Need an Australian Credit Licence? Credit reform finally announced

Hi Rob,

The National Consumer Credit Protection Bill 2009 (“the legislation”) states that those who engage in a credit activity will need to hold an Australian Credit Licence (“ACL”).

You will engage in a credit activity if you:
1. provide credit; and/or
2. provide a credit service.

We understand that you have an unrestricted AFSL but do not act as a finance broker. However you sometimes advise a client to take out a loan for investment purposes.

Under the draft legislation, you may be considered to be engaging in a credit activity by providing this credit service.

Specifically, the legislation states a person will ‘provide credit services’ where they either:
1. provide credit assistance; or
2. act as an intermediary

CREDIT ASSISTANCE
A person provides ‘credit assistance’ to a consumer where they:
i) suggest that the consumer:
a. apply for a provision of credit (in respect of either a particular credit contract with a particular credit provider or a particular lease with a particular lessor);
b. apply for an increase to the credit limit of a particular credit contract with a particular credit provider; or
c. remain in their current credit contract or lease; or
ii) assist the consumer to:
a. apply for a provision of credit (in respect of either a particular credit contract with a particular credit provider or a particular lease with a particular lessor); or
b. apply for an increase to the credit limit of a particular credit contract

ACT AS AN INTERMEDIARY
A person will ‘act as an intermediary’ where they act as an intermediary between a credit provider and a consumer for the purposes of securing a provision of credit.

Importantly, the legislation will only apply to you where you are providing the credit service where:
- the service is provide to a natural person (not a company) or a strata corporation; and
- the credit is provided wholly or predominantly for:
o personal, domestic or household purposes; or
o to purchase, renovate or improve the value of a residential investment property.

If this is the case, based on what you have advised us, the legislation (bearing in mind that it is still in draft form), will require you to hold an ACL or be a representative of an ACL holder.

Pursuant to the legislation, you are first required to register your business with ASIC between November 2009 and December 2009. Once registered, you can apply for an ACL between 1 January 2010 and 30 June 2010.

YOUR SECOND QUESTION: Normally loan advice or banking product (eg CMT) advice on its own, does not require an SoA, will this change?

Obligations relating to CMT advice is unlikely to change, but advice that includes advice about margin loans will change. Margin loans will be treated similarly to other financial products (like securities or managed funds).

Depending on the circumstances, you will need an SOA for personal advice to retail clients, which will need to consider certain things (like double-gearing, loan security, etc.) set out by the draft regulations. You’ll need to update your FSG with special wording if you will advise/deal in margin loans.

Other credit products (eg. loans secured against a residential property) will require an Australian Credit Licence, or authorisation as a representative under such a licence, and a Credit Guide.