14,000 register for credit protection

Finance industry participants have been unanimous in their praise of the way the Australian Securities and Investments Commission and Treasury have handled negotiations in the lead-up to the launch of the national consumer credit regime, describing them as responsive, co-operative and flexible in their dealings with industry.

Yesterday was the deadline for individuals and organisations in the consumer credit market to apply for registration under the National Consumer Credit Protection Act, which takes effect today. The next stage in the process, licensing, starts today.

ASIC reported that it had received 14,430 applications for registration - well above the 10,000 that it had expected. Some organisations registered under different names to make sure they had covered all contingencies.

Commentators have suggested that the consultative approach adopted by government and the regulator has been part of an attempt to ensure that the implementation of the NCCP Act (to be henceforth referred to by hip people as the Credit Act) was not a repeat of the painful introduction of the Financial Services Reform Act in the middle of the last decade.

In the past two weeks the government has announced amendments to Credit Act regulations, exempting referrers and lenders of record (security trustees) from the requirement to apply for credit licences. The industry had lobbied on both issues in recent months.

But a number of issues remain unresolved. The industry had been hoping that the government would change the Privacy Act to liberalise consumer credit reporting, as recommended by the Australian Law Reform Commission, to coincide with the launch of the Credit Act.

The government has made a commitment to adopt the ALRC recommendations on credit reporting but no bill has surfaced yet.
 
Mortgage managers are asking for an exemption from having to disclose their commissions (which would be their margins). They did not have to make the disclosure under the old state-administered UCCC, but the government has not yet ruled on the issue.

Lenders and brokers are still waiting for guidance on whether certain commission structures, such as higher commission payments for meeting volume targets, create an unacceptable conflict of interest. The industry has put this question to ASIC but it has said it is not able to provide guidance.

ASIC representatives have stressed in roadshows they have put on for the industry that the organisation's takeover of consumer credit regulation would not involve any forced structural change to the consumer finance industry.

ASIC senior executive leader of the credit taskforce, Greg Kirk, said the legislation did not stipulate the business model. He said: "It is open-ended and very flexible. There is no prescription in terms of how you structure your business. For example, the use of authorised representatives can be done in a number of different ways."

However, one of the big unknowns in the transition to the new regimes is how many intermediaries will opt to be credit representatives or licensees. The chief executive of the Mortgage & Finance Association of Australia, Phil Naylor, said his estimate was that brokers would split 50/50 between becoming credit representatives and taking up a licence.

Naylor said: "I have seen arguments that one or the other option is better but from our association's point of view both models are valid."

One issue that worries industry participants is the need to issue credit guides from the beginning of next year. The industry is keen to avoid the problems that have plagued the issue of product disclosure statements and services guides in the financial planning and wealth management markets, where over-long and legalistic documents are expensive to produce and provide no practical help to consumers.

Policy director at the Australian Bankers Association, Ian Gilbert, said he did not expect the same problem to arise in the consumer credit field because much of the disclosure required under the Credit Act was already contained in the old UCCC.

Gadens Lawyers partner Jon Denovan said one concern has been that requirements for more thorough assessments of the borrower's capacity to pay and the suitability of the loan will put more power in the hands of the compliance department and slow the lending process, with the result that less consumer lending gets done.

Credit card issuers have been the most vocal in putting this view, complaining that the Credit Act denies them the ability to make offers of increased limits based on their experience with the customer.

The ABA's Gilbert said: "You could see some initial tightening. The responsible lending provisions are new territory. But as experience grows and we see how the courts and the external dispute resolution bodies interpret the new law it is not necessarily a problem that will face consumers."

Gilbert said the government's commitment to a more comprehensive credit reporting regime was an important step in making sure lenders had the tools to make responsible lending decisions.