The Federal Government announced its proposals for a single standard national regulation of all consumer credit for Australia on 2 October 2008.

This is largely attributable to the current turbulence in the financial markets and experience in the United States, which is having flow on effects on Australia. The events have reinvigorated the need for the Australian Government to revisit national regulation for all consumer credit in Australia.

In a recent press release Senator Nick Sherry, the Minister for Superannuation and Corporate Law, announced that the Commonwealth Government will now assume responsibility for key credit regulation including the Uniform Consumer Credit Code (“UCCC”) by enacting it as Commonwealth Law. It is also envisaged by the new proposals that the Commonwealth Government will introduce new measures designed to protect consumers.

The press release was devoid of detail but the Government has communicated its intention to ensure that the new legislation includes a requirement for lenders to lend responsibly and for finance brokers and lenders to be licensed.

All credit providers and finance brokers will have to be members of an external dispute resolution scheme. It is envisaged that the UCCC will now be extended to cover mortgages for residential investment. This is an area not previously covered by the UCCC.

Of considerable importance will be the fact that ASIC will become the sole, national regulator for consumer credit lending and finance broking.

The second phase of the Action Plan which has yet to be particularised, will deal with other areas which have been identified by the Government as needing regulation including attempts to reduce predatory or undesirable lending practices, a review of unsolicited credit card limit extension offers, a review of the State and Territory approaches to interest rate caps and possible regulation of reverse mortgages.

A summary of the proposed changes extracted from the media release is as set out below:-

PHASE ONE
Key elements of phase one of the Action Plan include:-

• Enacting the existing State legislation, the Uniform Consumer Credit Code (UCCC), into Commonwealth legislation.
  
  
• Establishing a national licensing regime to require providers of consumer credit and credit-related brokering services and advice to obtain a licence from ASIC.
  
  
• Extending the powers of the Australian Securities and Investment Commission (ASIC) to be the sole regulator of the new national credit framework with enhanced enforcement powers.
  
  
• Requiring licensees to observe a number of general conduct requirements including responsible lending practices.
  
  
• Requiring mandatory membership of an external dispute resolution (EDR) body by all providers of consumer credit and credit-relating brokering services and advice.
  
  
• Extending the scope of credit products covered by the UCCC to regulate the provision of consumer mortgages over residential investment properties.
  
  
• Extending the operation of the Corporations Act to regulate margin lending.
  
  
• Regulation of trustee corporations.
  
  
• Phase One legislation in place by mid 2009.

PHASE TWO
Key elements of phase two of the Action Plan include:-

• Enhancements to specific conduct obligations to stem unfavourable lending practices, such as review of credit card limit extension offers, an examination of State approaches to interest rate caps and other fringe lending issues as they arise.
  
  
• Regulation of the provision of credit for small businesses.
  
  
• Regulation of investment loans other than margin loans and mortgages for residential investment properties.
  
  
• Reform of mandatory comparison rates and default notices.
  
  
• Enhancements to the regulation and tailored disclosure of reverse mortgages.
  
  
• Examination of remaining existing State and Territory reform projects.
  
  
• Phase Two legislation in place by mid 2010.

Given the importance of the proposed changes, the Banking and Finance Team at Cornwall Stodart will ensure that all its clients are kept up to date to assist its clients to comply with the law.

If you require any more information regarding these proposed changes, please do not hesitate to contact Gino Potenza on +61 3 9608 2270 or g.potenza@cornwalls.com.au