Mid-January, Treasury invited submissions on proposed NCCP Regulations requiring for Credit Repair and Debt Management companies to hold an ACL. Arguably aimed at consumers, it will be to the delight of all ACL holders.
The provisions prescribe a new type of “credit activity” for the purposes of s.6 of the NCCP Act . They add new Regulations 4A – 4C inclusive, amends Regulation 24 and adds some transitional arrangements under Regulation 49J.
The new Regulations take effect as of 01 July 2021 and requires that those conducting either debt management or credit repair services (collectively deemed to be “debt management services”) to have applied for an ACL and have become a member of AFCA by 01 July 2021.
The drafters have listened to the complaints industry representatives, including me, have repeatedly made to both AFCA, ASIC and Treasury.
The regulations even go so far as limiting when a lawyer can rely on the exemption under sub regulation 24(4). There are a few lawyers that besides their law practice do offer debt management services under another company currently. Time will tell as to whether or not the drafting is sufficient to limit avoidance.
The AFCA carrot
So that there is no incentive for these companies not to apply before 01 July, the transitional regulation 49J(3) allows for AFCA members to obtain an exception from the obligations. By joining AFCA prior to 01 July, the companies providing their services can do so until such time as ASIC deals with their application and either grants an ACL or not.
The exception applies where:
- there’s been, on or before 1 July 2021, an application for an ACL lodged to provide a “debt management service”, or
- the service provider already holds an ACL, an application has been made to ASIC to vary the conditions on the ACL authorising it to provide a “debt management service”; and
- on 1 July 2021, that application has not been withdrawn by the applicant, or dealt with by ASIC; and
- the service provider is a member of the AFCA scheme at all times in the transition period.
The transition period starts on 1 July 2021 and ends when either the application is withdrawn by the applicant, or dealt with by ASIC, whichever happens first.
If the applicant is or has been refused an ACL (and even if that decision is to be appealed), the company is no longer permitted to offer or provide debt management services to consumers from that point on.
What this means
Consumers will no longer be able to be told by “debt management service providers” that they guarantee results. It will be interesting to see if there may be some amending requirements imposed down the track that require these companies to point consumers towards financial counsellors, similar to the “Do you need a loan today?” SACC warning requirement.
The people running these companies will have to comply with the fit and proper persons test. In particular, they will have to act in a fair, honest and efficient manner.
That requirement alone should see many of the outrageous claims and actions being used cease. For example, many in the industry will be glad to see a current practice being forced to stop. This is where the lender replies to the credit repair company with what that company regards as an unsatisfactory lender response (e.g, the lender refuses to capitulate to the demands made). The credit repair company then advises its consumer client of the date of its first date of contact with the lender, making out it was IDR and instruct them to go straight to AFCA themselves and avoid real IDR.
From 01 July, we would encourage all ACL holders contacted by “debt management service providers” to check on whether these provisions have been met before responding to any inquiry. It doesn’t matter if the consumer signed up with the service provider prior to 01 July, the regulations apply to all activity made from that date onwards.