ASIC Report 620 Overview of decisions on relief applications (October 2018 to March 2019) has two interesting notes relating to credit: one where relief for credit provided by a retirement village operator was refused and another where conditional relief for an entity that operates a managed investment scheme with investments in an equity release product not regulated by the Credit Code was granted.

The examples show that legislation does not cover every type of product and the need to consider both the Corporations Act and the Credit Act as well as consumer detriment in determining relevant regulations.

Retirement village operator
ASIC refused relief from the National Credit Act and the National Credit Code to a retirement village operator regulated under state-based legislation. The relief requested applied to an arrangement between the operator and residents that allowed residents early access to part of their upfront contribution (i.e. the deposit) to the village while they continued to live there.

In refusing relief ASIC considered the arrangements the applicant proposed were not an alternative to paying an upfront contribution (as occurs in aged care homes). Rather, they had substantially similar characteristics to borrowing against an existing asset, with repayment to be deferred to a later time (i.e. consumer credit).

ASIC concluded relief would create potential for consumer detriment, given many of the requirements of the National Credit Act and National Credit Code would no longer apply.

Equity release product
ASIC granted conditional relief to an entity that operates a managed investment scheme with investments in an ‘equity release product’.

The entity’s business model involves offers of an equity release product to residential property owners, which is a cash advance secured by an interest in the owner’s property. The entity also offers units in a managed investment scheme to investors, who beneficially acquire fractional interests in the secured residential properties in proportion to the amount they have invested. The entity uses the amounts invested in the managed investment scheme to fund the pay out to the property owners, in return for a service fee (from the owners) for the equity release product.

The equity release product is not regulated under the National Credit Act or subject to responsible lending obligations because it is not structured as a loan. Instead, the equity release product comes under the definition of a derivative in the Corporations Act, because it is subject to the value of the underlying property.

ASIC granted the entity conditional relief from the AFS licensing requirements for retail over-the-counter (OTC) derivatives because it considered that those requirements had not been designed for a product of this kind. The relief limits the regulatory burdens specific to derivatives that may not provide significant benefits for consumers.

The conditions of the relief:

(a) impose requirements that mirror key protections available under the National Credit Act and the National Credit Code for property owners who obtain reverse mortgages;

(b) recognise the equity release product as a financial product, which gives owners the benefit of product disclosure, remedies for defective disclosure and access to dispute resolution; and

(c) are consistent with the Australian Government’s policy approach to concerns about reverse mortgages and home reversion schemes.