Are you fully aware of the licencing requirements for providing credit advice? Even when referring clients to a credit provider (provider) your actions may be caught as a regulated credit activity which would require you to be licensed under the National Credit Code. Whilst there are specific exemptions for ‘mere referrals’, the conditions for the exemptions must be followed precisely or you may find yourself inadvertently engaging in a credit activity which requires an Australian credit licence. This is particularly concerning for accountants, lawyers, real estate agents and similar professionals, who may recommend particular providers or types of credit contracts on a regular basis.
A real estate agent, while showing a property to a consumer, tells the consumer they should contact a particular finance broker to arrange a home loan and provides the contact details of the broker. The agent receives a ‘finder’s fee’ for referring the consumer. If the agent does not fully disclose this finder’s fee to the consumer, the agent will be participating in a regulated credit activity by acting as an intermediary between a provider and a consumer. This is the case even if the consumer has not yet made a decision about which provider to apply to.
EXEMPTION FOR MERE REFERRALS
Originally the National Consumer Credit Protection Act 2009 (Cth) provided only a very narrow exemption for referral activity. However, the government has amended the allowable exemptions for referral arrangements in the National Consumer Credit Protection Regulations (NCCPR). Under regulations 25(2), (2A) and (5), a referrer may be exempt from the need to hold a credit licence for 'mere referrals'. These exemptions apply only in limited circumstances, however, and care must be taken to meet the requirements if you intend to rely on an exemption.
EXEMPTION 1 –REGULATION 25(2)
The first exemption applies where a referrer:
- informs the consumer that a provider (that is, a licensee or registered person, or their representative) provides particular credit activities;
- passes on the provider’s contact information; and
- at the same time, discloses any benefits (such as commission) the referrer or an associate of the referrer might receive as a result of the referral. This disclosure of benefits must be provided to the consumer in the same form as the provider’s information. For example, if the referrer gives the information about the provider in writing, the disclosure will also have to be in writing.
The Regulation does not define “benefit”, and only provides commission as an example. It would be prudent to disclose any form of benefit you may receive upon referring the consumer to the provider (such as the return of business).
While this may seem simple, if the referral involves providing any credit assistance, such as suggesting that the consumer apply for a particular credit contract with the provider, the exemption will not apply. Additionally, any type of endorsement of the provider or its products may put the referral activity at risk of being regulated.
Importantly, this exemption does not cover a situation where the referrer gives the consumer’s contact details to the provider or facilitates the consumer contacting the provider, such as via a website (see Exemption 2 below).
EXEMPTION 2 –REGULATION 25(2A)
The second exemption is very similar to the first exemption, with one key difference. Instead of the referrer merely giving the provider’s details to the consumer, the referrer takes the extra step of making arrangements to enable the consumer to contact the provider by means of a website link.
EXEMPTIONS 3 AND 4 – REGULATIONS 25(5) AND 9AB
The third exemption was an interim provision that was superseded by the fourth exemption on 1 October 2010.
This exemption covers activity that is engaged in under an agreement between the referrer and the provider. This agreement, which can either be in writing or based on an offer made in writing and accepted by the provider, must specify the conduct that the referrer can engage in (namely, the conduct to which this exemption applies).
To access the exemption, the referrer’s activity must consist only of:
- informing the consumer that the provider is able to provide a particular credit activity or a class of credit activities and disclosing any benefit the referrer may receive (exactly as in Exemptions 1 and 2); and
- with the consumer’s consent and within 5 business days after referring the consumer, giving the consumer’s name and contact details to the provider, along with a short description of the purpose of the credit or consumer lease (if the referrer knows the purpose).
Importantly, the referrer must not be banned from engaging in the credit activity the consumer is referred for, and the referrer cannot require the consumer to pay a fee for the referral.
CONDITIONS ON EXEMPTION 4
As the referrer is passing on consumer details rather than just facilitating a consumer to contact a provider, stringent conditions must be met for this exemption to apply.
Firstly, the main business of the referrer cannot be making contact with persons in order to give their name or other details to another person, or operate out of “non-standard business premises”, such as a stall in a shopping centre.
Additionally, obligations exist on providers who have these types of agreements in place with referrers. The provider must maintain, or have access to, a register of referrers under these agreements, which must be made available to ASIC on request. This register must include the referrer’s name and contact details, the date and details of the agreement between the two parties, and the day on which the referrer first started referral activities.
The provider must contact the consumer within 10 business days after receiving the referral, and must disclose from whom they have received the consumer’s details and any commission involved.
The referral exemptions are a very useful tool for professionals who wish to provide incidental services in respect of credit products or simply want to assist clients in making suggested referrals to providers, but they must be mindful of the stringent conditions of the exemptions to avoid needing to be licensed. Any professionals not licenced to provide credit services should make this fact clear, and emphasise when discussing different credit options available to a client that they are not recommending one over another.