Treasury is preparing a discussion paper ahead of a widely anticipated public review of laws that currently exempt retailers from having to comply with licencing requirements when they offer consumers access to finance products.
Many of the country’s big retailers such as Harvey Norman, JB Hi-Fi and Ikea market consumer loans and other types of finance to their customers, without their staff having to be licenced under the Consumer Credit Protection Act.
Finance companies including Latitude Financial and Humm that rely on partnerships with retailers to originate much of their lending have the most to lose if the exemption is removed.
The 2018 banking royal commission recommended the removal of the exemption in its final report, after Commissioner Kenneth Hayne concluded that under laws prevailing at the time ASIC had no power to take action against dishonest or incompetent retailers and their staff.
“I strongly favour removing the exemption of retail dealers from the operation of the NCCP Act, with the consequence that retail dealers would be subject to the requirements of that Act,” Commissioner Hayne stated in his final report.
Hayne recommended that retail companies be required to hold credit licences for brokering loans on behalf of licensed lenders.
That would have required sales staff to undergo compliance training in responsible lending practices.
Since Hayne’s final report was published in 2019, ASIC has secured so-called “design and distribution” powers allowing it to take enforcement action against non-compliant retailers in relation to the provision of in-store credit.
The design and distribution powers require finance firms and their agents to target products appropriately to consumers.
As such, they apply to retail sales staff who introduce customers to a credit product.
In 2019, Latitude was forced to repay A$1.5 million to customers who obtained finance at a Harvey Norman store in Alice Springs after a retail staff member allegedly falsified loan documents.
ASIC also took court action against both companies in October 2022, alleging they had engaged in misleading advertising regarding “interest-free” credit at Harvey Norman stores.
The Treasury consultation on the licensing exemption had been expected at the end of last year but delays to the passage of new legislation regulating buy now pay later providers forced the department to defer the review.
The pending reclassification of buy now pay later offerings as “credit products” means that the review of the licensing exemption will have implications for companies such as Zip and Afterpay.
Industry sources said they were expecting Treasury to release its discussion paper on the exemption some time in May.