What is the National Consumer Credit Protection Act 2009?
The National Consumer Credit Protection Act 2009 is a licensing regime that codified professional standards of conduct and regulations within the finance industry, including the establishment of the National Credit Code. The aim of the Act is to protect consumers who take out loans or seek advice by imposing a range of obligations on credit providers, credit assistance providers and others involved in credit activities. The Act regulates a range of financial services and products, from home and personal loans, to credit cards and consumer leases.
Below is a useful list for both consumers and credit providers outlining some aspects of the National Consumer Credit Protection Act, the protection it provides consumers and regulations it imposes on credit providers.
1. Credit Providers Must Be Licensed
If you are involved in credit activities you will likely require an Australian financial services licence. Credit activity is broadly defined and applies to credit contracts, credit service, consumer leases, mortgages, guarantees and any prescribed activities under the Act. This definition also extends to credit assistance providers and intermediaries. For example, lenders, lessors, mortgage managers and finance providers must all hold an Australian financial license.
Credit licenses are approved and regulated by ASIC, with ASIC having the power to vary, suspend or cancel a license as well as issue banning orders on persons prohibiting them from engaging in credit activities.
2. Obligations for Credit Licensees
If you are a licensee or are a consumer dealing with a licensee, certain obligations must be met. The Act sets out general conduct obligations for credit licensees, which include:
- Providing financial services efficiently, honestly and fairly;
- Ensuring that clients are not disadvantaged by any conflict of interest;
- Compliance with the Act, the Code and license conditions;
- Have in place internal dispute resolution procedures and be a member of an approved external dispute resolution scheme.
These obligations must be complied with on an ongoing basis from the time the license is granted.
3. Licensees must comply with responsible lending rules
Chapter 3 of the Act sets out the responsible lending obligations that are imposed on all licensees. To put it simply, if you are a credit provider you cannot cannot enter into contracts with consumers that would find it difficult to make their repayments. If you are a credit assistance provider you cannot suggest or provide assistance to consumers to apply for or remain in an unsuitable contract.
Compliance with these rules is important as businesses who breach these rules will be severely penalised. Take for example, the case of consumer leasing company Make It Mine Finance Pty Ltd: their failure to comply with the rules and disclose certain information to their clients, in addition to their time unlicensed resulted in penalties totalling $1.25 million.
4. Determining a consumer’s credit suitability
If you are a consumer, it is disadvantageous for you to enter into a contract that is unsuitable, such as a loan that you can’t repay without financial difficulty or a contract that doesn’t meet your requirements and objectives.
Credit suitability is a 3-step process outlined by ASIC and as a lender you are required to:
- Make reasonable enquires about the consumer’s financial situation, their requirements and objectives;
- Take reasonable steps to verify the consumer’s financial situation; and
- Based on these enquiries, assess whether the credit contract is ‘not unsuitable’ for the consumer, the consumer’s ability to repay the loan without ‘substantial hardship.’
A credit provider cannot enter into a contract with a consumer unless this assessment has been made.
This list features just a few of the many important aspects and provisions of the National Consumer Credit Protection Act. To avoid tough penalties, it is important for anyone engaged in credit activities to consult the Act.