On 1 July 2021, the National Consumer Credit Protection Amendment (Debt Management Services) Regulations 2021 (Amendments) came into effect.
As a consequence of these Amendments, debt management services now fall under the ambit of 'credit activity' and will be subject to a number of new compliance requirements, including:
- an obligation to hold (and maintain) a credit licence which authorises specific debt management activities; or
- by 30 June 2021, had applied to the Australian Securities and Investment Commission (ASIC) for a credit licence (or a variation which encompasses their debt management services); and
- be a member of the Australian Financial Complaints Authority (AFCA).
Do you offer debt management services?
Under the National Consumer Credit Protection Act 2009 (Cth) (Act), the following activities are considered 'debt management':
- assisting a consumer or guarantor to amend or change a credit contract (if the consumer is a debtor);
- assisting a consumer or guarantor to apply for a postponement of enforcement proceedings;
- assisting a consumer or guarantor to make a complaint or claim to a credit provider, AFCA, ASIC or the Information Commissioner; or
- assisting a consumer or guarantor to amend information collected by a credit reporting body (such as Illion) about a credit contract.
Please note that the above list is not exhaustive. Should you wish to clarify whether you or your business engages in debt management services specifically, please do not hesitate to contact our office to discuss.
What will be the impact of the Amendments?
It appears that the reforms contemplated in the Amendments are designed to protect consumers (often unaware of court processes) from vague, unscrupulous or predatory practices of debt management firms.
Consumers often seek assistance from debt management firms when suffering from severe financial hardship or subject to ongoing court actions. Solutions put forward by debt management firms (including negotiating with creditors or lobbying credit reporting bodies to have credit reports altered) were often expensive and ineffectual.
The Amendments will require businesses who offer these services to ensure that the actions and processes utilised comply with the obligations on credit licensees, including that the licence holder be a fit and proper person to hold it and to undertake any activities efficiently, honestly and fairly.
What next?
The Amendments will impose a number of additional obligations on the previously unregulated debt management industry.
The obligations imposed by the Amendments by regulating this section of the credit industry will be beneficial to the consumer, creditors and industry stakeholders (such as AFCA).
