ASIC proposes to make two product intervention orders (PIOs) in relation to arrangements using the exemptions in the National Credit Code (NCC) for:

• short term credit, in section 6(1) of the NCC; and
• continuing credit contracts with fixed fees, in section 6(5) of the NCC, in circumstances where borrowers are charged fees by associates (broadly defined).

These PIOs should not adversely affect most credit products. Comments on CP355 are due by 21 January 2022.

Short term credit PIO – Proposal D1

This order is substantially on the same terms as the ASIC Instrument 2019/917 (which expired in March 2021) (2019 Order).

When the 2019 Order expired, ASIC didn’t extend the order because of an ambiguity in the product intervention provisions in the relevant legislation which was resolved by the Treasury Laws Amendment (2021 Measures No. 4) Act 2021 (Amendment Act).

The 2019 Order prohibited (CP355 para 33):

1. the provision of short term credit facilities and the charging of collateral fees and charges by short term credit providers and/or their associates, in circumstances where the credit fees and charges under the credit contract and the collateral fees and charges under a collateral contract, together, exceed the limits in the short term credit exemption; and
2. directors of short term credit providers and/or their associates from causing or authorising that prohibited conduct.

ASIC now proposes minor drafting changes to the 2019 Order to ensure that it addresses the significant detriment ASIC is concerned about, including:

• defining ‘credit fees and charges’ and ‘interest charges’ to clarify which are captured by the conditions in the PIO and clarifying that only those that are paid or payable by a retail client are captured; and
• noting that the PIO is subject to the limitations in s1023C of the Corporations Act.

Continuing credit contracts PIO – Proposal D2

In July and November 2020, ASIC consulted on a proposal to make a PIO in respect of these products.

ASIC did not proceed to make the order, pending clarity in relation to ASIC’s ability to intervene in the cost of financial and credit products, which has now been clarified by the Amendment Act.

ASIC now proposes to make an industry-wide PIO to prohibit credit providers and their associates (including directors of such entities) from issuing continuing credit contracts, in circumstances where total fees exceed the maximum permitted under the continuing credit contracts exemption in s 6(5) of the NCC and reg 51 of the National Consumer Credit Protection Regulations 2010. ASIC has proposed specific exclusions for buy now pay later arrangements and non-cash payment facilities.

ASIC acknowledges that some entities may seek to “develop new models to circumvent the operation of the order. For example, businesses may seek to characterise themselves as buy now pay later arrangements but adopt models that have resulted in, or will or are likely to result in, significant detriment to retail clients”. However, ASIC warns that if this occurs, it will consider further action such as amending the order.