LexisNexis Practical Guidance®

Any person who engages in a credit activity must hold an Australian credit licence (ACL), unless the person is a credit representative of an ACL holder or otherwise exempt.

For information on the requirement to hold an ACL, see Who needs an Australian credit licence?

There are also specific exemptions from the requirement to hold an ACL. These exemptions provide that a person engaging in a credit activity is not required to hold an ACL when engaging in the activity, even though the credit contract or consumer lease to which the activity relates is regulated by the National Credit Code (NCC).

The main exemption is for employees or directors of a licensee or of a related body corporate of the licensee and for credit representatives of the licensee.

For information about exemptions from the requirement to hold an ACL, see Exemptions from the requirement to hold an ACL.

Licensing requirements relate to credit providers and credit service providers. Credit service providers are people who provide credit assistance or who are intermediaries.

Both credit providers and persons who are credit service providers (whether providing credit assistance or acting as intermediaries) require an ACL to carry out credit activities, unless they are otherwise exempt.

For more information about credit providers and credit service providers see Credit providers and credit service providers (credit assistance and intermediaries).

An Australian credit licensee must comply with the general conduct obligations of the licensee set out in the National Consumer Credit Protection Act 2009 (Cth) (NCCPA). There are numerous general conduct obligations including a general obligation to do all things necessary to ensure that the credit activities authorised by the licensor are engaged in efficiently, honestly and fairly. There are also obligations in relation to competence, risk management and resources, compliance, conflicts of interest and dispute resolution.

For information on the primary requirements of licensee under an ACL, see Primary requirements of a licensee.

To obtain an ACL, a prospective licensee must apply to ASIC and supply supporting documentation. Applying for an ACL can be done online.

Licence applications require information supporting the application including a statement of personal information about each of the proposed “fit and proper people” as well as national criminal history checks and bankruptcy checks for each of them.

The application must also nominate at least one person as a responsible manager. The licence applicant is required to include information about the proposed responsible managers including their educational qualifications and previous employers where their experience was gained.

Other information which needs to be provided in support of an application for an ACL is proof of EDR scheme membership and a summary of the proposed business to be carried on under the licence.

For information on applications for an ACL, see Licence applications and variations.

It is an offence for a person to engage in “credit activity” if the person does not hold a licence authorising the person to engage in the credit activity. There are also other prohibitions relating to advertising and the conduct of a business without a licence.

ASIC may impose conditions on an ACL and may also suspend or cancel an ACL following a hearing.

For information about enforcement and sanctions relating to ACLs see Enforcement and sanctions.

Product design is an important issue for regulated credit businesses. A legal adviser for a regulated credit business may be called on to assist the credit provider in developing the features of credit products that the credit provider wishes to offer, or modifications to existing products. This is an important task, because different product features will result in the product being regulated differently under the National Credit Code (NCC) and the National Consumer Credit Protection Act 2009 (Cth) (NCCPA).

This guidance note considers various features of a credit contract and factors which may affect how a product is regulated and product life cycle documentation.

See Product design and consumer credit.

The NCC places restrictions and imposes requirements on the advertising and promotion of consumer credit.

Where an advertisement for consumer credit states the amount of any repayment, there is a requirement that the annual percentage rate be shown.

For more information on disclosure of rates, fees and repayments in advertisements for consumer credit see Disclosure of rates, fees and repayments.

The NCC places restrictions and imposes requirements on the advertising and promotion of consumer credit.

Where an advertisement for consumer credit shows an annual percentage rate a comparison rate must also be included in the advertisement.

For more information, see Comparison rate disclosure.

In advertising or promoting consumer credit, there are prohibitions on:

• •making false and misleading representations;
• •harassment of a person in attempting to get that person to apply for, or enter into, a credit contract or consumer lease; and
• •limitations on visits to a consumer's home.

For information about the general obligations when promoting consumer credit, see General obligations — advertising and promotion of consumer credit.

There are additional rules relating to pre-contractual disclosure for credit card contracts, standard home loans, small amount credit contracts and reverse mortgages.

These special provisions involve:

• •the provision of key fact sheets for credit card contracts and standard home loans;
• •warnings about small amount credit contracts; and
• •the requirement to provide projections and a reverse mortgage information statement in relation to reverse mortgages.

For information about special product disclosure requirements for credit cards, standard home loans, small amount credit contracts and reverse mortgages, see Special product disclosure requirements for credit cards, standard home loans, small amount credit contracts (SACC) and reverse mortgages.

Credit providers, credit assistance providers (such as mortgage and finance brokers), and credit representatives are required to provide a consumer with certain disclosure documents before entering into a consumer credit contract (or consumer lease).

As part of the responsible lending obligations of a licensee, the pre-contract disclosure obligations may require providing a credit guide to consumers.

This guidance note explains the requirements of a credit guide, exemptions to providing a credit guide, and practice tips for credit guides.

See Credit guide.

Credit providers, credit assistance providers (such as mortgage and finance brokers), and credit representatives are required to provide a consumer with certain disclosure documents before entering into a consumer credit contract (or consumer lease).

As part of the responsible lending obligations of a licensee, the pre-contract disclosure obligations may require a quote for providing credit assistance or a credit proposal disclosure document (or lease proposal disclosure document) be provided to consumers.

This guidance note explains the requirements of a Credit quote and credit proposal disclosure document, exemptions to providing a Credit quote and credit proposal disclosure document, and practice tips for Credit quote and credit proposal disclosure document.

See Credit quote and credit proposal disclosure document.

Licensees are required to conduct an unsuitability assessment to discharge their responsible lending obligations. Part of undertaking this assessment requires licensees to make reasonable inquiries about:

• •the requirements and objectives of the consumer; and
• •the consumer’s financial situation.

This guidance note explains:

• •Who needs to make enquiries and why?
• •When a licensee needs to make reasonable enquiries?
• •Scalability of reasonable enquiries?
• •Different threshold of inquiry for credit providers and credit assistance providers.

The guidance note also provides an overview of prescribed enquiries for specific matters, such as reverse mortgages.

See Reasonable inquiries regarding consumers’ requirements, objectives and financial situation.

Licensees are required to conduct an unsuitability assessment to discharge their responsible lending obligations. Part of undertaking this assessment requires licensees to take reasonable steps to verify the consumer’s financial situation.

This guidance note explains the requirements of licensees to verify consumer’s financial situations, the steps to be taken, and provides an overview of prescribed matters to be verified.

See Reasonable steps to verify the consumer’s financial situation.

Licensees are required to conduct an unsuitability assessment to discharge their responsible lending obligations. Part of undertaking this assessment requires licensees to conduct a preliminary (for credit assistance providers) or final (for credit providers) assessment of unsuitability and make a determination as to whether the contract would be not unsuitable.

This guidance note explains the factors to be considered in undertaking an unsuitability assessment, when the unsuitability assessment should be conducted, what information should be used in the assessment, and explains the concept of “substantial hardship”.

See Unsuitability assessment.

For SACCs there are additional information and verification actions a licensee must take in considering whether the contract would be unsuitable. These include obtaining and checking bank statements, where applicable, and inquiries as to other SACC loans the consumer may have had within the preceding 90 days.

If the credit contract is a reverse mortgage a licensee must make additional inquiries and verifications about the consumer’s requirements and objectives in meeting future needs and the information to be taken into account when making equity projections.

See Special provisions for SACC and reverse mortgages.

The Treasury Laws Amendment (Banking Measures No. 1) Act 2018 (Cth) (Amending Act) has amended the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) and the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) to tighten responsible lending obligations by credit card providers for credit card contracts.

The guidance note explains the key reforms relating to credit cards and provides practice tips for credit providers.

See Special provisions for credit card contracts.

The NCC and the Regulations contain requirements for a number of disclosures which must be made to a consumer before or at the time of entering into a credit contract or consumer lease, as well as matters that must be included in the contract document. This guidance note provides details of these requirements, which include:

• •the precontractual statement (s 16, NCC), which applies to credit contracts but not consumer leases;
• •a financial table which must be included in the precontractual statement for certain financial information (s 16(4), NCC and reg 72, Regulations);
• •matters to be included in the contract document (s 17, NCC for credit contracts and s 174, NCC for consumer leases);
• •a warning statement which must be included where the credit contract is signed (subs 17(16), NCC, reg 74, Regulations, and Form 6 or Form 7 of the Regulations). This only applies to credit contracts and not to consumer leases; and
• •an information statement in the form required by the Regulations (subs 16(1)(b), reg 70 and Form 5 Regulations for credit contracts, and s 175(1), NCC, reg 105 and Form 17 Regulations for consumer leases).

The NCC also prescribes the form of the credit contract or consumer lease, such as how it must be signed.

See Credit contract.

NCC regulation of credit provider and debtor relationship during the life of the contract. After a credit contract is entered into, the National Credit Code continues to regulate the relationship between the credit provider and the debtor.

The NCC includes provisions about how and when interest and fees can be charged, and payments credited. This guidance note explains these provisions.

See Monetary obligations and consumer credit contracts.

NCC regulation of credit provider and debtor relationship during the life of the contract. After a credit contract is entered into, the National Credit Code continues to regulate the relationship between the credit provider and the debtor.

The NCC requires account statements to be given and certain information requests from the debtor must be complied with. This guidance note explains the relevant provisions and gives details on how notices can be given.

See Statements, information requests and notices for consumer credit contracts.

NCC regulation of credit provider and debtor relationship during the life of the contract. After a credit contract is entered into, the National Credit Code continues to regulate the relationship between the credit provider and the debtor.

Notice must be given of unilateral changes to the contract. This guidance note explains how agreed changes must be confirmed before an agreed credit limit increase.

See Variations to consumer credit contracts.

NCC regulation of credit provider and debtor relationship during the life of the contract. After a credit contract is entered into, the National Credit Code continues to regulate the relationship between the credit provider and the debtor.

The debtor and guarantor have a right to payout the contract, and a payout statement must be given on request. For consumer leases, an end of lease statement has to be sent at least 90 days before the end of the lease. This guidance note explains the process to end a contract.

See End of consumer credit contracts.

The National Credit Code (NCC) contains special consumer credit provisions relating to mortgages. It is a strict liability offence for a credit provider to enter into a guarantee or a mortgage that contravenes these provisions.

In addition to the criminal penalty, the offending mortgage provision may be either void or unenforceable, depending on the NCC section breached.

Sections 41 to 53 of the NCC provide special requirements and obligations in respect of mortgages which secure obligations under NCC regulated contracts or related guarantees.

Specifically, there are special provisions relating to:

• •mortgages that the NCC applies to and exemptions from the provisions of the NCC;
• •the form of mortgage and content;
• •restrictions on the property which can be the subject of an NCC regulated mortgage;
• •provision of certain documents to the mortgagor by the credit provider;
• •restrictions and requirements for certain types of mortgages;
• •the maximum amount which may be secured; and
• •assignment or disposal of mortgaged property.

For more information, see Special consumer credit provisions for mortgages.

There are specific obligations and requirements under the NCCPA and NCC that regulate reverse mortgages. These are in addition to the obligations and requirements set out for all regulated credit contracts and mortgages generally.

Specifically, there are special provisions relating to:

• •pre-contract disclosure obligations and representations regarding the credit contract and reverse mortgage;
• •additional responsible lending obligations for credit providers and credit assistance providers;
• •requiring a debtor to obtain independent legal advice about the credit contract and reverse mortgage;
• •negative equity protections and tenancy protection provisions in reverse mortgage credit contracts;
• •enforcements rights that must not be included in the credit contract; and
• •preventing the credit provider from prohibiting early payment of reverse mortgage credit contract in certain circumstances.

For more information, see Special consumer credit provisions for reverse mortgages.

The National Credit Code (NCC) contains special consumer credit provisions relating to guarantees. It is a strict liability offence for a credit provider to enter into a guarantee that contravenes these provisions.

In addition to the criminal penalty, the offending guarantee provision may be either void or unenforceable, depending on the NCC section breached.

Sections 54 to 62 of the NCC provide special requirements and obligations in respect of guarantees which secure obligations under NCC regulated contracts.

Specifically, there are special provisions relating to:

• •the form of the guarantee;
• •disclosures which must be provided to the prospective guarantor prior to signing the guarantee;
• •provision of certain documents to the guarantor by the credit provider;
• •circumstances where a guarantor may withdraw from a guarantee, or limit the application of the guarantee;
• •limitations on the liability of guarantors; and
• •special provisions for guaranteeing certain credit contracts.

For more information, see Special consumer credit provisions for guarantees.

Under the National Credit Code a debtor has a right to provide notice of hardship to the credit provider and the credit provider is required to provide a response within specified timeframes. The credit provider also has the right to request information from the debtor about the debtor’s circumstances.

If the credit provider does not agree to change the contract, the debtor has the right to apply to the court and the court can make orders. A court can also reopen the transaction if satisfied that the contract was unjust when it was entered into, and also has power to make orders in relation to interest rate changes, establishment fees and early termination or prepayment fees if satisfied that they are unconscionable.

For more information about these matters, please refer to Hardship and unjust transactions.

Generally before it can commence enforcement proceedings, a credit provider is required to give the debtor a default notice specifying the default and how it must be rectified, and giving the debtor at least 30 days to rectify the default. There are exceptions as to when default notice has to be given.

There is also a regime for providing a separate notice when there is a default in a direct debit.

For more information about default and default notices, please refer to Default under consumer credit contracts.

This guidance note explains how a credit provider can enforce a consumer credit contract, including:

• •additional information required in a default notice if a credit provider wishes to enforce an acceleration clause;
• •the process for enforcement against a guarantor;
• •procedures for the repossession of mortgaged goods;
• •how a stay can be obtained by a debtor; and
• •rights of the debtor and/or guarantor to request the credit provider to negotiate a postponement of enforcement action or the operation of an acceleration clause.

For more information about enforcement, please refer to Enforcement of consumer credit contracts.

The National Credit Code (NCC) regulates some aspects of insurance in connection with credit contracts.

Making insurance compulsory is generally prohibited (although there are exceptions such as for mortgaged property insurance (MPI)), and the debtor or guarantor cannot be required to take out insurance with a particular insurer.

Financing mortgaged property insurance is only allowed for terms up to a year (but renewals are permitted), and consumer credit insurance (CCI) commissions are capped at 20% of the premium.

The debtor must be given a copy of the policy and prescribed information within 14 days after the proposal is accepted, if the premium for CCI or MPI is financed.

When the insurer rejects a proposal for CCI or MPI to be financed, the insurer must inform the credit provider and the debtor and the credit provider must ensure the debtor is refunded.

When a credit contract ends, a financed CCI contract also terminates. A debtor has the right to terminate financed MPI when the credit contract terminates.

Special provisions apply to CCI sold by banks over the phone and in branches, and ASIC is considering changes to the sale of add-on insurance warranties through car yard intermediaries.

Please refer to Credit-related insurance contracts for further details.

The National Credit Code and the Australian Consumer Law both have similar provisions which can impose liability on the “linked credit provider” of a supplier of goods or services.

Under the NCC a linked credit provider can be liable to the debtor for misrepresentations of the supplier regarding tied credit contracts and jointly liable with the supplier for misrepresentation, breach of contract or failure of consideration in relation to the sale contract.

This guidance note explains:

• •when a credit provider will be a linked credit provider of a supplier;
• •what is a tied loan contract or tied continuing credit contract;
• •how a linked credit provider can be liable to a debtor; and
• •defences to the above.

See Related sale contracts.