The National Consumer Credit Protection Act 2009 (Cth) and the National Credit Code (Code) mandates licensing for businesses offering credit services intended for personal, domestic, or household use, or for financing the purchase, renovation, or enhancement of the value of residential investment properties.
If you only lend to companies or only make commercial purpose loans, then your lending activities are generally not subject to the Code and you would not require an Australian Credit Licence (ACL).
When does the Code apply?
The Code will only apply if:
- the debtor is a natural person or a strata corporation; and
- the credit is provided (or intended to be provided) wholly or predominately (i.e. more than half) for:
- personal, domestic or household purposes; or
- to purchase, renovate or improve residential property for investment purposes; or
- to refinance credit used for these purposes; and
- a charge is (or may be) made for the provision of the credit; and
- the provider of the credit does so in the course of a business of providing such credit (or as part of or incidentally to any other businesses of the provider that are carried on in this jurisdiction).
Credit extended for purposes other than those specified is exempt from this requirement.
The Code does not apply if:
- the provision of credit is for less than 62 days; and
- the maximum amount of fees and charges for the credit is 5% or less of the amount of credit; and
- the maximum amount of interest to be charged is less than 24% per annum.
Authorisations
In summary, an Australian Credit Licence is mandatory for individuals or businesses that engage in any of the following:
- Credit Contracts or Consumer Leases
providing credit or consumer leases (including conduct before any contracts are signed)
- Mortgages
activities in relation to a mortgage or guarantee under a credit contract or consumer lease
- Credit Assistance
making suggestions or assist consumers with particular credit contracts
- Debt Collection
debt collection arising out of a credit contract (even if the lender is no longer lending anymore or where others, such as debt collectors or mortgage managers, are managing the credit contracts on behalf of the lender) - Debt Assignment
taking over someone else’s loan as a lender and exercising the lender’s rights over the assigned loan
- Debt Management
helping people with debt management
The credit licensing framework encompasses individuals or entities involved in credit-related activities, called “authorisations” on the licence. They typically fall within one of the following categories:
Credit Provider
This authorisation is needed if you are a direct lender in credit contracts or a lessor under a consumer lease.
Credit Assistance Provider
This authorisation allows people or businesses to help consumers enter into credit contracts or consumer lease.
If you are dealing directly with the consumer (or an agent of the consumer) as part of your business, or incidental to your business, and you do the following, then you are considered to be providing credit assistance:
- suggest consumer to apply for a particular credit contract (or credit increase)
- suggest consumer to remain in an existing credit contract or consumer lease
- recommend a particular consumer lease with a particular provider
- help consumer to make a credit application
- act as an intermediary between a credit provider and a consumer, for the purposes of securing a credit for the consumer
It covers services like brokers, mortgage managers or aggregators, and others who help manage credit contracts for lenders.
Debt Management
This authorisation is for people and businesses that help others with debt management or credit reporting.
Exemption
Credit Representative
A person can be appointed as a credit representative of a licensee, in which case, they do not need a separate licence for engaging in credit activities on behalf of the licensee.
You will also not need a credit licence if you are:
- an employee or director of a licenced principal;
- you obtain an exemption from ASIC for the licencing requirement; or
- the credit activities you engage in are exempt from the Code.
Typical situations where you are not required to comply with the Code are, amongst others:
- credit without express prior agreement;
- insurance premiums by instalments;
- pawnbrokers;
- trustees of estates; and
- employee loans.
Classes of People
Certain classes of people engaging in activities under particular circumstances may be exempt from holding an ACL. They include:
- insolvency practitioners (receivers, managers, liquidators or administrators)
- financial counselling agencies
- lawyers
- tax agents
- certain types of insurers and debt collectors
- referrals
- doing the work of clerks or cashiers
- simply passing on information
- “point of sale” exemption – allowing suppliers to arrange for credit in purchasing their goods or services
Reference:
National Consumer Credit Protection Act 2009 (Cth)
National Consumer Credit Protection Act 2009 (Cth) – Schedule 1 National Credit Code
