Consumer Credit Law Compliance FAQs Every Business Should Know
- rompos8
- 2 days ago
- 7 min read
Consumer Credit Law FAQs
Yes. Any person who engages in credit activity in Australia must have an Australian Credit Licence issued by ASIC. There are some exemptions but if ASIC considers that you have not properly qualified for the exemption they will prosecute you for unlicensed credit activity and there are large civil penalties.
Q. What must you have to get an Australian Credit Licence?
To get an Australian Credit Licence, you must satisfy ASIC that you have:
1. adequate technical, physical and financial resources and properly trained staff to comply with the obligations of an Australian Credit Licensee under the National Consumer Credit Protection Act, the National Credit Code, the ASIC Act, the Design and Distribution Obligations provisions of the Corporations Act, the Privacy Act and any other applicable legislation.
2. written policies and procedures to ensure that you comply with the obligations of an Australian Credit Licensee to ensure that:
a. your credit activities are conducted, efficiently, honestly and fairly;
b. your customers are not disadvantaged by any conflict of interest;
c. your staff and any credit representatives are adequately trained and kept up to date with their training;
d. your business has a compliant Internal Dispute Resolution system and is a compliant member of the Australian Financial Complaints Authority;
e. all your credit assessments will be conducted so as to comply with the Responsible Lending Obligations of an Australian Credit Licensee;
f. your business has adequate risk management systems including those for cyber risk;
g. your business has adequate policies and procedures for collecting payments in particular for dealing with applications from its customers for relief due to hardship.
3. fit and proper persons to be Key Persons and/or Responsible Managers under you Australian Credit Licence;
4. a suitable business plan including a compliance plan;
5. adequate resources and arrangements for compensating persons for loss or damage suffered because of a contravention of the National Consumer Credit Protection Act.
6. sufficient resources to pay the annual licence fee and industry levies required of all Australian Credit Licensees.
7. complaint standard for contract documents.
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Q. Do I have to report a situation or potential breach to ASIC under my Australian Credit Licence?
Yes if the situation is a reportable situation or a significant breach, it must be reported through your ASIC Portal within 30 days of its discovery. Not all situations are reportable or significant and they should be examined on their individual facts.
Q. If I have discovered a reportable situation in my credit activities what must I report to ASIC?
You must report:
1. how you discovered the potential breach
2. what sections of the legislation the conduct breaches;
3. how did it occur?
4. how many consumers are affected or potentially affected?
5. what actual or potential loss or damage does the breach cause consumers?
6. what compensation your are paying to consumers for the breach;
7. what further investigations are you conducting to find out how many consumers are affected?
8. what steps are you taking to prevent such a breach happening again.
Q. How often should I have an external compliance review of the credit activities conducted under my Australian Credit Licence?
The best approach is to have some external review of your credit activities, including a review of active loan files, once every year before signing the Annual Compliance Certificate.
To avoid compliance failure, ASIC prosecution reduce consumer complaints and mitigate any potential breaches of the law, at the very least, every Australian Credit Licensee should have an external compliance review including file reviews every three years.
What counts as consumer credit?
Consumer credit usually means credit provided to an individual for personal, domestic, or household purposes. It can also include credit used to buy, renovate, or improve residential property for investment purposes.
Common examples include:
Personal loans
Credit cards
Car finance for personal use
Home loans
Interest-free retail finance
Certain lease arrangements
Some continuing credit contracts
Business lending is usually treated differently, but the line is not always obvious. A sole trader may borrow for mixed personal and business reasons. A customer may say a vehicle is for work, then use it mostly at home. The purpose of the credit matters, and businesses should document how that purpose was assessed.
If a product might fall within consumer credit law, assume it needs careful review before launch or sale.
Which laws and regulators matter most?
The main law is the National Consumer Credit Protection Act 2009. It introduced a national system for credit licensing and conduct rules. The National Credit Code, found in Schedule 1 of that Act, sets many of the detailed rules for consumer credit contracts.
ASIC regulates credit licensees and credit representatives. It can take action for misconduct, misleading conduct, licence breaches, poor hardship practices, and failures in responsible lending.
Other laws can also matter, including:
Australian Consumer Law
Privacy Act 1988
Anti-Money Laundering and Counter-Terrorism Financing laws
Spam and electronic communications rules
Unfair contract term laws
Debt collection guidelines and court rules
The compliance picture changes depending on the product. A car dealer arranging finance faces different risks from a fintech platform, a mortgage broker, or a debt collection agency.
Does every business offering payment terms need an Australian credit licence?
No, not every payment arrangement requires an Australian Credit Licence. Some arrangements are exempt, and some businesses only act as authorised representatives or credit representatives of a licensed provider.
That said, a business may need a licence if it:
Provides regulated consumer credit
Suggests or assists with a consumer credit product
Acts as an intermediary between a customer and lender
Varies or manages regulated credit contracts
Collects debts under regulated credit contracts in certain ways
Retailers often assume the lender or finance partner carries all the compliance risk. That can be a costly mistake. If staff discuss finance options, help customers apply, or influence which product a customer chooses, the business may be engaging in credit activity.
A practical starting point is to map the customer journey. Look at every step, from advertising and quotes through to application forms, approvals, complaints, and hardship requests. If the business has any role in arranging or influencing credit, licence obligations need attention.
What is responsible lending?
Responsible lending is a core part of consumer credit law compliance. At a high level, it requires credit providers and some intermediaries to assess whether a credit contract is unsuitable for the consumer.
This generally involves:
Making reasonable inquiries about the consumer’s requirements and objectives
Making reasonable inquiries about their financial situation
Taking reasonable steps to verify financial information
Assessing whether the consumer can meet repayments without substantial hardship
Keeping records of the assessment
The exact steps depend on the product and circumstances. A small credit limit increase is not the same as a large home loan. Still, the principle is consistent. The business should not treat credit approval as a box-ticking exercise.
Good responsible lending processes use clear questions, reliable documents, and sensible decision rules. They also give staff a path to pause, escalate, or decline an application when the information does not add up.
What disclosures must be given to customers?
Consumer credit law requires clear disclosures before and during the life of many credit contracts. These help customers understand costs, obligations, and rights.
Common disclosure documents may include:
Credit guides
Credit proposals
Pre-contractual statements
Information statements
The credit contract itself
Statements of account
Notices about changes to fees, rates, or terms
Default notices
Hardship response notices
The content and timing matter. A disclosure given too late may not meet the law. A document full of legal wording may also create practical risk if customers cannot understand the main costs and conditions.
Plain English helps. So do summaries, examples, and consistent terminology. Still, a summary should never replace required legal documents unless the law allows it.
What advertising rules apply to consumer credit?
Advertising must not mislead customers about the cost, availability, suitability, or features of credit. This applies to websites, brochures, point-of-sale material, text messages, comparison tools, and scripted sales conversations.
Risky claims include:
“Guaranteed approval”
“No credit checks”
“Everyone qualifies”
“Interest free” when fees still apply
“Low repayments” without showing the total cost
“Bad credit accepted” in a way that targets vulnerable customers
If an advertisement mentions an interest rate, comparison rate requirements may apply. If it promotes a monthly repayment, the assumptions behind that figure should be clear.
The safest approach is to review credit promotions before publication. Marketing speed is no defence if the claim misleads customers.
How should businesses handle hardship requests?
A customer can experience hardship because of illness, unemployment, family violence, separation, natural disasters, or other causes. Consumer credit law gives customers rights to request changes to their credit contract in hardship situations.
A business should have a clear hardship process that covers:
How customers can ask for help
What information staff may request
Timeframes for responding
Temporary repayment changes
Referral to support services where suitable
How declined requests are explained
Records of all conversations and decisions
Hardship handling should be practical and respectful. Staff should avoid asking for unnecessary details, especially where sensitive personal information is involved.
Poor hardship handling can lead to regulatory action, complaints to AFCA, reputational harm, and avoidable customer distress.
What records should a business keep?
Records are a major part of credit compliance. If a regulator or complaints body asks what happened, the business needs more than a staff member’s memory.
Useful records include:
Customer inquiries and stated loan purpose
Documents used to verify income and expenses
Credit assessments and reasons for decisions
Signed contracts and disclosure documents
Advertising approvals
Staff training records
Complaints and hardship files
Internal audit results
Breach reports and remediation steps
Records should be accurate, secure, and easy to retrieve. They should also be retained for the required period under applicable laws and licence conditions.
Data minimisation still matters. Do not collect sensitive documents just because they might be useful one day. Keep what is needed, protect it well, and delete or de-identify it when the law allows.
What happens if a business breaches consumer credit laws?
Breaches can lead to serious consequences. Depending on the conduct, a business may face:
ASIC investigation
Licence conditions, suspension, or cancellation
Civil penalties
Compensation orders
Enforceable undertakings
Customer remediation programs
AFCA complaints
Court action
Damage to lender, broker, or partner relationships
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