted consumer confidence which
has led to increased borrowing to fund investment. However recent
downturns in property and financial markets have left some
investors with reduced levels of equity and liquidity. These
investment credit contracts are not subject to regulatory oversight
and protection. By comparison, the FSR regime regulates investment
in financial products, and advice in relation to it.
1762. Similarly, small business operators are not necessarily
sophisticated investors. Small businesses may not have sufficient
resources to obtain detailed advice, negotiate favourable contract
terms or engage in costly and complex legal arrangements to resolve
disputes. The extension of protections under the national credit
regime to small businesses is similar to the scope of the FSR
regime for financial products.
1763. In contrast to the UCCC, Chapter 7 of the Corporations Act
regulates the provision of financial services products (such as
shares but not real property) and advice related to those products
provided to all retail clients.
1764. The need to extend the scope of the legislation to other
transactions and services has not yet been determined and will be
the subject of consultation.
All industry participants may need to be licensed
1765. The UCCC does not contain a licensing regime. However in
recognition of the need for, and benefits of, licensing the States
and Territories have agreed to a licensing scheme for the
brokers/advisers of all consumer and small business credit in all
jurisdictions, as proposed in the draft Finance Brokers Bill.
1766. A licensing regime generally restricts entry to those people who
are appropriately skilled and of good character. Licensing is a
mechanism by which obligations can be imposed on participants.
In addition, it provides for more effective and efficient
enforcement. It allows the population to be known to the
regulator, who can then ensure that required standards are met and
impose penalties for non-compliance. Experience suggests that, in
the absence of a licensing regime, unscrupulous or unskilled people
can operate in the market for some time before being identified.
Once identified there is often no mechanism to resolve disputes
outside of the courts.
1767. There is wide ranging community and industry support for the
introduction of a comprehensive licensing regime (for example,
Finance Sector Union, Credit Ombudsman Service, Finance Brokers
Association Australia, Mortgage & Finance Association Australia).
1768. In addition, the Productivity Commission recommended a licensing
system for finance brokers, and a licensing or registration system
for credit providers (with both requiring participation in an
approved EDR Scheme). Chapter 7 requires all financial service
providers be licensed.
1769. Should a licensing requirement be included in the national regime,
it may be inappropriate to only license brokers/advisors (as
proposed in the draft Finance Brokers Bill) and not providers as
well, given they can also interact directly with consumers.
However the obligations imposed may vary depending on the role of
the participant.
Industry participants may need to provide additional disclosure to
consumers.
1770. The UCCC already requires certain disclosure, mainly pre-
contractual. However this has not been adequate to properly inform
consumers of all the risks associated with specific credit
products, such as reverse mortgages.
1771. Without all relevant information, consumers are not able to make
well reasoned decisions. Making inappropriate decisions can lead
to financial stress.
1772. In recognition that some people may not understand the risks
involved with reverse mortgages the States and Territories are
currently considering the need for specific disclosure. A
consultation RIS is being prepared by the States on this matter.
1773. In addition, the States and Territories have commissioned research
into pre-contractual disclosure to ensure it is simple, accessible,
relevant, concise and comprehensible.
1774. Further, the proposed amendments to address 'fringe' lending
practices include requiring additional disclosure in relation to
direct debit authorities and clarifying disclosure requirements for
annual percentage rates.
1775. The need to impose any additional disclosure requirements, such as
ongoing or product specific disclosure requirements, will be
considered in the second phase.
The expected conduct and behaviour of industry participants in
relation to their dealings with consumers may need to be regulated.
1776. The UCCC contains some conduct requirements. However, numerous
submissions to various consultations papers have suggested these
provisions are not sufficient. There is evidence that practices
such as 'equity stripping', 'churning', the provision of
inappropriate advice, the provision of credit to consumers who can
not afford to repay it and the charging of excessive fees have
occurred, to the detriment of consumers.
1777. The consumer is in a position where they are dependent on the
broker's skill and expertise and therefore vulnerable to
exploitation. It is in the industry's interest that consumers
value the services which are available. One way to achieve
consumer confidence is to ensure market participants behave in an
appropriate manner.
1778. The application of general conduct requirements is a principled (as
opposed to prescriptive) method of addressing concerns which may
otherwise be manifested as specific obligations and products
features.
1779. The concept of requiring responsible lending practices was
consistently raised by consumer advocacy groups (such as Care Inc
Financial Counselling & Consumer Law Centre ACT, Consumer Credit
Legal Centre NSW, ACTU and the Financial Sector Union) in responses
to the Green Paper.
1780. The draft Finance Brokers Bill proposes to address this issue in
part by imposing a requirement that the consumer's capacity to
repay be considered before any credit product is recommended (a RIS
was prepared). The draft Finance Brokers Bill also requires that
the advisor/broker has a reasonable basis for recommending a
particular credit product.
1781. In addition, the States and Territories are considering imposing
additional conduct requirements, in the form of responsible lending
provisions, on credit card providers to address concerns with over-
indebtedness. A consultation RIS was prepared.
1782. Chapter 7 of the Corporation Act requires providers conduct their
services efficiently, honestly and fairly.
1783. If additional conduct requirements were to be introduced it is
envisaged that they would oblige participants to observe a number
of general conduct requirements such as those imposed by Chapter 7.
In addition, credit-specific requirements, such as establishing a
person's capacity to repay and banning specific predatory lending
practices, could be imposed. The need for any additional conduct
requirements, and the specifics of the obligations they would
impose if adopted, have not yet been determined and will be the
subject of consultation.
Industry participants may need to provide access to appropriate
dispute resolution services.
1784. Under the UCCC membership to EDR Schemes is voluntary. Tribunals
have been established to deal with complaints related to consumer
credit. Western Australia, and more recently Victoria, are the
only jurisdictions to have introduced legislation which requires
brokers/advisors to be members of an external dispute resolution
scheme.
1785. The importance of mandating access to an EDR Scheme is that they
provide consumers who are unable to resolve a dispute directly with
their provider with a free, fair and independent dispute resolution
mechanism. The alternative is often the complex, time consuming
and costly court process which is not particularly viable.
1786. In the absence of a legislative requirement several industry
associations, such as the Mortgage & Finance Association of
Australia and the Australian Bankers' Association Code of Banking
Practice, require their members be members of EDR Schemes.
1787. The draft Finance Brokers Bill proposes to mandate membership of
approved EDR Schemes for all brokers. Chapter 7 mandates
membership of an ASIC approved EDR Scheme.
1788. In recognition of the value of access to EDR Schemes, the States
and Territories had commenced examining the feasibility of
requiring all credit providers to belong to an approved EDR Scheme.
However, this work was postponed following the COAG decisions.
1789. The need to impose a requirement to provide access to dispute
resolution services has not yet been determined and will be the
subject of consultation. If such a requirement were to be
introduced it is envisaged that access to EDR Schemes would be free
to consumers and similar to the schemes which operate for the
purposes of Chapter 7 of the Corporations Act.
The regime will need to be enforced by a national regulator, namely
ASIC, in a way which minimises avoidance of the requirements.
1790. The UCCC is enforced by each State and Territories' Fair Trading
Office. The UCCC contains a range of civil penalties. The
regulators lack the ability to intervene quickly and to act
unilaterally in instigating court proceedings against persons
acting inappropriately or failing to meet required standards.
1791. The amendments to address 'fringe' lending practices proposed by
the States and Territories recommend giving government consumer
agencies standing in court proceedings.
1792. Moving to a single national regulator is consistent with having a
national scheme. ASIC is the logical choice, given its experience
in enforcing the Corporations Act and its existing infrastructure
and relationships with financial services providers. This
conclusion is supported by the fact that ASIC was repeatedly
identified as the appropriate regulator in submissions to the Green
Paper and by the Productivity Commission in its report of May 2008.
1793. The alternative national regulator, the Australian Competition and
Consumer Commission, has little experience in the regulation and
licensing of financial services or credit, nor the established
relationships with those providers. Further, it would be expected
that the incremental cost of extending ASIC's oversight to credit
would be less than that required to extend the Australian
Competition and Consumer Commission functions to credit regulation.
1794. The States and Territories have indicated they do not want a
continuing enforcement role once the Commonwealth assumes
responsibility for credit. However they reserve the right to
enforce generic consumer protection laws where applicable.
1795. The need for any enhancement to ASIC's enforcement powers (such as
the ability to impose administrative and criminal penalties, have
standing in court cases and the ability to ban industry
participants), have not yet been determined and will be the subject
of consultation.
Proposed regulation of margin loans under Chapter 7 of the
Corporations Act
1796. The proposed regulation of margin loans under Chapter 7 is included
in Phase 1 of the proposed implementation plan.
1797. The Simplifying and Standardising Financial Services and Credit
Regulation Green Paper proposed three options for margin loans:
1) maintain the status quo; 2) include margin loans as a financial
product under the Corporations Act and apply the Chapter 7 regime;
and 3) develop a separate regulatory regime for margin loans.
1798. A number of submissions were received however, whether margin loans
need to be regulated, and if so the appropriateness of Chapter 7 to
do so, has not yet been determined and will be subject to further
consultation.
Implementation mechanisms
1799. Due to constitutional limitations, the preferred approach to any
regulation of credit would be to amend the Corporations Act. There
are two options for the implementation of Commonwealth regulation
of consumer credit.
Option A
1800. Extend Chapter 7 of the Corporations Act to regulate the provision
of all consumer credit products and related advice including
consumer mortgages for investment purposes, and loans to small
businesses, as a financial product.
Option B
1801. Enact the UCCC (including outstanding projects) to the extent
possible and the relevant provisions of the draft National Finance
Brokers Bill, supplemented with additional licensing, conduct and
disclosure provisions as required to comprehensively regulate the
provision of consumer credit and related advice, including consumer
mortgages for investment purposes, and loans to small businesses as
a new chapter of the Corporations Act.
Assessment of impacts
Impact group identification
1802. The groups affected by the amendments are consumers of credit;
industry participants including providers and brokers/advisers; and
the Government and ASIC.
Assessment of costs and benefits
Option A: Extend Chapter 7 of the Corporations Act to include all
consumer credit products.
1.
| |Benefits |Costs |
|Consumers|The licensing |There may be additional |
| |requirements will ensure |financial cost to |
| |that all advice will be |consumers as businesses |
| |provided by people with |pass on increased costs. |
| |relevant training. In |These costs are expected |
| |addition, the disclosure |to be high as Chapter 7 |
| |requirements will ensure |will require different |
| |that all personal credit |processes/systems to |
| |advice will be |those currently used. |
| |appropriate to the |Some consumers may not be|
| |consumer having regard to|able to obtain credit |
| |their personal |because a more rigorous |
| |circumstances. This may |assessment of their |
| |reduce the potential for |financial circumstances |
| |consumers to make |(that is, capacity to |
| |inappropriate financing |repay) would determine |
| |decisions or obtain |they were not eligible. |
| |inappropriate credit. |However this is the |
| |Mandated access to ASIC |appropriate outcome. |
| |approved EDR Schemes in | |
| |the event of disputes is | |
| |quicker, cheaper and | |
| |easier than having to | |
| |rely on court processes. | |
|Industry |Some credit providers |Implementation costs will|
| |(that is, ADI's and |be higher than for Option|
| |financial services |B as complying with |
| |advisors) already hold a |Chapter 7 will require |
| |licence under Chapter 7. |different |
| |The additional regulatory|processes/systems to |
| |burden on those |those currently used. |
| |participants will not be |Additional compliance |
| |high. |requirements (licensing, |
| | |disclosure, conduct) |
| | |would apply, especially |
| | |to those who are not |
| | |already licensed under |
| | |Chapter 7. |
| | |The current Chapter 7 |
| | |requirements are |
| | |considered onerous and |
| | |are not tailored to |
| | |credit |
| | |providers/products. |
|Governmen|ASIC has knowledge of |There may be more |
|t |Chapter 7 and already has|resistance from industry |
| |mechanisms in place to |than under Option B as |
| |licence providers and |Chapter 7 imposes |
| |enforce conduct |different requirements to|
| |requirements. |those currently mandated |
| |ASIC would be able to |for credit. |
| |access documented advice |ASIC will need to license|
| |provided to clients to |and monitor a larger |
| |monitor compliance with |population than they do |
| |the law. |currently and therefore |
| | |will require additional |
| | |funding. |
| | |Chapter 7 would still |
| | |need refinement as the |
| | |risk profile of credit |
| | |products requires a |
| | |different regulatory |
| | |treatment from financial |
| | |products for investments.|
Option B: Enact relevant provisions of the UCCC and the draft Finance
Brokers Bill, supplemented as required, as Commonwealth law
2.
| |Benefits |Costs |
|Consumers |Generally consistent with |There may be |
| |existing consumer credit |additional financial |
| |regime, that is consumers |cost to consumers as |
| |of credit for personal use |businesses pass on |
| |are already aware of |increased costs. |
| |requirements and |However increased |
| |protections under UCCC. |costs are expected to |
| |All advice will be provided|be lower than under |
| |by people with relevant |Option A because |
| |training. In addition, all|businesses already |
| |personal credit advice will|comply with UCCC. |
| |be appropriate to the |Some consumers may not|
| |consumer having regard to |be able to obtain |
| |their personal |credit because a more |
| |circumstances, which may |rigorous assessment of|
| |reduce the potential for |their financial |
| |consumers to make |circumstances (that |
| |inappropriate financing |is, capacity to repay)|
| |decisions or obtain |would determine they |
| |inappropriate credit. |were not eligible. |
| |Mandated access to ASIC |However this is the |
| |approved EDR Schemes in the|appropriate outcome. |
| |event of disputes is | |
| |quicker, cheaper and easier| |
| |than having to rely on | |
| |court processes. | |
|Industry |Generally consistent with |Increased regulatory |
| |existing consumer credit |burden on businesses |
| |regime, that is providers |offering margin loans |
| |of consumer credit are |and other financial |
| |already aware of |products as they will |
| |obligations under UCCC. |have to comply with |
| |Implementation costs will |two regimes |
| |be lower than under Option | |
| |A as businesses already | |
| |have processes/systems for | |
| |UCCC. | |
|Government|The transition to the new |ASIC will need to |
| |regime by both consumers |develop knowledge of |
| |and industry will be easier|UCCC. |
| |and cheaper than Option A | |
| |and therefore more readily | |
| |adopted given the existing | |
| |understand and acceptance | |
| |of the UCCC. | |
| |The fundamentals of UCCC | |
| |are strong and appropriate | |
| |for the regulation of | |
| |credit. | |
Preferred approach - Option B
1803. Despite its gaps, the UCCC provides a well developed foundation for
the regulation of consumer credit, which is well known by industry
and consumers. Moving the UCCC under Commonwealth control resolves
many of its weaknesses. Further the UCCC framework can be enhanced
with additional licensing, conduct and disclosure provisions, drawn
from the draft Finance Brokers Bill and supplemented as required,
to provide for the comprehensive regulation of consumer credit.
1804. Chapter 7 of the Corporations Act does not contain the necessary
credit specific provisions, such as dealing with defaults,
repossession and hardship requirements. In addition, its
licensing, conduct and disclosure frameworks are specifically
designed for the regulation of financial services that are not
necessarily appropriate or applicable to credit products given the
different risks involved. This is consistent with the views
expressed by the financial sector in response to the Green Paper.
However, Chapter 7 may provide a basis from which to produce the
additional regulation necessary to supplement the UCCC and draft
Finance Brokers Bill.
Business cost calculator
Consumer credit
1805. Until the details of the proposed national regime (including the
licensing, conduct and disclosure requirements) are decided it is
difficult to estimate the cost of compliance to business. It is
expected that there will be an initial cost to businesses in
transitioning to the new system, such as obtaining their license.
In addition, it is expected that there will be on-going costs
involved in disclosure, compliance, training and membership of an
EDR Scheme.
1806. Consultations to date have suggested that implementation costs
would be minimised if the Commonwealth adopted the UCCC with
minimal changes (for example, Legal Aid NSW & QLD and Australian
Finance Conference). The proposed regime will be subject to
further consultation in order to achieve a design which minimises
compliance costs while delivering enhanced protections to
consumers.
1807. It should be noted that these costs are offset in part by savings
from no longer having to comply with multiple State and Territory
based regulation, which is often duplicated or inconsistent. In
addition, a national regime of consumer credit regulation will
allow, over time, for streamlining and consolidation.
Margin loans
1808. Until the details of the regulation, if any, for margin loans are
decided it is difficult to estimate the cost of compliance to
business. Consultations noted that introducing a new regime, as
opposed to extending Chapter 7, would be more costly for both
businesses and government.
1809. Traditionally, margin loans have been sold through AFS licensees.
Although the provision of margin loans, or advice in relation to
them, are not currently subject to the obligations imposed by
Chapter 7 the extension of those requirements would not be expected
have a large impact for existing AFS licensees.
1810. If margin loans were to be regulated under Chapter 7, it is
expected that the majority of the cost will be borne by those
industry participants who are not already AFS licensees, and that
some of those costs would be passed on to consumers.
1811. If margin loans were to be regulated, Option 3 would appear to
result in the creation of a separate regime for margin loans that
would unnecessarily mirror Chapter 7, creating regulatory overlap
for businesses offering margin loans and other financial products.
This would create inefficiencies for businesses that would be
required to obtain separate licences for different products and
develop disclosure documents for those products under different
regimes.
Staging
1812. The national regime could be implemented as either a single step or
a staged process:
1813. Under a single step process a national regulatory regime could be
introduced only after all of the work had been done to refine the
existing regime, undertake the necessary consultation and approval
processes, and draft the entire package of legislation. This would
delay the implementation of any reform for several years, during
which time the current problems with the regulatory regime would
remain unaddressed.
1814. Alternatively, a national regulatory regime could be introduced in
stages. This would involve the early introduction of Commonwealth
law addressing the most urgent problems (such as mortgage credit
and advice, margin loans and other matters), followed by the later
introduction of additional features, after further consideration.
1815. The first phase would include the enactment of the UCCC, relatively
unchanged, as Commonwealth law which ensures continuity and
certainty for both business and consumers. As industry currently
complies with the UCCC there would be minimal operational
difference in transferring existing legislation to the
Commonwealth. It is expected that several of the currently
outstanding projects will have already been enacted as amendments
to the UCCC by this time.
1816. Depending on the outcomes of consultation, the key changes from the
existing regime introduced in Phase 1 would be:
. the extension of the regime to consumer mortgages for real
property;
. the licensing of all industry participants, which could be
based on the provisions in the draft Finance Brokers Bill;
. compulsory membership in an EDR Scheme; and
. the introduction of general conduct provisions, including
the requirement that a person's capacity to repay be
considered when determining eligibility for credit.
1817. ASIC would also assume responsibility from the State and Territory
Fair Trading Offices for regulating consumer credit in Phase 1.
This would enable ASIC to commence producing educational material
and licensing industry participants, giving industry time to
transition into the new scheme. In addition, it would immediately
reduce duplication or inconsistency in regulatory burden inherent
in complying with multiple State and Territory jurisdictions.
1818. The second phase would focus on determining the need for specific
conduct, disclosure and product requirements and the extension of
the scope of the law to cover remaining investment loans and loans
to small businesses.
1819. Managing the single stage implementation of such a large reform is
considered to be more difficult than a staged process. These
difficulties were demonstrated during the introduction of the FSR
regime in 2001. Industry participants and the regulator were
overwhelmed by the quantum of changes and the compressed timeline
in which they were required to comply with the new regime.
1820. The inbuilt delay in implementing the reform as a single package is
undesirable, given the pressing concerns with certain aspects of
consumer credit. Further, should any aspect of a single package be
delayed the entire project would be delayed. In contrast, a staged
process ensures that important and non-controversial aspects can
proceed urgently.
1821. In response to the Green Paper several submissions noted that,
should the Commonwealth take over the regulation of all consumer
credit, a staged implementation would be advisable (for
example, Financial Services Ombudsman, Financial Planning
Association).
Consultation
Consumer credit
Green Paper on Financial Services and Credit Reform
1822. On 3 June 2008, the Government released the Green Paper on
Financial Services and Credit Reform: Improving, Simplifying and
Standardising Financial Services and Credit Regulation.
1823. The Green Paper discussed the regulation of mortgages, mortgage
brokers and margin loans, and proposed options for the Commonwealth
taking over regulation in this area. With respect to other
consumer credit products such as credit cards, personal loans and
micro loans, the Green Paper asked for submissions on whether these
products should also be regulated solely by the Commonwealth or
whether there is a role for the States and Territories in this
area.
1824. Some 150 submissions were received in response to the Green Paper,
and an overwhelming majority supported the Commonwealth assuming
responsibility for the regulation of all consumer credit.
. From the industry's perspective, this support was driven
by the reduction in compliance burden that would be
achieved by reducing the number of different regulatory
regimes they are required to operate under.
. From the consumer advocates' perspective, this support was
driven by the better protections and efficiencies a
consistent nation wide regime offers.
1825. Most submissions supported the enactment of the UCCC, including the
outstanding projects, as Commonwealth legislation and identified
ASIC as the appropriate regulator.
. Licensing (with compulsory membership of EDR Schemes) and
disclosure requirements were seen as key features. In
addition, several submissions highlighted the need for the
concept of responsible lending, and consideration of
capacity to repay requirements.
. A common view was that putting lenders and brokers into
the FSR regime was inappropriate as selling and/or
providing credit was fundamentally different to providing
and/or advising on investments (Mortgage & Finance
Association Australia; Gadens lawyers; ABA).
. Of the few submissions that suggested Chapter 7 of the
Corporations Act would be appropriate, most commented that
the existing requirements would require modification to
apply appropriately to credit products and providers (AXA
Asia Pacific).
. Several submissions supported, or understood the need for,
staged implementation (Financial Services Ombudsman,
Financial Planning Association).
. It was suggested that the implementation costs would be
minimised if the Commonwealth adopted the UCCC with
minimal changes (Legal Aid NSW and QLD and Australian
Finance Conference).
Other consultations, reviews and regulation impact statements
1826. The Government has established an implementation taskforce
consisting of officials from the Commonwealth Treasury, ASIC and
the States and Territories in order to progress the COAG decisions
in relation to consumer credit.
1827. The New South Wales Government has undertaken extensive
consultation on the draft NSW National Finance Brokers Package.
These consultations have identified consensus on a majority of
provisions. The Commonwealth Treasury will undertake further
consultation on the disputed provisions. (A decision-making RIS
was given conditional clearance by the Office of Best Practise
Regulation in 2006.)
1828. The New South Wales Government released a consultation RIS on
responsible lending practices in relation to consumer credit cards
on 22 August 2008. Submissions are due by 3 October.
1829. A decision making RIS for fringe credit providers was approved by
the Office of Best Practise Regulation in 2006.
1830. An inquiry in 2007 into home lending practices and procedures by
the House of Representatives Standing Committee on Economics,
Finance and Public Administration recognised the importance of
consistently regulating non-bank lenders and mortgage brokers by
recommending that the Commonwealth take over the regulation of
credit including the regulation of mortgages. The Committee
suggested that credit be included in the definition of a financial
product for the purposes of the Corporations Act.
1831. The Productivity Commission released its final report on
Australia's Consumer Policy Framework (including regulation of
consumer credit) on 8 May 2008. It recommended that the
Commonwealth take over the regulation of credit and develop generic
consumer law.
1832. KPMG Consulting undertook consultation and released a report NCP
Review of the Consumer Credit Code in December 2000, which has been
the catalyst for the proposed amendments to the default notices and
vendor terms provisions.
Margin loans
1833. Some 20 submissions in relation to margin loans were received in
response to the Green Paper.
1834. There was general support for the inclusion of margin loans as a
financial product in Chapter 7 of the Corporations Act (Grant
Thornton, Australasian Compliance Institute, Financial Planning
Association, Australian Financial Counselling & Credit Reform
Association Incorporated, Australian Institute of Credit
Management).
1835. It was noted that introducing a new specific regime (as opposed to
extending Chapter 7) would be costly for both government and
participants, would add further regulation to a system that already
suffers from inefficient regulatory overlap and increase the risk
of future inconsistency (Macquarie Bank, National Australia Bank,
Australasian Compliance Institute, ANZ).
1836. Some submissions called for further research and analysis before
any action was taken and cautioned against a 'knee jerk' reaction
to recent failures such as Opes Prime and Lift Capital, which
involved products not sold by the majority of the industry
(Australian Bankers Association, Securities and Derivatives
Industry Association, Investment and Financial Services Association
Ltd).
Recommended option and Conclusion
1837. Cabinet is asked to agree to the two-staged implementation plan as
described below, subject to the outcomes of a detailed consultation
process.
Implementation Plan
Diagram A: Development and Implementation Plan
[pic]
[pic]
1838. The recommended approach achieves synergies with existing regimes
(UCCC and FSR) thus reducing the regulatory burden as much as
possible while at the same time achieving the Government's
objectives.
Implementation and Review
1839. The phased approach proposed for development and implementation of
the consumer credit regulatory framework (as described in the
diagram above) will be subject to detailed consultation with
relevant stakeholders. Consultation will be undertaken on the
planned implementation process and throughout the development of
draft legislation and could include:
. officials from State and Territory governments and ASIC;
. a special group of key industry experts and consumer
advocates; and
. wider community consultation on draft legislation and
specific areas such as the draft Finance Brokers Bill.
1840. In addition, this RIS will be updated to assess the impacts and
analyse the costs and benefits of the proposed preferred design of
the various features.
1841.
-----------------------
[1] A Report to ASIC on the finance and mortgage broker industry,
Consumer Credit Legal Centre (NSW) Inc., March 2003.
[2] Review of Australia's Consumer Policy Framework, Productivity
Commission Inquiry Report No. 45 of 30 April 2008.
[3] As documented by ASIC in Report 119 of March 2008, 'Protecting Wealth
in the Family Home: An Examination of Referencing in Response to
Financial Stress.'
[4] Reserve Bank of Australia.
[5] Australian Mortgage Industry - Volume 7, Fujitsu and JPMorgan, March
2008.
[6] Complexity to be Tackled in Financial Services Working Group to Start
Immediately, Joint press release by Ministers Sherry and Tanner, 5
February 2008.