Belinda Ryan

Debt management and credit repair companies required to hold an Australian Credit Licence from 1 July 2021

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In our alert on 4 March 2021 we commented on an exposure draft of proposed legislation (the National Consumer Credit Protection Amendment (Debt Management Services) Regulations 2021) requiring that debt management and credit repair companies obtain an Australian Credit Licence.

The regulations are now law and the Australian Securities & Investments Commission (ASIC) has wasted no time in implementing those regulations, now requiring that all providers of debt management and credit repair services apply for an Australian Credit Licence (or vary an existing licence) by no later than 30 June 2021 – otherwise they will no longer be permitted to operate and provide such services.

ASIC has issued an information circular – Information Sheet 254 – outlining what is required and how debt management and credit repair companies (affected parties) are to go about the licence application process.

Basically, ASIC requires that affected parties lodge an application for an Australian Credit Licence and have that application “accepted” for lodgement by ASIC by no later than 30 June 2021.  The concept of an application being “accepted” involves submission by an applicant of not only the application but all required supporting documentation.  If the supporting documentation does not accompany the licence application or is not supplied upon request, then ASIC has the right to reject the application outright and require it to be relodged.

The practical steps to be taken by affected parties are set out in detail in Information Sheet 254 and we will leave it to you to read that information sheet if it is relevant to your operations.

However, it is important for all clients to make sure that their operations are not affected by these new regulations, so as to require either an application for a new Australian Credit Licence or a variation to an existing licence.

While the regulations are primarily directed at debt management and credit repair companies, a wider group of parties will be caught by these new regulations.  For the purposes of this note, we extract the summary contained in Information Sheet 254 explaining what is a debt management service:

What is a debt management service?
For the purposes of the National Credit Act and the credit licensing requirements, a ‘debt management service’ broadly covers the kinds of activities listed in Table 1, provided:
 • the activity is in relation to consumer credit contracts, and
 • a fee, charge or other amount is paid or payable by or on behalf of the consumer in relation to the service.
Table 1: Activities related to consumer credit contracts
Activity Description
Debt management assistance
Suggesting and/or helping a consumer to:
 • apply for a change to a credit contract for which the consumer is a debtor
 • apply for a postponement of enforcement proceedings
• make a complaint or claim to a credit provider, AFCA, ASIC or the Information Commissioner Credit reporting assistance
Suggesting and/or helping a consumer to apply for a change to information collected by a credit reporting body about a credit contract for which the consumer is a debtor
The activities described in Table 1 will also be considered to be a ‘debt management service’ if they are provided to consumers who have given a guarantee to support a consumer credit contract.

It is important that all clients examine their current activities to determine whether or not they will be caught by these new regulations.  It is important to note that the legislation will also capture firms acting behind the scenes, giving advice and making suggestions but not necessarily acting as the consumer’s authorised representative in internal or external dispute resolution.

However, it appears to us that:

  • a registered debt agreement administrator preparing and administering a debt agreement under Part IX of the Bankruptcy Act 1966, and
  • a registered trustee performing functions, or exercising powers under Part X of the Bankruptcy Act 1966

are both generally exempt from the requirement to hold an Australian Credit Licence by virtue of Regulation 20 of the regulations made under the National Consumer Credit Protection Act 2009. Analysis of the extent of that exemption is outside the scope of this article and specific legal advice should be sought before seeking to rely upon any apparent exemption.

While the summary provided by ASIC in Information Sheet 254 is very useful, ultimately there is no substitute for reading the legislation itself for a full description of what constitutes ‘a debt management service’, ‘debt management assistance’ and ‘credit reporting assistance’.

If you reach the conclusion that you are or may be affected by these new regulations, then you need to take immediate action to ensure that you are able to continue to operate post 30 June 2021.

 

~ with Michael Timlin, Graduate at Law

No Good Deed Goes Unpunished

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The case of Tjoputra v Secretary, Attorney-General’s Department [2021] AATA 1596 illustrates a “decision accordingly to law producing a result which is both unfair and unjust”. That was the unedifying description given to it by the presiding senior member of the AAT. The title to this article was actually published in the judgment.

Two employees of Object Consulting Pty Ltd (in liquidation) – described by the member as “dedicated, hard-working, long-time employees”, were denied their redundancy entitlements under the Fair Entitlement Guarantee Act 2021 (Cth) because they, generously, agreed to stay on to assist the liquidator wind up the affairs of the company.

After the business was sold and the company ceased trading, the employees were informed verbally by the liquidator that their services were no longer required by the new owners.

When the employees were ultimately given written notice of termination (in the case of one of them, after only one (1) additional business day), the company was then a “small business” for the purposes of the Fair Work Act 2009 (Cth) – with fewer than 15 employees.

Unfortunately, their employment contracts were not sufficiently clear as to establish their redundancy entitlements. The governing instrument was therefore the Fair Work Act which excludes the obligation to make redundancy payments to employees of a small business.

The senior member was clearly unhappy with this “sorry saga” but said he was bound to apply the legislation as it stood.

This outcome could have been avoided if the liquidator had terminated the employees, then taken them on a casual basis. Not doing so was very costly. Indeed, the member lamented, “Their acts of decency and loyalty, must … result in them losing their entitlements” which totalled an eye-watering $69,000.

The key take away for employees is to ensure that they seek advice when continuing their employment with a company in liquidation or, at the very least, some written assurance that their entitlements will be preserved.

Conflicts of interest and the council budget

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With the annual season for formal adoption of next year’s council budget upon us, we are receiving regular enquiries from councils on how best to deal with questions of councillor conflicts of interest.

The definition of General Conflict of Interest in section 127 of the Local Government Act 2020:

“….if an impartial, fair-minded person would consider that the person’s private interests could result in that person acting in a manner that is contrary to their public duty”

has led many councillors to consider whether personal friendships and strong relationships they hold with individuals who stand to gain a benefit from a council budget item ought preclude the councillor in question from participating in budget deliberations and resolutions.

Our view is that mere acquaintances that are conducted regularly on friendly, even first-name terms between a councillor and a prospective/intended recipient of council funding by way of the annual budget would not create a General Conflict of Interest.

However, there will be circumstances where the relationship between the councillor and the other individual or entity is so close or intimate that a reasonable person would doubt the councillor could make an objective decision on the proposed funding uninfluenced by the existence of that relationship.

In those circumstances, we agree that a councillor ought make a conflict of interest declaration.
But should the councillor then be precluded from participating in all that year’s budget decisions and resolutions as a result?

To preclude an individual councillor from participating in budget debate and voting on the broader budget on account of a conflict of interest in relation to one discrete item within the budget is not consistent with the intent of the conflict of interest provisions in the Act.

We doubt in the above circumstances that the legislature intended to disenfranchise a councillor and the ward or community they represent from participating in the very significant budget process involving setting rates and charges, debt management, determining recurring expenditure and capital works items for the forthcoming financial year.

Accordingly, our advice to councils is that it is appropriate when the question of a conflict of interest in relation to a discrete budget item arises, to craft a specific resolution item for formal consideration and voting by councillors.

For example, if Councillor Jones has determined to declare a General Conflict of Interest in relation to the provision in the council budget for $5,000 funding to the ABC Athletics Club, then a separate resolution along the following lines should be prepared for council’s consideration:

“That Council includes in the 2021/2022 annual budget funding of $5,000 for the operations of the ABC Athletics Club”.

Councillor Jones would then declare a General Conflict of Interest in relation to this particular item in the usual fashion immediately prior to the item being considered by councillors and formally remove themselves from the chamber/debate/voting on the particular item.

Subsequently, Councillor Jones could re-join the meeting and participate in the debate and voting in relation to the consolidated council budget.

Such an approach we think adequately addresses the need for both transparency and fairness and the full participation of councillors in the critical process of delivering the annual budget.

~ with Michelle Nguyen, Lawyer

An update on rates while Councils wait

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The Local Government Act 2020 (new Act) has implemented a long awaited overhaul of the Local Government Act 1989 (old Act). While the new Act received Royal Assent early last year, such an ambitious reform of the local government sector necessarily requires a reasonable time for transition. Parliament has chosen to address this by gradually repealing most sections of the old Act and proclaiming the new Act in various stages, with the last stage of the new Act set to commence on 1 July 2021, but leaving a “rump” of the old Act still in operation.

During and after this transition period, Councils need to be aware of the co-existence of the new Act and the old Act as it is particularly important for Councils in meeting their governance obligations.

Old rates methods in new Annual Budgets

For example, the provisions dealing with rates and charges in the old Act are still very much in operation, and will remain so even when all provisions of the new Act have commenced, on and from 1 July 2021. Section 94 of the new Act sets out the procedure for Councils to prepare their budget for the financial year, including proposals to levy Council rates. Each Council is able to set a uniform rate across all types of properties or differential rates that will apply to different categories of land (e.g. residential land, commercial land, farm land etc.). If a Council proposes to declare a differential rate, section 94(2) of the new Act requires the budget to contain matters specified in section 161(2) of the old Act, so that the budget defines and identifies the types, classes or zoning of land to which each differential rate category would apply. Council is therefore required to comply with the relevant provisions of the old Act in parallel with the budget provisions of the new Act.

Councils have had various concerns about the current local government rating system, as ventilated in a number of their submissions to the 2019-20 review of the rating system by a specialist panel appointed by Local Government Victoria (LVG). Following the rating system review, the Victorian Government has expressed support for 36 of the LVG Panel’s 56 recommendations in full, in-principle or in part. The Government says it’s response prioritises the reforms that will support ratepayers in financial hardship, improve the transparency and consistency of decision making regarding proposed rates and charges, and build greater equity and fairness in the rating system. The final report of the review and the Government’s response are available here.

An end for the transition?

We anticipate that there will be further amendments to the new Act and that the rating provisions of the old Act will eventually be repealed when the new Act is amended, as with the repeal of other sections of the old Act. However, at this stage we do not know the Government’s proposed timeline for rating amendments to the new Act, or how long the current but temporary transition phase will last.

For the time being, and possibly into the 2022-23 Financial Year, Councils will need to continue to refer to both Acts when setting budgets and Council rates. Local Government Victoria has a range of resources to provide Councils with guidance and support. If you have any specific questions in this area of law, including on Councils adopting revenue and rating plans under the new Act by 30 June, please contact our local government specialists at Hunt & Hunt.

 

~ with Michelle Nguyen, Lawyer

Consultation to update and modernise the ePayments Code

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ASIC is undertaking a further round of consultation in connection with its review of the ePayments Code.

Back in March 2019, ASIC issued a Consultation Paper 310 (review of the ePayments Code). It then consulted widely with industry and key stakeholders. Normally after such a comprehensive consultation a final report would have been issued by ASIC, instead, ASIC is now engaging in further consultation with industry and key stakeholders as outlined in Consultation Paper 341 released on 21 May 2021.

It never ceases to surprise that the ePayments Code remains a voluntary code and only binds organisations which have subscribed to the code.  While ASIC would prefer for the ePayments Code to be mandatory, it notes that this would require the intervention of Government at the appropriate time.

Further, the Code currently only applies to electronic payments utilising the bulk electronic clearing system (BECS) and does not cover electronic payments made using the new payments platform (NPP).  This anomaly is surprising, given the fact that customers can make a payment under NPP in an identical manner to a payment made under BECS – yet the protections afforded under the Code for matters such as mistaken internet payments do not apply to NPP payments.

It must be acknowledged that ASIC has a standing recommendation to industry that even though the ePayments Code might not apply to NPP payments, that banks should act as though it does.

Another anomaly noted when acting for small business clients, is that the ePayments code only applies to consumers and does not extend coverage to small business.

The new consultation process by ASIC looks to amend the code in many respects. ASIC states that the proposals it makes focuses on 8 key matters, namely:

  1. compliance monitoring and data collection;
  2. mistaken internet payments, including retrievable of partial refunds and the responsibilities for sending and receiving AVIs;
  3. extending the code protection to small business customers;
  4. unauthorised transactions and past code security requirements;
  5. modernising the code;
  6. complaints handling;
  7. faulty facility expiry dates; and
  8. transition and commencement of the updated code.

The key matters will now be considered in some further detail.

Compliance monitoring and data collection

ASIC is proposing to remove the requirement imposed on subscribers to report annually about unauthorised transactions, preferring instead to rely upon its right to undertake ad hoc targeted compliance monitoring.

Mistaken internet payment’s framework

ASIC is proposing to clarify and enhance the mistaken internet payment (MIP) framework in various ways including:

  • providing examples as to what a receiving ADI can do meet the requirements of the “reasonable endeavours”;
  • limit the definition of mistaken internet payment (MIP) to situations where a customer makes a genuine mistake in typing in the account identifier and excluding scam and fraud scenarios from the MIP regime;
  • enhance existing on-screen warnings about MIPs;
  • allow partial returns of funds for MIPs in circumstances where a full return cannot be received.

Recovery of MIPs relies on cooperation between the sending ADI and the receiving ADI. ASIC notes that there are many instances where that corporation has not been forthcoming to the required degree – hence the suggestion that examples be given as to what constitutes “reasonable endeavours”.

Sending of ADI will need to inform customers of their right to lodge a complaint with the Australian Financial Complaints Authority (AFCA). ASIC is still of the view that a customer of the sending ADI should not have a right to complain to AFCA about the acts or omissions of a receiving ADI – that makes sense.

The main reason MIPs occur is because ADIs do not match account names against account numbers.  ASIC considered whether ADIs should be required to do so but is currently against any changes required in this regard.

Expanding the code to small business

ASIC proposes to extend the code to small businesses but subject to the following limitations:

  • subscribers can choose whether they will extend protections to small business operators;
  • any changes to the Code in this regard will only apply to new small business accounts open post-the new Code becoming operational: existing small business accounts are quarantined.

Note that it is proposed to define a small businesses as one which employs fewer than 100 people.

Clarifying the unauthorised transaction provisions

ASIC proposes to make it clear that the unauthorised transaction provisions of the code apply only where a third party has conducted a transaction without the customer’s consent and does not extend to situations where the customer made the transaction themselves as a result of a misunderstanding or falling victim to a scam.

It is proposed to make it clear that a breach of passcode security requirements of itself is not sufficient to make a customer liable for a transaction – instead there must be a causal connection between the breach of passcode security and the loss – pretty obvious to our mind. In our view this distinction is a distinction that is being glossed over and forgotten by ADIs ever since the e-Payments Code first became operational.

ASIC also wants to make it clear that the protections under the Code are in addition to any “charge back” rights under card schemes – again a fairly obvious matter.

Modernising the code

Technology moves fast and at an ever-increasing pace. ASIC therefore proposes to update the Code to address recent technological changes by:

  • referring to biometric authorisations;
  • replace the term “device” with “payment instrument” to avoid confusion with customer owned smart devices;
  • incorporate reference to virtual debit and credit cards;
  • extend the code’s protection to NPP payments; and
  • expressly provide for electronic receipts.

Complaints Handling

Modernise and streamline the complaints handling provisions, importantly to require compliance with Regulatory Guide 271 (internal dispute resolution) in lieu of current provisions.

Facility expiry dates

Bring the facility expiry date provisions in line with Australian Consumer Law, mandating a minimum expiry date of not less than 3 years, instead of the current 1 year.

Conclusion

Any changes to the Code will require changes to the T&Cs of ADIs because they must mirror the provisions of the Code.

The main contentious issues in this review are likely to be:

  • unauthorised transactions;
  • cooperation between sending and receiving ADIs; and
  • extending coverage of Code to small business operators.

The consultation process is likely to be lengthy as always seems to be the case when reviews are undertaken in relation to the ePayments code. We predict that by the time this review has been completed and implemented that a further review will be needed because of further technological changes that have occurred in the interim. Reviews of the ePayments Code are a never ending story!

Changes to the Australian Consumer Law

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From 1 July 2021, amendments to the Australian Consumer Law (ACL) definition of “consumer” will significantly extend consumer protections.

The definition – the current form of which has been in place since 1986 – was, amongst other matters, the subject of 2017’s ACL Review Final Report released by Consumer Affairs Australia and New Zealand (Report).

Currently, a “consumer” is a person who purchases goods or services, and:

  • pays up to $40,000 for those goods or services; or
  • those goods or services (irrespective of their value) were of a kind ordinarily acquired for personal, domestic or household use or consumption; or
  • in the case of goods that are a vehicle, or a trailer – the goods were acquired for use principally in the transport of goods on public roads.

Importantly, a person need only satisfy one of the above criteria in order to meet the definition of “consumer”.

The Report included a recommendation that the definition of “consumer” be adjusted to account for inflation. This was implemented by the Commonwealth in the Treasury Laws Amendment (Acquisition as Consumer – Financial Thresholds) Regulations 2020; from 1 July 2021, a person who spends up to $100,000 on goods or services will be a “consumer” for the purposes of the ACL.

This amendment means that the ACL consumer guarantees (and related remedies) will from 1 July be available in respect of previously exempt supplies of goods and services, which, but for this amendment, would not be “consumer” goods and services.

Ahead of 1 July, suppliers should review their trading terms and consider the impact of clauses that purport to “contract out” of the consumer guarantees.

Interestingly, this change could present remedies for those (potentially, very large businesses – not “consumers” the ordinary sense) that did not have remedies before the change.

 

~ with Alexandra Culshaw, Graduate at Law