The National Consumer Credit Protection Bill was passed this month. The aim of the new law is to enhance consumer protection, cut red tape for businesses and provide nationally consistent regulation and enforcement of the laws of consumer credit.

Currently, consumer credit is mainly regulated by the various state and territory governments under the Uniform Consumer Credit Code (UCCC), but the consumer protections afforded by the UCCC are insufficient, relying primarily on pre-contractual disclosure and only a limited range of conduct requirements. Also the UCCC was introduced at a time when mortgage brokers were almost non-existent and consumers dealt directly with lenders for their credit needs. These days approximately 40% of consumers have their home loans arranged by a mortgage broker, and the new laws will bring these intermediaries under regulatory control.

Under the National Consumer Credit Action Plan (the “Action Plan”) the Commonwealth will take over all regulatory functions related to consumer credit, including residential and investment mortgages. The Action Plan will be introduced in two stages.

The first stage will see the Commonwealth enact the UCCC as federal law. It will also include the establishment of a new licensing regime whereby all providers of consumer credit and credit related broking services will be required to obtain an Australian Credit Licence (ACL) from ASIC as the body appointed to implement the regulations. The new ACL holders will be required to observe new responsible lending practices. In addition, ASIC will takeover the regulation of margin lending practices under the Corporations Act.

Phase two will focus on new regulations addressing unsolicited credit card limit extension offers and reverse mortgages. It may also look to bring small business credit under the regulatory umbrella.

The ACL licence regime will be similar to the licence regime that currently applies to the financial planning and financial products industries. ACL applicants will have to be “fit and proper” persons to engage in credit activities. They will also need to demonstrate competency and ensure that their representatives are adequately trained.

The new responsible lending obligations for ACL holders will require licensees to conduct reasonable inquiries about a consumer and assess that a credit product is “not unsuitable” for the person before offering or providing the product to the consumer.

The anticipated time frame and important dates for implementation of the new consumer credit regime include:

• Persons who engage in certain credit activities must register with ASIC between 1 April 2010 and 30 June 2010 (inclusive).
   
• Registered participants will then have six months to apply for an ACL between 1 July 2010 and 31 December 2010.
   
• The National Consumer Credit Code will be effective from 1 July 2010.
   
• Some responsible lending obligations (e.g. requirement not to arrange credit that is unsuitable) will commence from 1 July 2010 for credit providers other than Authorised Deposit-taking Institutions (ADIs) and Registered Finance Companies (RFCs)) and their intermediaries, who will not be caught until 1 January 2011.
   
• Disclosure requirements, including disclosure of broker fees and charges will come into effect on 1 January 2011.