NCCP Disclosure regulations

The National Consumer Credit Protection Amendment Regulations 2010 (No. 4) were gazetted on 8 December and released later in the week. These are significantly different from, and far more broker/industry friendly than, the quite complex draft regulations which were originally proposed, (eg requiring a broker to disclose, upfront in dollar terms, the amount of trail they could expect to earn over the life of the loan).The MFAA led the charge for more broker-friendly regulations in several meetings and discussions with the regulators over the past months and recommended changes to the regulations. To their credit Treasury has been very responsive to MFAA concerns and we are now confident that the regulations will result in much more broker friendly compliance requirements, while still providing appropriate disclosure and protection to consumers.Unfortunately the hiatus period that resulted from the federal election delayed this process for several weeks and as a result MFAA strongly urged the Treasury to postpone the operation date of the new regulations until 1 April  2011 simply because brokers will simply not have time to alter their systems to comply by the originally proposed date of 1 January 2011.

We are pleased to note that, in direct response to MFAA’s concerns about the short timeframe available to be ready for commencement on 1 January 2011, the regulations contain an exemption until 1 April 2011 from the requirement to provide credit guides, quotes, and credit proposal documents IF:

• a licensee provides to the borrower details of the licensee’s external dispute resolution (EDR) scheme; and

• if a credit assistant (broker) will charge for the services, there is a written agreement specifying the amount and when the borrower must pay.

As result:

• brokers who are using the MFAA finance broking contract (or a document based on that document) will comply because it discloses EDR details. However, if the broker is a credit representative, the FBC must show the EDR details for both the licensee and the credit representative. The example FBC on the MFAA web site, has been amended to provide for this. The MFAA Code of Practice will continue to require members to provide disclosures as shown in that document until 1 April 2011 when the disclosure regime changes.

• It is likely many lenders will start using credit guides immediately because they are very simple documents for balance sheet lenders. They need only show the name, contact details, EDR information, information about loan assessment, and the right to request a copy of the assessment.  Credit guides for brokers are more complex and will generally be impractical to draft until the further disclosure regulations are made hopefully in January to allow time to prepare for the 1 April 2011 start date.

The MFAA and the industry welcome the cooperation of Treasury and Government in working towards a solution which will work well for consumers and industry.

The regulations provide that if a credit guide has been provided to a customer within the last 12 months, a second credit guide does not have to be given to the borrower so long as the EDR details provided in the old credit guide have not changed.If the information in a credit guide changes, the updated information need not be included in the credit guide provided to a borrower so long as the updated information is less than 93 days old and does not relate to a change of EDR scheme details.  This exemption is only relevant to licensees and credit representatives who are giving credit guides and not relying on the exemption from giving a credit guide.   In summary, unless using the exemption until 1 April 2011:

• lenders and lessors give credit guides (unless exempt in which case the servicer provides the credit guide);

• brokers and mortgage managers give credit guides, quotes, and credit proposal documents.

The requirement to provide a copy of the credit assessment if requested by the borrower is not subject to the exemption and still commences on 1 January 2011.Each business will need to devise its own way of providing a copy of the credit assessment to borrowers.

The MFAA provides free for members a Disclosure Module – Interim providing more details. The Disclosure Module provides an example credit guide for lenders and provides information about how to comply with the requirement to provide a copy of the credit assessment on request.