Over 3 years have passed since the National Consumer Credit Protection Act 2009 (Cth) (“NCCP”) received Royal Assent in 2009. Since this time continuing changes have been made to the regulation of credit, and the trend appears to be set to continue through 2013.
What has been enacted and recently come into effect or will soon?
Since late 2012 a number of reforms have been made and implemented to the regulation of credit. The Consumer Credit and Corporations Legislation Amendment (Enhancements) Act 2012 (Cth) (“Enhancements Act”) made a number of changes to the NCCP with implementation dates between September 2012 and July 2013.
Key reforms contained in this Enhancements Act include:
- Reforms to hardship processes – while these changes commenced from March 2013 they will apply only to contracts entered into from that date. Regulations providing for a staggered commencement date for some provisions of the hardship obligations have recently been made.
- Specific provisions dealing with reverse mortgages. This includes disclosures in relation to the loan as well as restricting enforcement rights. These provisions generally commenced on 1 March 2013 although some changes have applied since 18 September 2012.
- The introduction of regimes specific to short term and small amount credit contracts. This regime has applied from 1 March 2013 with prohibitions on suggesting increases to short-term contracts applying to all contracts (new and existing).
- The introduction of a cap on costs that may be charged under credit contracts. Previously, various States had their own cap requirements however, the introduction a National cap reflects the purpose behind the NCCP Act in creating a uniform regulatory environment. These caps will apply to contracts entered into on or after 1 July 2013.
- Reforms to the regulation of consumer leases to more closely align the obligations applying to leases to those applying to credit contracts. These changes apply to leases entered into on or after 1 March 2013.
Draft legislation released in December 2012 – small business regulation “deferred” but other proposals remain
In December 2012, Treasury released draft legislation proposing significant reforms to the regulation of credit – namely extending the application of the NCCP Act to small business loans and leases. While the proposal was a limited “light touch” approach it would have seen real compliance issues for those offering loans and leases to small business.
In February 2013, however, Treasury announced that any reforms to the regulation of small business credit would be deferred. This was a welcome relief with those grappling with the impacts of the proposal. However, the announcement was not a closed door on the idea.
As well as the small business reform proposals, the draft legislation contained provisions that are still under consideration. Namely:
- broadening the scope of the NCCP Act to apply to investment loans. Currently only investment loans that are entered into in relation to residential property (with a loan amount below certain monetary thresholds) are captured by the NCCP Act and margin loans are subject to a separate regime under the Corporations Act 2001 (Cth). While the NCCP Act would not apply in its entirety to investment loans the draft legislation proposes significant compliance obligations that will need to be addressed;
- amending the exemptions available to short term and indefinite leases; and
- proposing an anti-avoidance provision into the NCCP Act. As drafted in the proposed legislation, these anti-avoidance provisions will create real uncertainty when considering how to comply with the NCCP Act and pose the risk of civil and criminal penalties.
Ongoing consultation – change continues
In addition to draft legislation released, Treasury is also consulting on a number of other reforms proposals.
This includes changes to the regulation of retailers providing credit assistance at point of sale. Retailers will generally not require an Australian Credit Licence where credit or a lease is provided to consumers to purchase or lease goods offered by the retailer. This exemption was introduced with the expectation that it would be reconsidered in 12 months' time when its success or otherwise could be reflected upon. A public discussion paper was released and called on submissions as to whether the exemption should be retained, removed completely or whether a modified regime should apply depending on the role of the retailer.
Other reform proposals continue in the background and may result in further draft legislation and Regulations being released in the coming year.
While over 3 years have passed this the NCCP Act received Royal Assent, amendments continue to be made and the trend does not appear to be abating.
ASIC is active and is likely to continue to be
ASIC’s regulatory enforcement action in the credit space has ramped up in the last 12 months. Investigations of the credit space has resulted in numerous enforceable undertakings being obtained from entities, licence conditions being added to Australian Credit Licences, refund programs being put in place and banning orders being made in relation to individuals.
Areas which have taken ASIC's interest include exit fees under mortgages, advertising practices, credit limit increases, unfair contract terms and general conduct obligations.