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National Consumer Credit Protection Bill 2009

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2008-2009

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

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)

 



T able 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

 



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 Protection Reform Package

National Consumer Credit Protection Bill 2009, 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

 



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. 

 



C hapter 1     

Introduction

Outline of chapter

1.1                   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

1.2                   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

1.3                   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.

1.4                   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. 

1.5                   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. 

1.6                   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

1.7                   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]

1.8                   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. 

1.9                   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.

1.10               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

1.11               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

1.12               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

1.13               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. 

1.14               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. 

1.15               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. 

1.16               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. 

1.17               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]

1.18               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]

1.19               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]

1.20               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.

1.21               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.

1.22               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]

1.23               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]

1.24               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.

1.25               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.

1.26               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]

1.27               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. 

1.28               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. 

1.29               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. 

1.30               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

1.31               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. 

1.32               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]

1.33               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]

1.34               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

1.35               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

1.36               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. 

1.37               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]

1.38               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

1.39               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

1.40               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

1.41               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

1.42               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)]

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)]

1.44               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

1.45               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

1.46               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

1.47               A State will cease to be a referring State if its initial reference terminates.  [Part 1-3, Division 2, subsection 19(5)]

1.48               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)] .

1.49               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. 

1.50               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

1.51                ‘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)]

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)]

1.53               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

1.54               Each provision of the Bills applies in this jurisdiction.  [Part 1-3, Division 2, subsection 21(1)]  

Geographical coverage of “this jurisdiction”

1.55               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)] 

1.56               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

1.57               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

1.58               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.

1.59               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

1.60               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

1.61               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).

1.62               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]

1.63               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

1.64               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

1.65               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

1.66               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]



C hapter 2     

Licensing of persons engaging in credit activities

Outline of chapter

2.1                   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). 

2.2                   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. 

2.3                   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

2.4                   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. 

2.5                   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. 

2.6                   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. 

2.7                   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.

2.8                   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. 

2.9                   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.

2.10               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. 

2.11               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.

2.12               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. 

2.13               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]  

2.14               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.

2.15               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

2.16               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.

2.17               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. 

2.18               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. 

2.19               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. 

2.20               The definition of ‘credit’ otherwise expressly excludes credit provided for business or investment use. 

2.21                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.

2.22               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. 

2.23               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.

2.24               The entry requirements for licensing are more rigorous and will require ASIC to consider two key elements in respect of the application.

2.25               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.

2.26               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). 

2.28 2.27               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.

2.28               The regulations may describe other categories of participants who may also be streamlined to an ACL.

2.29               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.

2.30               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.

2.31               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.

2.32               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 consistent licensing regime for lenders or intermediaries, irrespective of the jurisdiction they operate in.

In the Northern Territory, Queensland, South Australia and Tasmania there is no registration or licensing scheme for either lenders or intermediaries.

Introduces enhanced entry requirements and ongoing conduct obligations for lenders and intermediaries.

In the Australian Capital Territory and Victoria there is a registration scheme for both intermediaries, and lenders, and in New South Wales there is a negative registration scheme for both intermediaries and lenders.

The main differences with the law operating in Western Australia are:

•        applicants are subject to a number of additional obligations, including a requirement to be a member of an EDR Scheme approved by ASIC;

•        significant ongoing requirements while licensed (including that the licensee must properly train and supervise people who act on their behalf); and

•        the capacity to remove the licence if the licensee no longer meets the entry requirements. 

In Western Australia there is a licensing scheme for both lenders and intermediaries. 

The main features of the licensing scheme are:

•        entry requirements, including that the applicant is a fit and proper person;

•        some ongoing requirements while licensed; and

•        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?

2.33               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. 

2.34               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)]

2.35               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.

2.36               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]

2.37               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]

2.38               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.

2.39               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.

2.40               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]

2.41               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. 

2.42               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. 

2.43               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

2.44               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. 

2.45               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]

2.46               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]

2.47               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. 

2.48               Table 2.1 summarises the changes in requirements over time.

Table 2.1  

1 November 2009 to 31 December 2009

All persons engaging in credit activities will need to apply to be registered.

They need to demonstrate membership of an EDR Scheme in order to be registered.

1 January 2010 to 30 June 2010

All persons engaging in credit activities will commit an offence unless:

•        they are registered; or

•        they are licenced.

1 January 2010 and onwards

All persons engaging in credit 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 30 June 2011

All persons engaging in credit 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 onwards

From this date at the latest, all persons engaging in credit activities must be holders of an ACL.

2.49               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]

2.50               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]

2.51               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.   

2.52               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]

2.53               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] .

2.54               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]

2.55               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]

2.56               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

2.57               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)]

2.58               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)]  

2.59               A ‘credit representative’ is a person formally appointed to act on behalf of the licensee, in accordance with section 64 or section 65. 

2.60               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]

2.61               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. 

2.62               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.   

2.63               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).

2.64               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

2.65               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]

2.66               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]

2.67               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

2.68               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

2.69               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]

2.70               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)]

2.71               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]

2.72               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)]

2.73               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)]

2.74               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. 

2.75               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]

2.76               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. 

2.77               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)]

2.78               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. 

2.79               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.

2.80               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. 

2.81               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). 

2.82               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. 

2.83               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)]

2.84               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.

2.85               The transfer of information or documents to ASIC from State and Territory regulators is authorised in Schedule 1 of the Transitional Bill.

2.86               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]

2.87               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]

2.88               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]

2.89               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]

2.90               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. 

2.91               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 

2.92               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. 

2.93               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]

2.94               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.. 

2.95               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

2.96               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)]

2.97               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)]

2.98               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. 

2.99               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)]

2.100           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)]

2.101           The Minister refers to the Minister responsible for administering the Transitional Bill, determined in accordance with section 19A of the Acts Interpretation Act 1901 .

2.102           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

2.103           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]

2.104           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)] .

2.105           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). 

2.106           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. 

2.107           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. 

2.108           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.

2.109           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. 

2.110           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. 

2.111           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. 

2.112           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. 

2.113           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.

2.114           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)]

2.115           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.

Example 2.1 :  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. 

Example 2.2 :  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. 

2.116           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)]

2.117           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. 

2.118           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. 

2.119           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. 

2.120           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. 

2.121           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. 

2.122           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.

2.123           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.

2.124           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. 

2.125           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). 

2.126           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.   

2.127           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)]

2.128           This requirement assists licensees to determine the scope of their obligations, and to ensure they are complying with the other general conduct obligations.

2.129           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. 

2.130           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

2.131           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]

2.132           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]

2.133           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)]

2.134           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)] .

2.135           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.

2.136           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. 

2.137           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]

2.138           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.

2.139           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)]  

2.140           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)]  

2.141           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)]   

2.142           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.

2.143           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

2.144           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)]

2.145           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)]

2.146           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)]  

2.147           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)]

2.148           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.

2.149           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

2.150           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

2.151           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. 

2.152           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]

2.153           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.

2.154           ASIC can revoke any suspension of a licence at any time.  [Part 2-2, Division 5, section 59]

2.155           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)]

2.156           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]

2.157           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

2.158           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]

2.159           In paragraphs 2.162 to 2.190, the registered person or licensee who appoints a credit representative is referred to as the principal. 

2.160           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.

2.161           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.

2.162           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)]

2.163           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)]

2.164           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.

2.165           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. 

2.166           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]  

2.167           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)]  

2.168           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] .

2.169           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).

2.170           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]

2.171           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]

2.172           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.

2.173           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] .

2.174           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)]

2.175           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)]

2.176           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)]

2.177           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.

2.178           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

2.179           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]

2.180           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. 

2.181           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)]

2.182           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)]

2.183           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).

2.184           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

2.185           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.

2.186           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]

2.187           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]  

2.188           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]

2.189           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]  

2.190           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)]

2.191           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

2.192           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]

2.193           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. 

2.194           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)]

2.195           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]

2.196           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. 

2.197           While fraud is not defined in the Credit Bill, it should, given the context, be interpreted consistently with the definition of serious fraud.

2.198           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. 

2.199           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)]

2.200           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.

2.201           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)]

2.202           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.

2.203           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]

2.204           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)]

2.205           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]

2.206           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)]

2.207           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]

2.208           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)]  

2.209           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)]

2.210           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)]

2.211           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)] .   

2.212           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

2.213           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

2.214           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

2.215           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]

2.216           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)]

2.217           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]

2.218           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]

2.219           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]

2.220           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

2.221           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]

2.222           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. 

2.223           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)] .

2.224           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).

2.225           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.

2.226           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).

2.227           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)] .

2.228           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. 

2.229           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.

2.230           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

2.231           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. 

2.232           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)]

2.233           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]

2.234           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)]

2.235           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)]

2.236           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)]

2.237           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)]

2.238           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)]

2.239           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]

2.240           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

2.241           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]

2.242           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]

2.243           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)]

2.244           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)]

2.245           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)]

 



C hapter 3     

Responsible lending conduct

Outline of chapter

3.1                   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). 

3.2                   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).

3.3                   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.

3.4                   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.

3.5                   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. 

3.6                   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.

3.7                   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

3.8                   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.

3.9                   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. 

3.10               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. 

3.11               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.

3.12               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.

3.13               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’. 

3.14               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. 

3.15               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. 

3.16               Responsible lending conduct regulation encourages prudent lending and leasing to continue and imposes sanctions in relation to irresponsible lending and leasing. 

3.17               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. 

3.18               Several Australian lending institutions have established responsible lending charters and processes.  The United Kingdom introduced responsible lending laws in 2006.    

Summary of new law

3.19               Chapter 3 of the Credit Bill includes the requirements and obligations in relation to lending and leasing responsibly to consumers. 

3.20               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.

3.21               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.

3.22               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. 

3.23               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. 

3.24               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. 

3.25               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. 

3.26               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. 

3.27               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.

3.28               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. 

3.29               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. 

3.30               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

3.31               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.

3.32               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)]

3.33               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)]

3.34               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

3.35               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)] 

3.36               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. 

3.37               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). 

3.38               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)]

3.39               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)]

3.40               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)]

3.41               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)]

3.42               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.

3.43               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. 

3.44               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)]

3.45               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

3.46               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.

3.47               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. 

3.48               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)]

3.49               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)]

3.50               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)]

3.51               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).

3.52               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)]

3.53               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)]

3.54               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

3.55               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. 

3.56               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)]

3.57               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. 

3.58               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.

Example 3.1  

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

3.59               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)]

3.60               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.

3.61               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

3.62               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)]

3.63               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)]

3.64               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

3.65               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)]

3.66               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. 

3.67               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.

3.68               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. 

3.69               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. 

Example 3.2  

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. 

3.70               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). 

3.71               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. 

3.72               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).

3.73               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)). 

3.74               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. 

3.75               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. 

3.76               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. 

3.77               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’.

3.78               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.   

3.79               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.

3.80               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

3.81               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)]

3.82               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)]

3.83               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. 

3.84               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)]

3.85               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. 

3.86               The only information that must be taken into account by a credit assistant when making the preliminary unsuitability assessment has two elements. 

3.87               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. 

3.88               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

3.89               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)]

3.90               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)]

3.91               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

3.92               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. 

3.93               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)]

3.94               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)]

3.95               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)]

3.96               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

3.97               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)]

3.98               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)] .

Example 3.3  

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 for

$150,000

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 consumer

$148,375

Estimated total commissions receivable by the credit assistant from the credit provider

(This is estimated by a percentage of the credit secured)

$3,000

3.99               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)]

3.100           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).

3.101           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)]

3.102           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

3.103           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)]

3.104           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)]

3.105           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)]

3.106           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. 

3.107           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)]

3.108           The information that must be taken into account by a credit assistant when determining if the contract will be unsuitable includes two elements. 

3.109           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. 

3.110           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)]

3.111           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)]

3.112           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)]

3.113           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)]

3.114           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

3.115           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)]

3.116           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)]

3.117           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. 

3.118           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.

3.119           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. 

3.120           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)]

3.121           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. 

3.122           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)]

3.123           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

3.124           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)]  

3.125           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)]

3.126           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)]

3.127           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. 

3.128           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)]

3.129           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

3.130           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]

3.131           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. 

3.132           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. 

3.133           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

3.134           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]

3.135           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

3.136           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)]

3.137           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)]

3.138           ASIC also expects to provide guidance where appropriate to set out further detail about reasonable inquiries and verification process in particular circumstances. 

3.139           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. 

Example 3.4  

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. 

Example 3.5

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.

Example 3.6  

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. 

3.140           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. 

3.141           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.

3.142           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).

3.143           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. 

3.144           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’.

3.145           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. 

3.146           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

3.147           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. 

3.148           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

3.149           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

3.150           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. 

3.151           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

3.152           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)]

3.153           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)]

3.154           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. 

3.155           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.

3.156           The concept of substantial hardship is used in paragraph 76(2)(l) of the Code and is applied similarly for responsible lending. 

3.157           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. 

3.158           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)]

3.159           The information that must be taken into account by a credit provider for determining if the credit contract is unsuitable includes two elements. 

3.160           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. 

3.161           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

3.162           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)]

3.163           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)]

3.164           The consumer cannot be charged any costs for being provided a copy of the assessment.  [Part 3-2, Division 3, subsection 132(4)]

3.165           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)]

3.166           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

3.167           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. 

3.168           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)]

3.169           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.

3.170           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. 

3.171           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)]

3.172           The information that must be taken into account by a credit provider when determining the contract is unsuitable includes two elements. 

3.173           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. 

3.174           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)]  

3.175           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)]

3.176           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

3.177           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

3.178           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

3.179           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. 

3.180           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.

3.181           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)]

3.182           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)]

3.183           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)]

3.184           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. 

3.185           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)]

3.186           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

3.187           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)]

3.188           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)]

3.189           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)]

3.190           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)]

3.191           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. 

3.192           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)]

3.193           The requirement will only apply to debt collectors who are not exempt from this obligation. 

3.194           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

3.195           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]

3.196           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. 

3.197           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)]

3.198           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)]

3.199           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)]

 



C hapter 4     

Remedies

Outline of chapter

4.1                   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. 

4.2                   It also sets out the remedies available to consumers, including remedies in relation to unlicensed conduct.

4.3                   It sets out the jurisdiction and procedure of the courts, and the dispute resolution mechanisms available to consumers. 

Context of new law

Background

4.4                   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. 

4.5                   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. 

4.6                   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. 

4.7                   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. 

4.8                   The dispute resolution framework seeks to address these concerns.

4.9                   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. 

4.10               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. 

4.11               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. 

4.12               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

4.13               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. 

4.14               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.   

4.15               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

4.16               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.

4.17               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.

4.18               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. 

4.19               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. 

4.20               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

4.21               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. 

4.22               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. 

4.23               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.

4.24               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. 

4.25               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

4.26               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. 

4.27               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. 

4.28               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. 

4.29               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.   

4.30               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

4.31               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. 

4.32               The issuing of infringement notices is at the discretion of ASIC. 

4.33               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.

4.34               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

4.35               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. 

4.36                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. 

4.37               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). 

4.38               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. 

Example 4.1 :  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

4.39               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.

4.40               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. 

4.41               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.   

4.42               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

4.43               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. 

4.44               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.   

4.45               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

4.46               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. 

4.47               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. 

4.48               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.

Diagram 4.1 :  Overview of interaction between the Civil Penalty, Criminal Offence and Consumer Remedy Framework



 Comparison of key features of new law and current law

New law

Current law

Streamlined court proceedings can be adopted for credit disputes for claims under $40,000 or for hardship to ensure that consumers have access to simpler forms of dispute resolution.   

Consumers in Victoria, New South Wales, Australian Capital Territory and Western Australia currently have access to tribunals with streamlined, low cost options for redress. 

There will be a presumption against adverse cost orders for small claims proceedings, hardship and postponement matters.

Generally State and Territory tribunals do not issue adverse cost orders. 

Jurisdiction for civil matters will be extended to the Federal Court, the Federal Magistrate Court and all State and Territory Courts.

Some States and Territories permit credit matters to only be heard in Tribunals. 

Jurisdiction for criminal matters will remain in State and Territory Courts.

Criminal matters were heard in State and Territory Courts. 

Additional consumer remedies are available for loss and damages for breaches of the Credit Bill (other than the Code).

No consumer remedies exist in relation to the licensing of credit providers and credit service providers or responsible lending. 

Detailed explanation of new law

Part 4.1 — Civil penalty provisions

4.49               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

4.50               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]

4.51               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]

4.52               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]

4.53               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 .

4.54               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 .

4.55               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. 

4.56               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

4.57               A contravention of a civil penalty is not a criminal offence.  [Part 4-1, Division 3, section 168]

4.58               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.

4.59               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]

4.60               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]

4.61               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. 

4.62               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)]

4.63               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)]

4.64               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]

4.65               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]

4.66               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]

4.67               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]

4.68               This acts as a defence to a contravention of the civil penalty.  The court may relieve the person either wholly or partly from liability. 

4.69               Section 183 is modelled on section 1317S of the Corporations Act.

Consumer remedies — Overview

4.70               A consumer and other affected parties have a number of remedies available to them under the Credit Bill. 

4.71               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] .

4.72               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

4.73               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]

4.74               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)]

4.75               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)]

4.76               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)] .

4.77               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. 

4.78               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

4.79               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]

4.80               ASIC may make an application on behalf of the consumer with their consent for both types of orders. 

4.81               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.

4.82               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).

4.83               An order can be made under this provision; whether or not a declaration of contravention under section 166 has been made. 

4.84               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. 

4.85               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.

4.86               Section 179 is modelled on section 1325 of the Corporations Act. 

4.87               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)] .   

4.88               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.

4.89               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. 

4.90               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). 

4.91               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. 

Example 4.2 :  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.

4.92               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. 

Example 4.3 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

4.93               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]

4.94               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

4.95               A consumer also has remedies against an unlicensed provider.  [Part 4-2, Division 2, section 180]  

4.96               An unlicensed provider is someone who acts in contravention of section 29; that is, acts without holding a licence.

4.97               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)]

4.98               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)]  

4.99               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.

4.100           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).

4.101           In addition, the consumer should be able to recover or prevent any loss and damage they have suffered. 

4.102           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.

4.103           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. 

4.104            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

4.105           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]

4.106           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. 

4.107           Similar provisions occur in section 12GLB in the Australian Securities and Investments Commission Act 2001

4.108           Section 184 enables the court to make multiple orders, that is, one or more remedies in relation to the same breach. 

Infringement notices

4.109           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.

4.110           This allows ASIC to deal with suspected minor offenders without the need to summons a person to appear in court.

4.111           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. 

4.112           In relation to civil penalties, the maximum fine must not exceed one-twentieth of the maximum penalty.

4.113           The infringement notice power will be supported by regulations that establish the form and manner in which they are issued. 

4.114           This provision is modelled on section 799 of the Fair Work Act 2009 .

4.115           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

4.116           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. 

4.117           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. 

4.118           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.

4.119           These arrangements also apply to the Code.

4.120           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

4.121           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. 

4.122           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]

4.123           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

4.124           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]  

4.125           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.   

4.126           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. 

4.127           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

4.128           The civil jurisdiction of the Federal Court and Federal Magistrates Court is restricted in certain circumstances.

4.129           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. 

4.130           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)]

4.131           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)] .

4.132           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)]

4.133           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]

4.134           This provision has effect, despite anything else in the Credit Bill or any other law.  [Part 4-3, Division 2, subsection 188(6)]

4.135           This provision is consistent with section 1337D of the Corporations Act. 

Cross-jurisdictional appeals

4.136           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.  

4.137           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] .

4.138           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

4.139           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.   

4.140           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. 

4.141           This arrangement operates to the exclusion of the Jurisdiction of Courts (Cross-vesting) Act 1987 [Part 4-3, Division 2, section 186]  

4.142           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. 

4.143           In addition, the transfer arrangements assist in ensuring that legal proceedings for credit occur in the most appropriate jurisdiction. 

4.144           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. 

4.145           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. 

4.146           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

4.147           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]

4.148           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]

4.149           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)]

4.150           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)].

Example 4.4 :  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)] .

4.151           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)]

4.152           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]

4.153           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)]

4.154           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]

4.155           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

4.156           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)] .

4.157           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.

4.158           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)]

Example 4.5 :  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

4.159           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. 

4.160           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.

4.161           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. 

4.162           The monetary limit is also consistent with the current jurisdictional limits for the award of damages in State and Territory magistrate and local courts.

4.163           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. 

Example 4.6 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

4.164           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. 

4.165           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.

4.166           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)]

4.167           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.

4.168           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. 

4.169           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.

4.170           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

4.171           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. 

4.172           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

4.173           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.

4.174           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)]

4.175           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)]

4.176           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)]  

4.177           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)]

4.178           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)]

4.179           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

4.180           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. 

4.181           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.

4.182           The removal of adverse cost orders in tribunal proceedings were seen as an advantage of a tribunal compared to the courts.

4.183           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). 

4.184           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

4.185           Division 3 deals with criminal proceedings and sets out the laws that are to be applied in relation to criminal proceedings. 

4.186           This Division is intended to be consistent with Part 9.6A, Division 2 of the Corporations Act. 

4.187           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

4.188           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)]

4.189           Section 204 has the same legal effect as section 1338B of the Corporations Act.  This provision has been amended to improve its readability. 

4.190           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)]

4.191           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

4.192           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)]

4.193           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)]

4.194           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

4.195           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)]

4.196           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)]

4.197           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)]

4.198           ‘Relevant criminal law’, includes criminal law relating to the conviction or sentencing of an indictable offence.  [Part 4-3, Division 3, subsection 204(7)]

4.199           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

4.200           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)]

4.201           ‘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)]

4.202           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]

4.203           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]

4.204           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. 

4.205           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. 

4.206           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.

4.207           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)]

4.208           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]

4.209           ASIC may seek a court order to obtain compliance with such a request.  [Part 4-3, Division 3, subsection 207(5)]   

4.210           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

4.211           Division 4 contains rules about proceedings generally, such as ASIC’s power to intervene in proceedings and the standard of proof to be applied.

4.212           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]  

4.213           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]  

4.214           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.   

4.215           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. 

4.216           This replicates section 1333 of the Corporations Act. 

4.217           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

4.218           Federal jurisdiction commences for claims that arise under the new legislation from the commencement of the Credit Bill. 

4.219           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. 

4.220           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. 

4.221           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. 

 



C hapter 5     

Administration

Outline of chapter

5.1                   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). 

5.2                   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.

5.3                   These provisions are designed to allow ASIC to have sufficient administrative powers for the efficient operation of the legislative scheme.

Summary of new law

5.4                   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

5.5                   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

5.6                   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.

5.7                   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)]

5.8                   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)]

5.9                   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)]

5.10               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)]

5.11               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

5.12               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

5.13               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.

5.14               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. 

5.15               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]

5.16               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)]

5.17               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]

5.18               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)]

5.19               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)]

5.20               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)]

5.21               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)]

5.22               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)]

5.23               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

5.24               Division 3 deals with ASIC’s register of documents that have been lodged with it.

5.25               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)]

5.26               ASIC document registers may be maintained in an electronic form.  [Part 5-2, Division 3, subsection 219(3)]

5.27               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)]

5.28               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)]

5.29               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)]

5.30               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)]

5.31               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)]

5.32               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

5.33               Division 4 deals with further provisions relating to the lodging of documents with ASIC.

5.34               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. 

5.35               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]

5.36               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)]

5.37               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)]

5.38               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)]

5.39               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]

5.40               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.

5.41               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)] 

Example 5.1  

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.

5.42               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. 

5.43               The civil penalty for this offence is a maximum of 2,000 penalty units. 

5.44               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)]

5.45               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.

5.46               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

5.47               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

5.48               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)]

5.49               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)]

5.50               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.

Example 5.2  

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.

5.51               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)]

5.52               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)]  

5.53               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.

5.54               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

5.55               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

5.56               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. 

5.57               Fees imposed under the Fees Bill are payable to the Commonwealth.  [Part 5-4, Division 2, section 231]

5.58               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]

5.59               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]

5.60               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.

5.61               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]

5.62               ASIC may recover a debt due under Division 2 on behalf of the Commonwealth.  [Part 5-4, Division 2, section 236]

5.63               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

5.64               Part 5-5 deals with miscellaneous provisions relating to administrative matters.  [Part 5-5, Division 1, section 238]

Division 2 — Other administrative matters

5.65               Division 2 deals with miscellaneous provisions relating to administrative matters.

5.66               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]

5.67               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.

5.68               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. 

5.69               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)]

5.70               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)]

5.71               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)]

5.72               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)]

5.73               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)]

5.74               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)]

5.75               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)]

5.76               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.

5.77               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.

Example 5.3  

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.

5.78               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)] .

5.79               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]

5.80               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)]

 



C hapter 6     

Compliance and enforcement

Outline of chapter

6.1                   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

6.2                   ASIC generally exercises its compliance and enforcement powers under the Australian Securities and Investments Commission Act 2001 (ASIC Act). 

6.3                   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. 

6.4                   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.

6.5                   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.

6.6                   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. 

6.7                   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.

6.8                   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.   

6.9                   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. 

6.10               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. 

6.11               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

6.12               Chapter 6 of the Credit Bill outlines the powers that ASIC may exercise for the purpose of administering and enforcing the Commonwealth credit legislation. 

6.13               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]

6.14               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. 

6.15               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).

6.16               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.

6.17               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

6.18               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.

6.19               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.

6.20               ASIC’s investigation powers assist in maintaining the integrity of the credit industry and promote consumer protection in relation to the provision of credit.

6.21               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]

6.22               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] 

6.23               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]

6.24               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. 

6.25               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).

6.26               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]

6.27               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.

6.28               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

6.29               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. 

6.30               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)]

6.31               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. 

6.32               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. 

6.33               ASIC also has discretion to decide to prepare an interim report.  [Part 6-1, Division 2, subsection 249(2)]

6.34               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]

6.35               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]

6.36               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)]

6.37               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)]

6.38               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)]

6.39               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)]

6.40               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.

6.41               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]

6.42               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]

6.43               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 ]

6.44               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)]

6.45               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.

6.46               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

6.47               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)]

6.48               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)]

6.49               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.

6.50               This power and the corresponding offence is consistent with section 19 of the ASIC Act.

6.51               A person can give information relevant to a matter if the person can: