Firms providing debt management services need to apply to ASIC for a credit licence and become a member of AFCA by 30 June 2021.
ASIC (Australian Securities and Investments Commission) has released an information sheet for providers of debt management services, explaining their new regulatory obligations, including the requirement to be licensed.
The release follows the making of new legislation prescribing certain debt management services as a ‘credit activity’ for the purposes of the National Credit Act. The legislation was announced as part of a package of reforms to Australia’s consumer credit laws in September.
The reforms for providers of debt management services are meant to address high fees, the unlicensed offering of regulated services, the use of high-pressure sales tactics and the lack of information provided about risks by these firms.
Under the new regulations, a ‘debt management service’ broadly covers services such as ‘credit repair’ and ‘debt negotiation’ that are carried out in relation to a consumer credit contract and where a consumer is required to pay.
From 1 July 2021, subject to transitional arrangements, providers of debt management services must hold a credit licence with an authorisation that covers debt management services.
The transitional arrangements allow for the continued provision of debt management services while a provider is actively taking steps to be covered by a credit licence.
Specifically, under the transitional arrangements, firms that intend to provide debt management services from 1 July 2021 will need to apply to ASIC for a credit licence and become a member of AFCA (Australian Financial Complaints Authority) by 30 June 2021.
ASIC’s new information sheet explains the transitional arrangements, the steps debt management services providers should take to apply for a credit licence, and the conduct obligations that must be met.
The information sheet is available here.
“It’s vital that consumers don’t become victims of predatory credit practices in the debt management industry,” said ABA (Australian Banking Association) chief Anna Bligh, welcoming the new regulations as a necessary protection for customers.
“These new regulations and stronger compliance measures will help prevent Australians from being ripped off.”