The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP, has introduced the Government’s national consumer credit laws into Parliament.

The regime will establish a single, standard, national law for the regulation of consumer credit.

 The new national regime includes:

• a national licensing regime regulating credit providers and providers of credit related services enforced by the Australian Securities Commission (ASIC) as the sole regulator (from 1 January 2010);
• responsible lending requirements (from 1 January 2011);
• compulsory dispute resolution mechanisms for credit providers;
• extension of consumer credit laws to residential investment property loans;
• an increase to the threshold for hardship claims to $500,000.

The Reform Package comprises three Bills:

• the National Consumer Credit Protection Bill 2009 (Credit Bill) which contains the licensing provisions and new National Credit Code (replacing the existing Consumer Credit Code);
• the National Consumer Credit Protection (Transitional and Consequential Provisions) Bill 2009 (Transitional Bill); and
• the National Consumer Credit Protection (Fees) Bill 2009 (Fees Bill).

Subject to the passage of the Reform Package and reference legislation in each state, the Reform package will commence on 1 November 2009:

• Lenders and credit-service providers (such as brokers) will be required to register with ASIC between 1 November 2009 and 31 December 2009, and will have to apply for a licence by 30 June 2010 in order to continue to engage in credit activities.
• The responsible lending conduct obligations will commence on 1 January 2011 to provide industry time to put in place the systems, arrangements and training needed to comply with these obligations.

The Minister announced that modifications to the Exposure Draft Bills include:

• Exemption from licensing for state-licensed debt collectors (12 months only) and for point of sale credit assistants for example, car dealerships or retail outlets ;
• The responsible lending conduct obligations will commence on 1 January 2011 to provide industry time to put in place the systems, arrangements and training needed to comply with these obligations;
• The requirement for credit providers to perform the credit assistance obligations when providing credit assistance in relation to their own proprietary credit products has been removed;
• Breach reporting by holders of an Australian Credit Licence has been removed;
•  An express provision has been included to allow some flexibility to the application of the obligations of a licence holder according to the nature, scale and complexity of the credit activities engaged in by the licensee;
•  Licence requirements only apply to legal assignees of debts and rights under credit contracts;
•  Responsible lending conduct requirements have been applied to consumer leases;
•  Inclusion of a provision in the law that presumes that if a consumer will only be able to comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is established;
•  A prohibition on a credit assistant from securing their fees for providing credit assistance by taking a caveat has been included;
•  The timeframe within which a written assessment requested by the consumer must be provided has been extended to seven business days, if the request is made within two years of the quote or contract date or 21 business days if the request is made thereafter. A consumer’s right to request a copy of the assessment is limited to seven years after the date of the quote or contract;
•  A lender will be required to give the debtor (and any guarantor) a notice within 10 business days of the first direct debit payment failing in relation to a direct debit instruction;
•  The civil penalty infringement notice amount is reduced from 1/20th to 1/40th;
•  The criminal penalty is reduced to two years jail term and 100 penalty units. This reflects the different economic risks in credit matters compared to other financial products;
•  The small claims procedure has been significantly expanded to include actions for loss or damages of up to $40,000 or to obtain certain orders under the Code where the contract is valued at less than $40 000;
•  The court jurisdiction and framework has been established and confers civil jurisdiction to Federal and State and Territory courts, including local and magistrates courts, and confers criminal jurisdiction to State courts;
•  A provision is included to permit the jurisdiction of where legal proceedings can commence to be determined by regulations.