How to Get Licensed To Legally Provide Consumer Credit Activities in Australia

Introduction

Businesses and individuals engaging in consumer credit activities within Australia must typically be licensed to do so. The National Consumer Credit Protection Act 2009 (Cth) mandates this requirement, ensuring that entities providing credit to consumers operate under regulations designed to protect those consumers and uphold the integrity of the financial market.

This guide focuses specifically on the steps and requirements necessary for businesses and individuals to become licensed to engage in consumer credit activities. It outlines the essential criteria set by the Australian Securities and Investments Commission (ASIC), covering the obligations and processes involved in obtaining the necessary authorisation to provide these regulated services.

Understanding Involvement in Consumer Credit Activities

What Constitutes Regulated Consumer Credit Activities?

To participate in the consumer credit market in Australia, it’s essential to understand which activities fall under regulation. Engaging in specific “credit activities,” as defined by the National Consumer Credit Protection Act 2009 (Cth), means your business operations are subject to specific rules, often requiring an Australian Credit Licence (ACL) or authorisation from a licensee.

Key activities that signify involvement in regulated consumer credit include:

• Providing credit: Acting as the credit provider under a credit contract that is governed by the National Credit Code. This includes operating a business focused on providing such credit.
• Leasing goods: Being the lessor under a consumer lease regulated by the National Credit Code, or running a business that provides these leases.
• Holding security: Being the mortgagee (holding security like a mortgage) or the beneficiary of a guarantee linked to a regulated credit contract.
• Managing credit agreements: Exercising the rights (like receiving payments or enforcing terms) or performing the obligations of a credit provider, lessor, mortgagee, or guarantee beneficiary. This applies whether you are the principal party or acting on their behalf.
• Providing credit assistance: This involves suggesting that a consumer should apply for, increase the limit on, or stay with a specific credit contract or consumer lease from a particular provider. It also covers helping a consumer to complete an application for these products or a credit limit increase.
• Acting as an intermediary: Facilitating the connection between a consumer and a credit provider or lessor with the aim of securing a credit contract or consumer lease for that consumer.

If your business engages in any of these activities concerning credit contracts or consumer leases covered by the National Credit Code, you are involved in regulated consumer credit activities and must ensure compliance, typically through licensing or authorisation.

Which Credit Contracts and Leases Fall Under Consumer Credit Regulation?

Understanding whether your business involvement requires an ACL depends heavily on whether the specific credit contracts or consumer leases you deal with are covered by the National Credit Code. This Code primarily regulates credit provided to consumers, defined as natural persons or strata corporations.

The Code generally applies when credit is provided wholly or predominantly for:

• Personal, domestic, or household use.
• Buying, renovating, or improving residential property for investment.
• Refinancing existing credit that was used for residential property investment.

Typical credit contracts falling under this regulation include personal loans, credit cards, home loans (for owner-occupation or residential investment), and instalment contracts for goods or land. For the Code to apply, a charge is usually payable for the credit, and the provider must be carrying on a business of providing credit in Australia.

Consumer leases are also regulated if they meet certain conditions. These involve hiring goods without a right or obligation for the consumer to purchase them. The key conditions are:

• The hiring is wholly or predominantly for personal, domestic, or household purposes.
• The total amount payable is more than the cash price of the goods.
• The lessor conducts a business of hiring goods in Australia.

It’s important to note that certain types of credit and leases are specifically excluded, such as very short-term credit (under 62 days with capped costs), certain loans between employers and employees, and credit provided mainly for business purposes (unless it involves residential property investment). Identifying whether the agreements you handle fall under the Code is a critical step in determining your regulatory obligations.

When Does Your Activity Qualify as ‘Carrying on a Business’ in Consumer Credit?

A fundamental condition for the National Credit Code (and associated licensing requirements) to apply is that the credit provider or lessor must be ‘carrying on a business’ in Australia when providing the credit or lease. This test helps determine if the activity is commercial and thus subject to consumer protection regulations.

The ‘carrying on a business’ test is met if the credit or lease is provided:

• In the course of operating a business in Australia that involves providing credit or hiring out goods; or
• As part of, or incidentally to, any other business that the provider or lessor operates in Australia.

This definition is quite broad. It means that even if lending or leasing isn’t the primary focus of your enterprise, these activities can still be regulated if they are linked to another business you conduct within Australia. For example, a retailer offering payment plans with a fee for their goods may be providing credit incidentally to their main retail business, bringing those plans under the Code’s scope.

Furthermore, a physical establishment in Australia isn’t required. Actively marketing to or soliciting consumers in Australia (e.g., through websites or agents) can be sufficient to be considered ‘carrying on a business’ here. Activities conducted outside Australia can also be captured if they relate to credit contracts or consumer leases subject to the National Credit Code.

Meeting the Standards for Engaging in Consumer Credit Activities

Organisational Competence and Responsible Manager Requirements

To lawfully engage in consumer credit activities, businesses must demonstrate and maintain organisational competence. This involves having the necessary knowledge and skills relevant to the specific credit activities being undertaken. It also requires appropriate organisational structures and systems to ensure compliance and responsible operation.

A key component of organisational competence is the appointment of suitable responsible managers. These individuals must possess the specific education and experience mandated by ASIC. They play a critical role in overseeing the credit activities and ensuring the licensee meets its obligations on an ongoing basis.

Adhering to General Conduct Obligations and Compliance Standards

Entities engaging in consumer credit activities under an ACL must adhere to strict general conduct obligations. Central to these is the requirement to conduct all credit activities efficiently, honestly, and fairly. This obligation applies continuously throughout the business’s operations.

Maintaining adequate compliance arrangements is also essential. This includes having robust internal systems and procedures designed to manage risks effectively. Businesses must ensure they consistently meet all their compliance obligations under the National Consumer Credit Protection Act 2009 (Cth) and associated regulations.

Resource and Financial Soundness Requirements

Continuously maintaining adequate resources is a fundamental requirement for engaging in consumer credit activities. This ensures the business can operate responsibly and sustainably.

Sufficient resources must be demonstrated across key areas:

• Human resources: Employing enough personnel with the appropriate skills and training to manage the credit activities and associated compliance tasks effectively.
• Technological resources: Utilising suitable IT infrastructure and systems capable of supporting the credit operations securely and efficiently.
• Financial resources: Consistently meeting the financial standards set by ASIC, proving the business remains financially sound and capable of fulfilling its obligations.

Dispute Resolution and Compensation Requirements

A mandatory requirement for any entity engaging in licensed credit activities is membership in an ASIC-approved External Dispute Resolution (EDR) scheme, such as the Australian Financial Complaints Authority (AFCA). This membership must be maintained to provide consumers with access to independent dispute resolution.

Furthermore, businesses must have adequate compensation arrangements in place at all times. This usually takes the form of professional indemnity insurance. These arrangements ensure that mechanisms exist to compensate consumers should they suffer losses due to the conduct of the credit licensee or its representatives.

Meeting Licensing Requirements to Engage in Consumer Credit Activities

The Application Process: Demonstrating Compliance Readiness

Engaging in consumer credit activities necessitates obtaining an ACL from ASIC. The application process requires careful preparation and the submission of specific documentation electronically via the ASIC portal. This demonstrates your readiness to comply with regulatory obligations.

Essential information and documents you must prepare include:

• Evidence of membership in an approved External Dispute Resolution scheme, which is mandatory before applying.
• Comprehensive details about your proposed responsible managers, outlining their relevant experience and qualifications.
• Information regarding the individuals involved in your business and their past conduct.
• A clear description of the specific credit activities you plan to undertake.
• Detailed plans for your compliance arrangements, resource adequacy (human, financial, technological), and risk management systems.
• Declarations confirming your understanding and commitment to fulfilling the obligations associated with holding an ACL.

ASIC’s Evaluation: Ensuring Fitness and Propriety for Credit Activities

Once submitted, ASIC thoroughly assesses your application before granting an ACL, which permits you to engage in consumer credit activities. This evaluation focuses on whether your business is competent and capable of conducting credit activities responsibly, as mandated by the National Consumer Credit Protection Act 2009 (Cth).

A critical component of ASIC’s assessment is the ‘fit and proper’ person test. ASIC examines the suitability of the applicant entity and its key personnel, ensuring they possess the integrity and character required to participate in the consumer credit market. Meeting these standards, along with demonstrating compliance with general conduct obligations, is essential for obtaining the licence necessary to engage in credit activities.

Pathways for Engaging in Consumer Credit Activities Without Holding Your Own Licence

Engaging in Credit Activities as an Authorised Credit Representative

One significant pathway to legally engage in consumer credit activities without obtaining your own ACL is by becoming an authorised credit representative of a principal that holds an ACL. This structure allows individuals or businesses to perform specified credit activities under the umbrella of an existing licensee. The principal licensee appoints the credit representative in writing, outlining the scope of authorised activities.

Key aspects of engaging in credit activities as a representative include:

• Scope of Authorisation: You can only engage in the credit activities specified in your written authorisation, and these must be activities covered by your principal’s ACL (RG 203.94).
• Acting on Behalf of the Licensee: It is crucial that all credit activities are performed ‘on behalf of’ the principal licensee (RG 203.86). Acting independently or being named as the credit provider or lessor in contracts would mean you are acting as a principal and require your own licence (RG 203.87, RG 203.88).
• Principal’s Oversight: The credit licensee is responsible for ensuring their representatives are competent, appropriately trained, and comply with all relevant obligations under the credit legislation (RG 203.84, RG 203.85).
• Sub-authorisation: If the credit representative is a company, it may sub-authorise individuals (like employees or directors) to engage in credit activities, but only with the principal licensee’s written consent (RG 203.95, RG 203.97).
• Compliance Requirements: Credit representatives must typically be members of an ASIC-approved EDR scheme, unless they are an individual sub-authorised by a corporate credit representative (RG 203.100, RG 203.96).

This representative model provides a viable route for businesses and individuals to participate in the consumer credit market by leveraging an existing licensee’s infrastructure and compliance framework.

Engaging in Specific Credit Activities Under Licensing Exemptions

Certain specific credit activities can be lawfully engaged in without needing an ACL or operating as a credit representative, due to exemptions provided under the National Consumer Credit Protection Act 2009 (Cth) and its regulations. These exemptions often apply to limited activities performed under strict conditions.

Notable exemptions allowing specific forms of engagement include:

• Making Referrals: Businesses can engage in the limited activity of referring consumers to licensed credit providers or representatives under specific conditions.
  • ‘Downstream referrals’ involve informing a consumer that a licensee can provide credit activities and giving the consumer contact details (or a website link), provided any referral benefit received is disclosed (RG 203.116, RG 203.119).
  • ‘Upstream referrals’ involve obtaining a consumer’s consent to pass their contact details and the purpose of their inquiry to a licensee, requiring a written agreement with the licensee and disclosure of benefits, among other rules (RG 203.116, RG 203.120). Engaging in activities beyond providing contact details, like suggesting specific products, invalidates the exemption (RG 203.117).
• Point-of-Sale Credit Facilitation: Suppliers of goods or services (excluding land) can engage in credit activities related to financing the purchase of those goods or services at the point of sale, if the credit is provided by a linked credit provider or lessor (RG 203.126, RG 203.127).
  • This allows suppliers to suggest or assist consumers in applying for credit specifically tied to the purchase from that supplier.
  • It also covers activities related to co-branded credit cards offered in partnership with a linked provider (RG 203.127).
  • The supplier is considered to be acting on behalf of the licensed linked provider, who bears responsibility for the supplier’s conduct (RG 203.128). The exemption is unavailable if the sale results from unsolicited contact (RG 203.130).
• Activities by Certain Professionals: Lawyers and registered tax agents can engage in some credit activities incidental to their professional practice without a licence.
  • Lawyers can provide advice on credit matters or assist with documentation in their professional capacity, but cannot advertise credit services (RG 203.110, Table 3; RG 24(2)-(4)).
  • Registered tax agents can perform tasks like preparing financial statements for loan applications, but cannot assess the consumer’s ability to meet repayments (RG 203.110, Table 3; RG 24(5)).
• Financial Counselling: Properly registered and compliant not-for-profit financial counselling agencies can engage in credit activities as part of their free service to consumers (RG 203.110, Table 3; RG 20(5)).

Utilising these exemptions allows businesses and individuals to engage in specific, limited consumer credit activities legally without the need for a full licence or representative status, provided all conditions of the relevant exemption are strictly met.

Consequences of Engaging in Unlicensed Credit Activities

Engaging in consumer credit activities without holding the required ACL or operating as an authorised credit representative is a serious offence under the National Consumer Credit Protection Act 2009 (Cth). Section 29 of this Act explicitly prohibits unlicensed credit activity.

The consequences of operating without proper licensing include:

• Substantial civil and criminal penalties
• Significant fines
• Potential legal action initiated by ASIC, which enforces these regulations strictly
• Severe reputational damage that can negatively impact consumer confidence and lead to business downturn

Furthermore, businesses must ensure they possess the necessary licence or authorisation before commencing any regulated credit activities. It is also an offence under section 31 of the National Consumer Credit Protection Act 2009 (Cth) for a credit licensee to knowingly conduct business with an unlicensed entity engaging in credit activities.

Conclusion

Engaging in consumer credit activities in Australia requires careful navigation of the regulatory landscape established by the National Consumer Credit Protection Act 2009 (Cth). Businesses must understand whether their specific activities necessitate obtaining an ACL, meet the stringent requirements set by ASIC regarding competence and conduct, or explore alternatives such as operating as an authorised credit representative or qualifying for an exemption.

Ensuring compliance is essential not only to operate legally but also to avoid the substantial penalties associated with unlicensed credit activities. For expert guidance on meeting your obligations and navigating the complexities of consumer credit regulations, contact AFSL House today to leverage our specialised knowledge in financial services law.

Frequently Asked Questions