In March 2013 Federal Treasury released material outlining proposals for so-called "fine tuning" amendments to the National Consumer Credit Protection Regulations 2010.
While the proposals may be "fine tuning" amendments in a legislative sense, they will, if adopted, mean that lenders will need to change documents and procedures.
These proposed changes are still in the consultative period. Initial submissions were due by Monday 15 April 2013.
The following are the main proposals:
- Corporate credit representatives of an authorised deposit taking institution (ADI) will be exempt from the requirement to be a member of an external dispute resolution scheme in their own right.
The exemption extends to employees of corporate credit representatives. The rationale for the exemption is that ADIs are already subject to strong prudential controls and further regulation is unnecessary.
2. LMI insurers and Loan Suitability Assessments
LMI insurers are currently required to provide a copy of the loan suitability assessment on request and a strict liability attaches if they fail to do so. In recognition of the role that LMI insurers play and the fact that they do not themselves undertake the suitability assessment in the first place, LMI insurers will have a defence available to them if the original credit provider has not passed on the assessment to them.
3. Allow an interest charge in advance in certain circumstances
Where a person obtains credit for personal use and then refinances into a loan for investment purposes, interest will be allowed to be charged in advance under the refinanced investment loan.The rationale is that it should be the new purpose of the loan that is relevant to an advance charge of interest, not the purpose of the original loan.
4. Change to credit guide of credit representatives
Currently, credit representatives have to disclose the six most used credit providers or lessors. Credit representatives will now be able to choose to either disclose:
- the six names, or
- the names of all credit providers or lessors with whom the credit representative conducts business.
Currently, by only naming six, it is thought that undue influence might be created to choose from one of the six listed, rather than considering other options.
5. Clarification of who may be a trust account auditor
Going forward both a natural person who is a registered company auditor and a company which is an authorised audit company will qualify as entitled to be a "trust account auditor" for a person who provides credit services and is required to have an auditor.
6. Bundled consent for invitations to increase credit limit
Regulation 28LI is to be amended to make it clear that the consent of a consumer to receive invitations to increase their credit limit can be bundled in with other consents.
7. Further exemptions for "white labelling" arrangements
This is designed to cover a situation where ADIs offer products provided by another ADI (bank), but badged under the name of the first ADI.
The effect of the change is to exempt the ADI white labelling the product of another bank from having to conduct a preliminary suitability assessment, which it would otherwise have to do when marketing products of the other bank. See regulation 28Q.
8. Changes to website warnings for lenders providing small amount credit contracts (SACC)
Changes are to be made to make the website warning a provider of a SACC more prominent (regulation 28XXB). The warning is required to be bolded and in box format and on a white background.
9. It has been clarified that Providers of SACCs have to include hyperlinks to both Centrelink and the ASIC Money Smart websites
10.Dispensation from the requirement for providers of SACCs to give an oral version of the statutory warning when speaking to prospective borrowers
Currently, the SACC credit provider is required to give an oral warning whenever a consumer telephones. Going forward the oral warning will no longer be required if the credit provider only gives factual information or other contact or address details.
11. New figures for quoting comparison rates
To reflect changes in the market and the size of loans, when quoting comparison rates in the future it is proposed the following new amounts be allowed:
- $250 for a term of 1 month
- $30,000 for a term of 3 years
- $250,000 for a term of 25 years
- $300,000 for a term of 30 year
12. Changes to form and content of home loans key facts sheet (KFS)
Currently the form of home loan KFS does not deal adequately with the situation where there is a loan which has an initial fixed interest rate, then reverting to variable interest rate.
Changes are proposed to home loan KFSs to take into account this type of loan, as well as further amendment to generally facilitate other loan interest rate permutations and combinations.
13. Mortgage managers – change to terms of exemption from the requirement to disclose commission
Currently mortgage managers are exempt from the requirement to disclose commission (interest rate spread) on certain conditions. One condition is that the lender has details of the maximum cost of the mortgage manager's contract and interest rate on its website. In practical terms, this made the exemption redundant, because credit providers were reluctant to put a mortgage manager's cost details on their own websites.
It is proposed that a mortgage manager can now rely on the exemption as long as the required details are displayed on its own website – no longer does it have to be disclosed on the credit provider's website.
14. Securitisation entities
Currently, fundraising special purpose entities have an exemption under the National Credit Act, but that exemption is phrased in terms of money lent, not in terms of mortgages or guarantees taken. The proposed amendments clarify that the exemption will also apply to mortgages granted and guarantees taken.
It is likely that most of the proposed changes will proceed. By the time the final regulations are made, it is likely that there will be other so-called "technical" amendments to pick up other practical and documentation problems with the current regulations.
We will issue a further email alert when the regulations are finalised.