Do you pro­vide cred­it in your busi­ness? Under the new rules you may need a Cred­it Licence

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In brief — New cred­it licens­ing régime in Australia

If you engage in cred­it activ­i­ties for the first time from 1 July 2010, you will gen­er­al­ly need an Aus­tralian Cred­it Licence or an autho­ri­sa­tion from a licensee before com­menc­ing busi­ness. Busi­ness­es involved in cred­it relat­ed activ­i­ties for per­son­al, house­hold or domes­tic pur­pos­es should be aware of the impli­ca­tions of the new cred­it licens­ing régime which has been recent­ly implemented. 

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Reg­is­ter­ing with ASIC and apply­ing for a Cred­it Licence

Busi­ness­es which were under­tak­ing reg­u­lat­ed cred­it activ­i­ties pri­or to 1 July 2010 should now be reg­is­tered with ASIC. If your busi­ness is not reg­is­tered with ASIC, the busi­ness can­not pro­vide reg­u­lat­ed cred­it ser­vices unless you have an Aus­tralian Cred­it Licence. If your busi­ness is reg­is­tered, it will need to apply for a Cred­it Licence before 31 Decem­ber 2010. Only those who have applied for a Cred­it Licence or are appoint­ed as a cred­it rep­re­sen­ta­tive by a hold­er of a Cred­it Licence may con­tin­ue to under­take cred­it activ­i­ties from 1 Jan­u­ary 2011.

Scope of the new cred­it licens­ing régime

The new régime only applies to cred­it that is pro­vid­ed to a nat­ur­al per­son or stra­ta cor­po­ra­tion whol­ly or pre­dom­i­nant­ly for per­son­al, house­hold or domes­tic pur­pos­es or res­i­den­tial invest­ment and is pro­vid­ed in the course of car­ry­ing on a busi­ness of pro­vid­ing cred­it in Aus­tralia, or as part of, or inci­den­tal to, any oth­er busi­ness car­ried on in Australia.

Cred­it activ­i­ty has been defined as includ­ing activ­i­ty relat­ing to cred­it con­tracts, con­sumer leas­es, relat­ed mort­gages and guar­an­tees and cred­it services.

The two broad cat­e­gories of peo­ple engaged in cred­it activ­i­ties who need to be licensed are cred­it providers (i.e. lenders and lessors) and providers of cred­it ser­vices, includ­ing inter­me­di­aries and bro­kers.

Cred­it providers, cred­it con­tracts and con­sumer leases

The cat­e­go­ry of cred­it providers cov­ers the fol­low­ing groups:

• Lenders under a cred­it contract
• Lessors under a con­sumer lease
• Lenders or their rep­re­sen­ta­tives in rela­tion to mortgages
• Ben­e­fi­cia­ries of guar­an­tees or their rep­re­sen­ta­tives in rela­tion to guarantees

A cred­it con­tract is a con­tract under which cred­it is or may be pro­vid­ed. Com­mon types include per­son­al loans, cred­it cards and hous­ing loans.

A con­sumer lease is a con­tract for the hire of goods under which the con­sumer does not have a right or option to pur­chase the goods. For a con­sumer lease to be reg­u­lat­ed, the goods must be whol­ly or pre­dom­i­nant­ly hired for per­son­al, domes­tic or house­hold pur­pos­es and the lease entered into by a nat­ur­al per­son or a stra­ta cor­po­ra­tion. A sec­ond con­di­tion is that the fees and charges payable under the con­sumer lease must exceed the cash price of the goods. Final­ly, the lessor must hire the goods in the course of a busi­ness car­ried on in Aus­tralia and the bor­row­er must not have a right or option to pur­chase the goods.

Providers of cred­it services

Pro­vid­ing a cred­it ser­vice is anoth­er type of cred­it activ­i­ty. You are pro­vid­ing a cred­it ser­vice if you give cred­it assis­tance to a con­sumer, or if you act as an inter­me­di­ary between a lender and a con­sumer (in rela­tion to a cred­it con­tract) or between a lessor and a con­sumer (in rela­tion to a con­sumer lease). 

You are giv­ing cred­it assis­tance to a con­sumer if you sug­gest that the con­sumer do any of the following:

• Apply for a par­tic­u­lar cred­it con­tract with a par­tic­u­lar lender, or apply for a par­tic­u­lar con­sumer lease with a par­tic­u­lar lessor
• Apply for an increase to their cred­it lim­it on a par­tic­u­lar cred­it contract
• Remain in their cur­rent cred­it con­tract or con­sumer lease

Pro­vid­ing cred­it assis­tance also includes assist­ing the con­sumer to apply for a par­tic­u­lar cred­it con­tract with a par­tic­u­lar lender, apply for a par­tic­u­lar con­sumer lease with a par­tic­u­lar lessor or apply for an increase to their cred­it lim­it on a par­tic­u­lar cred­it contract.

Cred­it activ­i­ty must be pro­vid­ed to a con­sumer for spe­cif­ic purposes

The licens­ing régime applies only to cred­it pro­vid­ed to a con­sumer for spe­cif­ic pur­pos­es. For the régime to apply, you must be pro­vid­ing (or intend­ing to pro­vide) cred­it to a con­sumer whol­ly or pre­dom­i­nant­ly for per­son­al, house­hold or domes­tic pur­pos­es, or, in the case of cred­it con­tracts only, to pur­chase, ren­o­vate or improve res­i­den­tial prop­er­ty for invest­ment pur­pos­es, or to refi­nance such credit.

The pur­pose for which the cred­it is obtained is defined as being pre­dom­i­nant­ly for that pur­pose if it is the pur­pose for which more than half of the cred­it is intend­ed to be used. If the cred­it is to be used to obtain goods or ser­vices, the pur­pose for which the goods or ser­vices are intend­ed to be most used is the pre­dom­i­nant purpose.

Def­i­n­i­tion of car­ry­ing on busi­ness in Australia

The régime states that a busi­ness is being car­ried on in Aus­tralia if, in the course of car­ry­ing on the busi­ness, you engage in con­duct that is intend­ed to induce peo­ple in Aus­tralia to use the goods or ser­vices the per­son pro­vides, or is like­ly to have that effect.

You do not need to have a phys­i­cal pres­ence in Aus­tralia to be treat­ed as car­ry­ing on busi­ness in Aus­tralia. It is suf­fi­cient, for exam­ple, if you use the inter­net or inter­me­di­aries to pro­vide cred­it to con­sumers in Australia.

Who does not need to be licensed?

A per­son or class of per­sons may be exempt from the licens­ing require­ments. You gen­er­al­ly do not need to hold a Cred­it Licence if you are a rep­re­sen­ta­tive of a licensed prin­ci­pal and you engage in autho­rised cred­it activ­i­ties on their behalf.

The two main cat­e­gories of such rep­re­sen­ta­tives are:

• Employ­ees and direc­tors of the licensee or a relat­ed par­ty of the licensee
• Cred­it rep­re­sen­ta­tives (and their employ­ees) autho­rised by the licensee or a relat­ed par­ty of the licensee

How to apply for a Cred­it Licence

If you need to apply for a Cred­it Licence, you can do this online at the ASIC web­site. Fur­ther detailed infor­ma­tion about the new cred­it licens­ing régime is avail­able on the same web page. 

To find out if your busi­ness needs a Cred­it Licence or to dis­cuss your spe­cif­ic busi­ness needs, please contact: