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In September 2020, the federal government announced that it will move to simplify the credit process by scrapping responsible lending obligations from the National Consumer Credit Protection (NCCP) Act 2009, with the exception of small amount credit contracts and consumer leases.
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Part of the government’s reforms include protecting consumers from the “predatory practices of debt management firms” by requiring these businesses to hold an ACL when they are paid to represent consumers in disputes with financial institutions.
ASIC noted that the NCCP Amendment (Debt Management Services) Regulations 2021 (regulations) – which were made on 29 April 2021 – prescribe certain debt management services as a “credit activity” for the purposes of the NCCP Act.
Under the regulations, a debt management service broadly covers services such as credit repair and debt negotiation that are carried out in relation to a consumer credit contract and where a consumer is required to pay, the corporate regulator said.
As such, from 1 July 2021 (subject to transactional arrangements), providers of debt management services must hold a credit licence with an authorisation that covers debt management services.
ASIC said: “The transitional arrangements allow for the continued provision of debt management services while a provider is actively taking steps to be covered by a credit licence.”
Firms that do not comply with the requirements of the transitional arrangements and continue to provide debt management services from 1 July 2021 will likely be engaging in credit activities while unlicensed, ASIC warned.
It added that this is an offence under section 29 of the NCCP Act.
As such, ASIC said that specifically, under the transitional arrangements, those intending to provide debt management services from 1 July must do the following by 30 June 2021:
- Have applied for and have ASIC accept for lodgement a credit licence application or variation that covers this activity, or have arrangements to act as a representative of a provider that has applied for a licence to cover this activity; and
- Be a member of the Australian Financial Complaints Authority (APRA).
ASIC said that in order to assist debt management firms understand the changes and the steps they need to take to be covered by an ACL with a relevant authorisation, its information sheet has explained what a debt management service is, the transitional arrangements set out in the regulations, how to apply for an ACL or variation with a debt management authorisation, and the conduct obligations that must be met by licensees.
The information sheet provides guidance on two of the obligations debt management firms must meet as ACL holders, including providing services efficiently, honestly, fairly, transparently, and in a manner that delivers good consumer outcomes, while supporting customers, particularly those experiencing financial hardship or vulnerability.
It also stipulates that debt management firms must maintain the competence to engage in the credit activities authorised by their licences.
“If you are a firm or individual that provides debt management services and you wish to continue to provide these services from 1 July 2021, you will need to take steps as soon as possible to ensure that you have lodged a complete licence application so that you will be able to rely on the transitional arrangements allowed for in the regulations,” ASIC said.
It flagged that some information required in the application (such as criminal history checks) can take time to obtain, while applications risk being declined for lodgement if they do not include all the required information.
ASIC also said that if the application is not accepted for lodgement because it is incomplete, applicants will not be eligible for transitional arrangements unless they submit a complete application before 1 July.
[Related: Proposed separation of ASIC/APRA oversight a ‘problem’: FBAA]
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