Senator Nick Sherry, Minister for Superannuation and Corporate Law, has released the draft National Consumer Credit Reform package for comment by Friday 22 May 2009.

The package consists of drafts of the following: 

• National Consumer Credit Protection Bill 2009 (the National Credit Code is a Schedule to this Bill)
• National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009
• National Consumer Credit (National Credit Code) Regulations 2009
• National Consumer Credit Protection (Transitional and Consequential Provisions) Regulations 2009
• National Consumer Credit (Infringement Notices) Regulations 2009 and
• draft explanatory material. 

The Bill creates a new national regime for consumer credit including:

• a new national licensing regime, requiring an Australian Credit Licence
• a responsible lending obligation
• a new dispute resolution mechanism for lenders
• extending protections to investment loans for the first time;
• amendments to the existing credit code, and
• an increase of the threshold for mortgage hardship claims to $500,000

Australian Credit License
The Bill creates the Australian Credit License (ACL). After a registration phase commencing on 1 November 2009, coverage of the ACL regime will commence on 1 January, 2010, will be Australia-wide and will include all parts of the credit industry.

The ACL regime will be supervised by the Australian Securities and Investment Commission (ASIC) and will replace existing state regulation.

ASIC will be given the power to cancel or suspend a licence or ban people from engaging in credit activities

ACL holders will all be required to meet minimum entry standards before they can offer products and services to consumers.

All banks, credit unions, finance companies and other lenders, known in the Bill as credit providers, and all credit advisers and mortgage and credit brokers, known as credit service providers will be required to hold an ACL.

A person or entity will need an ACL where they engage in any of the following credit activities:

• lending money or collecting money due under a credit contract,
• acting as a broker or intermediary (such as an aggregator or mortgage manager),
• providing assistance to a consumer about a specific credit product.

All holders of an ACL will be required to meet new obligations immediately on becoming licensed. For example, they will be required to be properly trained and ensure representatives are adequately supervised. They must also deal with conflicts of interest so clients are not disadvantaged where such conflict exists.

Licensing will be implemented in two phases. Anyone who currently engages in credit activities will need to register online with ASIC between 1 November 2009 and 31 December 2009. "Fast-tracking" will not be offered to existing lenders.

On becoming registered, a person must meet a range of obligations – they will be required to act efficiently, honestly and fairly, to comply with the law, including responsible lending conduct obligations and to become a member of an ASIC-approved External Dispute Resolution (or EDR) Scheme.

In phase 2, lenders will have six months to apply for an Australian Credit Licence, between 1 January 2010 and 30 June 2010. To qualify for an Australian Credit Licence, applicants must demonstrate to ASIC that they have the necessary organisational capacity, competencies and skills.

All persons who engage in credit activities for the first time on or after 1 January 2010 must apply for and receive an Australian Credit Licence before commencing business.

Responsible Lending
Responsible lending has two core elements:
1. if a loan is considered to be ––unsuitable for a consumer; and
2. if they do not have the ––capacity to repay the loan, they will not be provided with the loan.

ASIC Enforcement powers
The national credit laws will also include enhanced ASIC enforcement powers including:

• criminal penalties for licensee misconduct with possible imprisonment for up to 5 years for those who lend contrary to the responsible lending requirements,
• civil penalties for licensee misconduct to enable ASIC to impose heavy fines of up to $220,000 for an individual and $1.1 million for a corporation,
• infringement notices (or fines) to enable ASIC to quickly act to penalise certain breaches of the law; and
• consumer remedies, which will enable consumers to seek redress for their loss and damage as a result of misconduct by a licensee, or when their credit is provided unlawfully.