No Licence, No Excuse: Your Guide to COI Lender Compliance, Risk & Dispute Resolution

Introduction

Lenders who manage carried over instruments without holding a full Australian credit licence operate under a specific classification as an unlicensed COI lender. While this path avoids the need for a full license, it does not remove regulatory responsibility; these lenders must still comply with key obligations under the National Consumer Credit Protection Act 2009 (Cth).

Operating within this regulatory landscape requires a clear understanding of your duties. This guide provides essential information on the core compliance requirements for an unlicensed COI lender, focusing on the general conduct obligations in Australian Securities and Investments Commission’s (ASIC) Regulatory Guide (RG) 205, financial standards from RG 207, and the necessary frameworks for dispute resolution.

Understanding Your Status as an Unlicensed COI Lender

Defining a Carried Over Instrument Lender

A “carried over instrument” (COI) refers to a credit contract or lease that was active and governed by an old Credit Code immediately before 1 July 2010. You are considered a lender with COIs if you:

• Are a credit provider or lessor who has not issued any new credit contracts since this date
• Continue to manage these pre-existing agreements
• Are only collecting payments on this closed portfolio of legacy contracts

If you do not hold an Australian credit licence while performing these activities, you are regulated as an unlicensed COI lender.

The Choice Between Licensing & Operating as an Unlicensed COI Lender

As a lender managing COIs, you have two distinct regulatory paths you can follow. Your choice determines the specific compliance obligations you must meet under the Australian credit regime.

Under the regulations, a COI lender must elect to either:

Regulatory Path	Description
Obtain an Australian credit licence	This path involves registering with ASIC and applying for a full credit licence. By doing so, you are regulated in the same manner as any other credit provider offering new contracts under the National Consumer Credit Protection Act 2009 (Cth), which includes adhering to all general conduct obligations.
Operate as an unlicensed COI lender	Alternatively, you can choose not to be licensed. This option requires you to formally notify ASIC of your status. You will then be subject to a modified statutory regime with a different set of compliance and dispute resolution obligations tailored to an unlicensed COI lender.

Your General Conduct & Compliance Obligations Under RG 205

Engaging in Credit Activities Efficiently, Honestly & Fairly

As an unlicensed COI lender, you have a fundamental obligation to ensure your credit activities are engaged in efficiently, honestly, and fairly. This duty is a core principle outlined in ASIC’s RG 205 and applies to all your dealings with COIs.

This obligation serves two important functions:

• It acts as a standalone requirement that must be met independently
• It encompasses other general conduct duties within its scope

A failure to comply with other specific obligations will likely result in a breach of this one. However, you can also breach this duty on its own, even if you meet all other legal requirements. For example, a breach of your contractual obligations to a client could be considered a failure to act efficiently, honestly, and fairly.

Your Requirement to Maintain Adequate Compliance Systems & a Written Plan

The National Consumer Credit Protection Act 2009 (Cth), as modified by the National Consumer Credit Protection Regulations 2010 (Cth), requires you to have adequate arrangements and systems to ensure compliance with your obligations. A key part of this is maintaining a written plan that documents these arrangements and systems.

The adequacy of your compliance measures will be assessed based on:

• The nature of your credit activities
• The scale of your operations
• The complexity of your credit activities

Your documentation should clearly detail:

• Who is responsible for compliance within your operations
• The timeframes for compliance tasks
• The associated record-keeping and reporting procedures

Ensuring Representatives are Adequately Trained & Competent

If you use representatives to engage in credit activities related to your COIs, you must ensure they are adequately trained and competent to do so. This responsibility means you must have measures in place to verify and maintain the skills and knowledge of anyone acting on your behalf.

This obligation is crucial for ensuring that your business operates in compliance with the credit legislation.

The Obligation to Lodge an Annual Compliance Certificate

Unlicensed COI lenders are required to provide an annual compliance certificate to ASIC. This is a mandatory reporting obligation that confirms your adherence to the required standards throughout the year.

You must lodge the “Unlicensed Carried Over Instrument Lender Annual Compliance Certificate,” also known as Form COI4, with ASIC. The deadline for lodging this certificate is no later than 15 August of each year.

Your Financial Requirements for Compliance Under RG 207

The Requirement to Have Adequate Financial Resources

As an unlicensed COI lender, you are subject to a modified statutory regime that includes the requirement to have adequate financial resources. This obligation, outlined in section 47 of the National Consumer Credit Protection Act 2009 (Cth) as modified by the National Consumer Credit Protection Regulations 2010 (Cth), ensures you can engage in your credit activities and carry out supervisory arrangements effectively.

The minimum expectations for demonstrating financial adequacy are broadly similar to those for credit licensees. According to ASIC’s RG 207, these minimum expectations require you to:

• Ensure you have access to sufficient financial resources to meet all your debts as they become due and payable.
• Actively plan and monitor your cash flows to confirm they are sufficient to meet your obligations under the National Consumer Credit Protection Act 2009 (Cth).
• Maintain written records that clearly demonstrate your financial resources are being monitored on a regular basis.

Your Duty to Notify ASIC of Adverse Financial Changes

A critical component of your financial compliance is the duty to report significant financial difficulties to ASIC. If an event occurs that could have a material adverse effect on your financial position, you have a strict deadline to notify the regulator.

You must lodge a notice with ASIC within three business days of the event occurring. This notification is completed using Form COI2, Change of details for unlicensed carried over instrument lender and prescribed unlicensed carried over instrument lender, and should be sent via email. This requirement ensures ASIC remains informed about your financial viability.

Additional Obligations for Unlicensed Lenders Who Are Not Members of AFCA

Your Duty to Keep Registers of Complaints & Hardship Requests

If you operate as an unlicensed COI lender and choose not to be a member of the Australian Financial Complaints Authority (AFCA), you are subject to specific record-keeping obligations. This regulatory requirement ensures that a formal process for tracking consumer issues is maintained, even outside of an external dispute resolution scheme. These additional duties are outlined in the National Consumer Credit Protection Act 2009 (Cth), as modified by the National Consumer Credit Protection Regulations 2010 (Cth).

Under this framework, you have a duty to maintain several key registers related to your COIs. These include:

Register Type	Description of Requirement
Register of complaints	This involves logging all formal complaints received in relation to your credit activities.
Register of requests for hardship variations	You must record all applications from consumers seeking changes to their credit terms due to financial hardship.
Register of stays of enforcement	This requires you to document any instances where enforcement actions on a debt have been temporarily halted.

The Requirement to Notify ASIC of Significant Contraventions

A critical compliance obligation for an unlicensed COI lender who is not a member of AFCA is the requirement to report significant breaches to ASIC. This ensures regulatory oversight and transparency, even without the involvement of an external dispute resolution body. This duty applies if you become aware of a significant contravention, or a likely one, of the National Consumer Credit Protection Act 2009 (Cth), the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth), or the Australian Securities and Investments Commission Act 2001 (Cth).

You must provide ASIC with a written report detailing the matter. The regulation imposes a strict timeframe for this notification, requiring you to lodge the report as soon as practicable. This must be done no later than 10 business days after you become aware of the contravention or the likelihood of it occurring.

Meeting Your Dispute Resolution Standards

Your Internal Dispute Resolution (IDR) System Requirements

As an unlicensed COI lender, you are required to have an internal dispute resolution (IDR) procedure. This system serves a critical purpose:

• It must provide consumers with free access to handle complaints related to the credit activities for your COIs
• It must be responsive to any complaint received
• It must handle the dispute resolution process within the maximum timeframes set out by ASIC
• It must adhere to other dispute resolution standards outlined in ASIC’s regulatory guides, such as RG 165

The Option for External Dispute Resolution (EDR) & AFCA Membership

While having an IDR system is a mandatory compliance obligation, joining an external dispute resolution (EDR) scheme is not. For an unlicensed COI lender, membership of AFCA is optional under the modified statutory regime.

Despite not being compulsory, ASIC encourages every unlicensed COI lender to join an EDR scheme. This provides consumers with an avenue for independent review if a dispute cannot be resolved through your internal processes.

It’s important to note that choosing not to become a member of AFCA means you will be subject to additional compliance obligations.

Conclusion

Operating as an unlicensed COI lender requires a clear understanding of your specific compliance obligations, from the general conduct principles in RG 205 to the financial standards in RG 207 and mandatory dispute resolution procedures. Adherence to these ASIC regulations is fundamental to lawfully managing COIs and maintaining your regulatory standing.

For trusted ACL compliance expertise in meeting these requirements, contact the specialists at AFSL House today to ensure your compliance framework is well-structured and effective.

Frequently Asked Questions