Did you know that if you are involved in credit-based activities in Australia, you may need an Australian credit licence or authority from a credit licensee before commencing your business? This article aims to provide you with a snapshot about credit licences in Australia and whether or not you may need one to operate your business.
What is credit activity?
Credit activity is defined in the National Consumer Credit Protection Act 2009 and is governed by the National Credit Code (Code). Credit activities governed by the Code include:
- credit contracts;
- consumer leases;
- provision of credit services; and
- payment obligations secured by related mortgages and guarantees.
When Does the Code Apply?
The Code will only apply if:
- the debtor is a person or strata corporation; and
- the credit is provided wholly or predominately (i.e. more than half) for:
- personal, domestic or household purposes; or
- to purchase, improve or renovate investment property for residential use; or
- to refinance credit used for these purposes; and
- a charge can be made for the provision of the credit; and
- the provider of the credit does so in the course of a business of providing such credit.
When Does the Code Not Apply?
The Code does not apply if:
- the provision of credit is for less than 62 days; and
- the maximum amount of fees and charges for the credit is 5% or less of the amount of credit; and
- the maximum amount of interest to be charged is less than 24% per annum.
Am I Excluded From Complying with the Code?
If you are authorised to engage in credit activities on behalf of a licensee, you will not need a credit licence. You will also not need a credit licence if you are:
- an employee or director of a licenced principal;
- you obtain an exemption from ASIC for the licencing requirement; or
- the credit activities you engage in are exempt from the Code.
This includes but is not limited to:
- situations where there is no express agreement in place;
- the payment of insurance premiums by instalments;
- trustees of estates; and
- employee loans.
How Do I Get a Licence?
If you require a credit licence, you will need to apply to ASIC. When completing your application, you will need to apply for all authorisations that are required for your business. You must also become a member of an External Dispute Resolution Scheme which is approved by ASIC.
The application for a credit licence also requires background checks be completed for those involved in your business (i.e. directors/secretaries/senior personnel). These checks include a criminal history check, bankruptcy search and credit history check. Copies of these checks will need to be included in your application.
If you are required to obtain a credit licence, it is important to do so before you commencing your business. If you fail to operate in accordance with your credit licence, it is a breach of law and there are criminal and civil penalties that may apply. If you are not sure whether you require a credit licence, contact LegalVision today and one of our commercial lawyers will be able to assess your business and determine whether a credit licence is required. We are also able to assist with completing your credit licence application.