New consumer lending regulation takes shape

Federal licensing of credit providers is likely to be more onerous than the Western Australia licensing model but much less complex than the existing requirements for an Australian Financial Services License.

Nevertheless, the booming fringe lending sector is bracing for a shake out as a result of the planned federal licensing regime, which is now unlikely to be implemented until 2010.

Although the current state-based interest rate cap of 48 per cent per annum is now unlikely to be a part of the new consumer credit code, the responsible lending principles are expected to weed out smaller players and leave market leaders like Cash Converters in a much stronger position.

"The smaller players - some of the mum and dad operators - are going to face a really hard road," says Phil Johns, chief executive of the National Financial Services Federation, the industry body representing three hundred or so short-term non bank lenders.

"Just keeping up with the information and the new requirements whilst running their business will be hard plus there will be more paperwork costs and more verification, all of which will have to be passed on," said Johns.

"Some people in the community will just not be able to get credit, and that is not necessarily a good thing.

"Research from the USA indicates that in states where short-term lending has been severely restricted, insolvencies go up - our industry acts like a pressure valve for many people."

Johns is a member of a ministerial working group working through details of the new commonwealth consumer credit code.

"It looks like ASIC will ask everyone to self register and then roll straight into the licensing module, which will be somewhere between the West Australian model and the AFSR.

"In WA they want a fair bit of information about your business and they get that every year and this will be more onerous than that.

"Currently ASIC licenses planners and brokers where the risk lies with the consumer; with credit providers the risk remains with the lender, which is a totally different business model and this is the reason why there is a lot of consultation going on right now."