New laws aim to protect consumers from the often predatory practices of debt management firms, by requiring them to hold an Australian Credit Licence.

Overview

New laws set out that debt management services are now a 'credit activity' for the purposes of the National Consumer Credit Protection Act 2009 (NCCP Act).

Subject to transitional arrangements, from July 1, 2021, debt management firms (DMFs) that provide debt management services must hold an Australian Credit Licence (ACL) with a debt management authorisation.

Transitional arrangements apply where DMFs have both applied for an ACL and joined the Australian Financial Complaints Authority (AFCA) by July 1, 2021, but the ACL application is yet to be been determined. A list of DMFs whose ACL applications are pending can be found on ASIC’s website.

As ACL holders, DMFs will be required to, among other things:

• provide their services efficiently, honestly and fairly;
• comply with credit legislation;
• be a member of AFCA; and
• meet the ‘fit and proper person’ test.

What are debt management services?

Debt management services include the following, where the assistance relates to consumer credit contracts and is provided as part of a business for a fee:

• debt management assistance, meaning suggesting and / or assisting a consumer apply for a change to a credit contract; apply for a postponement of enforcement proceedings; or make a complaint or claim to a lender, AFCA, ASIC or the Information Commissioner; and
• credit reporting assistance, meaning suggesting and / or assisting a consumer apply for a change to information collected by a credit reporting body).

What should lenders be alert to?

Dealing with an unlicensed person or entity, that should be licenced, is a breach of the NCCP Act.

Practically, this means that lenders should have a policy and procedure to ensure that they do not deal with unlicensed DMFs providing debt management assistance or credit reporting assistance.

This is likely to require an uplift in lenders’ procedures for dealing with authorised representatives, including reviewing third party authority forms.

Further, where lenders have a reasonable belief that the DMF is providing debt management services without a licence to do so, lenders should consider promptly contacting customers to notify them that they cannot deal with the unlicensed DMF.