The publication of the exposure draft
National Consumer Credit Protection Bill (exposure
draft Bill) on 27 April 2009 created a significant level
of angst among retailers. Retailers were concerned that the
exposure draft Bill would confer responsibilities on retail sales
assistants similar to those of bank managers and financial brokers
whose job it is to consider the credit-worthiness of a prospective
borrower. Retailers queried how a sales assistant, who refers a
consumer to or provides a leaflet about a third party credit
provider, could know whether the consumer has the capability to
repay any credit extended by that third party provider. A report
commissioned by the Australian Retailers Association
(ARA) estimated retailers could expend as much as
$760 million in compliance costs if the exposure draft Bill were
enacted. But, for the time being at least, retailers can breathe a
sigh of relief following their extensive lobbying. The Minister for
Financial Services, Superannuation and Corporate Law, Chris Bowen
MP, recently exempted point-of-sale retailers from the obligations
that will be imposed on third party credit providers.
The National Consumer Credit
Protection Bill (Bill) was introduced to
Parliament on 25 June 2009. The Bill outlines a new and
comprehensive national consumer credit regime. It launches a
national licensing regime for people engaged in credit activities
and will impose responsible lending requirements on licensees.
Compliance with the responsible lending obligations requires
licensees to assess whether the credit offered would be suitable
for the consumer and whether the consumer has the ability to meet
the financial obligations under the credit contract.
Credit activity is defined broadly in
the Bill and encompasses credit providers who provide credit, those
who suggest or assist a consumer applying for credit and those who
act as an intermediary in securing credit for a consumer. The Bill
clearly captures retailers who offer point-of-sale finance. If a
retail sales assistant suggests to a consumer they can finance
goods or services via a third party credit provider, that retailer
could prima facie be obliged to comply with the responsible lending
obligations under the Bill, even though they do not arrange or
provide the credit for the consumer. Retailers consider this is an
unintended consequence of the underlying policy of the new regime
because retailers do not administer credit applications or provide
the credit. Also, they are not given enough financial information
to form an opinion on whether the credit contract is suitable for
the consumer. A retailer's role extends only to forwarding a
consumer's credit application to third party credit providers.
Retailers play no role in approving the credit application. By
casting the net as wide as it has, the Bill, which was designed to
ensure financial credit providers do not advance funds to consumers
without the ability to repay, unintentionally caught retailers who
offer point-of-sale finance.
Complying with the Bill would be very
expensive. The ARA estimates retailers who offer point-of-sale
finance may individually be up for $27,000 in training costs to
ensure their staff understand and comply with the new regime's
obligations. This could jeopardise the viability of many small
businesses. Because of this, retailers made many submissions urging
the Government to exempt retailers from the application of the
Bill.
The Minister announced in a media
release on 25 June 2009 that point-of-sale retailers would be
exempt from the requirements that relate to the facilitation of
credit assistance to consumers. However, this exemption does not
appear in the Bill; rather the media release proposed the exemption
would be implemented through regulation. The media release also
proposed a 12-month moratorium for point-of sale retailers from the
application of the Bill, leaving the door open for retailers to be
required to comply with the regime in the future.
On 14 August 2009 the Minister released
the draft National Consumer Credit Protection Reform Regulations
(draft Regulations). The draft Regulations exempt
point-of-sale retailers from the licensing requirements where the
retailer, a supplier of goods or services, engages in credit
activities or acts as an intermediary between the consumer and
credit provider, and there is an ongoing relationship between the
retailer and the credit provider. An ongoing relationship may
comprise a contract, arrangement or understanding between the
retailer and credit provider. It also includes retailers who
regularly refer consumers to a particular credit provider and
circumstances where consumers sign application forms or credit
contracts at the retailer's premises. It is important to note the
exemption will not apply where the retailer is a related body
corporate of the credit provider because the actual lender of
credit in the retail sector is not exempt from the new regime.
Significantly, the draft Regulations do
not refer to a 12-month moratorium period as proposed by the
earlier media release.
The Government's decision to exempt
retailers, at least for the immediate future, from the new National
Credit Consumer Protection legislation is welcome and appropriate.
Retailers who offer point-of-sale financial assistance will not be
required to obtain a credit licence under the new regime. The ARA
maintains that 'the exemption means retailers will be able to
continue to provide consumers with finance options' and they will
not be required to undertake onerous and expensive training of
staff under the new regime.