The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP has announced details of the proposed regulatory framework for lenders with pre-existing contracts in force when the National Consumer Credit Protection Act commences on 1 July 2010 (“carried over instruments”).

It is proposed that credit providers and lessors who will have carried over instruments be categorised into two groups:

• credit providers and lessors who only have a closed pool of carried over instruments as at 1 July 2010 and will not offer new credit contracts or consumer leases (COI lenders); and
• credit providers and lessors who will continue to offer new credit contracts after 1 July 2010 alongside their existing carried over instruments.

Lenders who intend to continue lending after 1 July 2010 will have to apply for an Australian credit licence (ACL). That licence and the obligations attaching to it will cover both their old and new loans.

Lenders who will not offer new loans or leases after 1 July 2010 but are still continuing to collect payments due under pre-existing contracts will have the option to apply for a licence. However, if they do not have a licence they will need to meet similar statutory requirements instead so that the Australian Securities and Investments Commission can monitor their conduct and compliance with the law.

COI lenders must make a decision about how they intend the credit legislation to apply to them from 1 July 2010.

Option A: They can elect to apply for an ACL, and the provisions in the National Consumer Credit Protection Act will apply to them unmodified.
Option B: If they elect not to apply for an ACL (or have their ACL cancelled by ASIC or voluntarily surrender it) COI lenders will be automatically subject to the statutory scheme.

In summary, lenders with carried over instruments will need to either:

• Register with ASIC between 1 April and 30 June where they intend to apply for an ACL after 1 July 2010 (for Option A); or
• Notify ASIC by 30 June 2010 of their intention not to offer new contracts after 1 July 2010 and not to become registered or licensed, and therefore be regulated under the statutory scheme (for Option B).

The notification process will require COI lenders to provide basic information to ASIC such as name, ABN, business address, number of loans and estimate of when their last contract will be finalised (based on when payments under the contract when due, without making assumptions about early repayments or extensions), and external dispute resolution scheme membership (if any).

Comments on the proposal may be made until Friday, 9 April 2010.

Regulations to give effect to the arrangements for pre-existing contracts are expected to be made in early May 2010.