Debt management firms need to commence an application for a credit licence as soon as possible based on upcoming rules which will be imposed by Treasury. This follows the Government’s announcement in September 2020 that it would support consumers engaged in financial disputes with credit providers by introducing licensing obligations for debt management firms representing consumers in those disputes.
In January 2021, Treasury released the National Consumer Credit Protection Amendment (Debt Management Services) Regulations 2021 (Regulations) which creates a new category of credit licensing for debt management services. Upon registration, the Regulations will require that debt management firms hold an Australian Credit Licence and meet the relevant ongoing obligations which apply to licence holders from July 2021.
The Regulations include debt management services as a new type of credit activity, this includes debt management assistance and credit reporting assistance provided to a consumer.
One the Regulations are registered on the Federal Register of Legislation, licensing is required by 1 July 2021. This means, if you are a debt management firm who provides debt management or credit reporting assistance, you will need to commence your application for a credit licence as soon as possible to ensure it is lodged with ASIC prior to 1 July 2021. You will also need to ensure you hold membership with the AFCA prior to this date.
What is debt management assistance?
The Regulations define debt management assistance as being where a person, by dealing directly with the consumer or the consumer’s agent in the course of (or incidentally to) a business carried on in the credit industry, the person:
- suggests that the consumer apply, or assists the consumer to apply for:
- a change to; or
- a deferral or waiver of an amount under; or
- a postponement of;
a credit contract for which the consumer is the debtor;
- in relation to a credit contract for which the consumer is the debtor, suggests that the consumer, or assists the consumer:
- make a complaint or claim to the credit provider, Australian Financial Complaints Authority (AFCA), ASIC or the Information Commissioner; or
- give a hardship notice (within the meaning of the Code) to the credit provider; or
- institute proceedings or take any other action.
What is credit reporting assistance?
The Regulations state that credit reporting assistance is provided to a consumer or their agent where a person:
- suggests that the consumer apply, or, assists the consumer to apply, for a change to information collected or held by a credit reporting body (within the meaning of the Privacy Act 1988) in relation to a credit contract for which the consumer is the debtor; or
- in relation to a credit contract for which the consumer is the debtor, suggests that the consumer, or, assists the consumer to:
- make a complaint or claim to the credit provider, AFCA or ASIC, regarding information collected or held by a credit reporting body; or
- institute proceedings or take any other action regarding information collected or held by a credit reporting body.
In relation to both debt management assistance and credit reporting assistance, the Regulations note that a person does not provide this assistance unless a fee, charge or other amount is paid or is payable by or on behalf of the consumer in relation to the debt management assistance, regardless of who this fee is paid to.
It is also worth noting that the Regulations state that debt management firms are unable to avoid the obligation to be licensed through the use of disclaimers which state that they are not “suggesting” a particular course of action.
How can we assist?
Sophie Grace can assist you with all aspects of credit licensing. You can find out more about the ACL application process and the requirements for lodging your application on our website. We can also assist you with your ongoing compliance upon receiving a credit licence from ASIC. Further information can be found on our website or by contacting us.