Australian Credit Licence - Debt Management Services

Senate Inquiry Report: Credit and financial services targeted at Australians at risk of financial hardship

“There seems to be growing recognition of the problems caused by phoenixing, and growing concern about the role played by those unscrupulous “pre-insolvency advisers” who promote and facilitate phoenixing.

A regulatory framework ‘for all credit and debt management, repair and negotiation activities’ has the potential to apply to pre-insolvency advisers…”

“Restructuring and Turnaround professionals who believe – as I do – that there is a pressing need for regulation of pre-insolvency advisers should take any opportunity…to ensure that legislators understand the link between phoenixing and pre-insolvency advisers, and the importance of any regulatory framework extending to business and corporate ‘debt management.’

Geoff Green, Pre-Insolvency Advisers, February 2019.

Licensing Requirement - Restructuring & Turnaround Practitioners

ABRT Members in practice (Restructuring & Turnaround Practitioners awarded the RTP® post nonimals) should give consideration as to whether they need to be licensed or be an authorised credit representative of an Australian Credit Licence (“ACL”) holder.

The National Consumer Credit Protection Amendment (Debt Management Services) Regulations 2021 (Regulations), made on 29 April 2021, prescribe certain debt management services as a ‘credit activity’ for the purposes of the National Consumer Credit Protection Act 2009 (National Credit Act).

With effect from 1 July 2021, all professionals providing ‘debt management services’ for a fee must hold an ACL or be an Authorised Credit Representative (ACR) with a ‘debt management services’ authorisation.

What is a Debt Management Service?

The National Credit Act and ASIC’s credit licensing requirements considers ‘debt management services’ to broadly cover advice or activity in relation to consumer credit contracts where a fee or charge is payable by the consumer.

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 postponemnet of enforcement proceeding
• make a complaint or claim to a credit provider, AFCA, ASIC or the information commissioner
Credit reporting assistance Sugesting and/or helping a customer to apply for a change to information collected by a credit reporting body about a credit contract fro which the consumer is a debtor

The activities described above 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.

For the full definition of what constitutes a ‘debt management service’, ‘debt management assistance’ and ‘credit reporting assistance’, see section 6 of the National Credit Act (as inserted by regulations 4B and 4C of the Debt Management Services Regulations). A credit licensee who provides Debt Management Services that are ancillary to other credit services will be required to vary their licence.

 

 

ABRT's Position in Relation to Debt Management Services 

Restructuring & Turnaround Practitioners’ advice is unlikely to be solely confined to companies registered with the Corporations Act 2001 (Cth). Even where this is the case, personal and corporate matters for directors and officers are nearly always inextricably intertwined (for example business credit cards, personal guarantees, caveats, collateral security).

ABRT Practitioners will inevitably provide advice to all types of businesses – from companies registered with the Corporations Act 2001 (Cth) to other business and organisation structures – such as incorporated associations, partnerships, trading trusts and individuals operating sole traderships. Debt Management Services and advice relating to consumer contracts may be unavoidable.

Also, a broad range of advice is often provided to businesses. For example, those embarking on a high risk growth strategy, operationally or financially underperforming, facing a crisis, at risk of financial distress or in insolvency. Any such advice wouldn’t be complete unless the personal ramifications and risks are also carefully explained to the business owner as part of the process.

Such advice can be encompassed within Debt Management Services; indeed, entering bankruptcy or liquidation is a valid way of managing unpaid debt. Advice to directors during the “safe harbour” period under section 588GA Corporations Act (Cth) may be an aspect of debt management (Michael Murray).

NOTE: Banking Industry Guiding Principles on Debt Management Firms The Australian Banking Association have developed principles with regards to debt management firms if they believe they are not acting in your best interests. If a Debt Management Services provider is not licensed or acting appropriately, they will refuse to deal with them.

“AFCA and consumer groups continue to raise concerns with ASIC about the conduct of debt-management firms and the potential harms these entities may cause consumers, including that they may provide unsuitable services and engage in predatory conduct”

Australian Securities and Investment Commission – ASIC (as quoted by the ABA)

The Australian Banking Association has produced a guide for consulmers that states:

  • If you have appointed a Debt Management Services provider, banks can still contact you directly, if your representative is not acting in your best interests or is not licensed.
  • Your bank may proactively inform you of the risks of dealing with Debt Management Services providers.
  • Vulnerable customers, especially including those with language difficulties, will receive clear communications.

 

To read the full Australian Banking Association guiding principles relating to Debt Management Services providers, please click this link.

ABRT's Position in Relation to Debt Management Services

ABRT Practitioners as Australian Credit Licence holders or Authorised Credit Representatives are required to comply with the Regulations and their respective licensing terms agreed with ASIC. 

This includes maintaining membership of the Australian Financial Complaints Authority (AFCA). To establish whether an ABRT Practitioner is a member of AFCA you can search here. To establish the status of an ABRT member in relation to credit licensing, you can visit ASIC’s website here

If an ABRT Practitioner is an AFCA member, a complaint can be made by contacting complaints@abrt.org.au in the first instance to establish whether the complaint can be resolved. In addition to the ASBFEO, AFCA offers alternative dispute resolution and may be the appropriate route for complaints about ACL holders or ACRs (refer to our complaints page here).

Lawyers and ‘Debt Management Services’ 

Lawyers are permitted, in some circumstances, to engage in credit activities (including the provision of debt management services) in the ordinary course of their activities as a lawyer without needing to hold a credit licence: see the exemption in regulation 24 of the National Consumer Credit Protection Regulations 2010. 

Under the laws, if you are a lawyer and you hold out or advertise to consumers that you are able to provide debt management services, you will not be able to rely on this exemption.

If you have any questions about licensing for Debt Management Services or becoming an Authorised Credit Representative, you can contact the ABRT at membership@abrt.org.au. You can also contact ASIC directly at debtmanagement.enquiries@asic.gov.au.