On 15 December 2009, the National Consumer Credit Protection Act 2009 (Cth) received royal assent. This was a key step in the transfer of responsibility for the regulation of consumer credit from the States and Territories to the Commonwealth, which had been agreed at a series of meetings of the Council of Australian Governments in 2008.

Under the old regime, which applied since 1996, each State and Territory enacted legislation which incorporated by reference, or substantially reproduced, the Consumer Credit (Queensland) Act 1994 Consumer Credit Code which was the Appendix to the (Cth), and the Consumer Credit Regulation 1995 (Qld), being regulations made under that Act.

Relevantly for insurers, the Consumer Credit Code and Regulations regulated "credit-related insurance contracts", including "consumer credit insurance" (CCI), in various ways. Perhaps most significantly, commission paid by an insurer in connection with consumer credit insurance was capped at 20 per cent of the premium (excluding government charges). The Code also imposed certain pre-contractual disclosure obligations on the credit provider where the credit provider knew that the debtor was to enter into a credit-related insurance contract which was to be financed under the credit contract (i.e. the premium was to be paid out of the loan).

Schedule 1 to the new Commonwealth Act is the National Credit Code, which largely replicates the old Consumer Credit Code. Regulations under the new Act largely replicate regulations under the old Consumer Credit Code.

The National Credit Code commenced on 1 July 2010. It applies to:

  • "credit contracts" and "credit-related insurance contracts" entered into on or after 1 July 2010, and
  • credit contracts and credit-related insurance contracts that are "carried over instruments".

A "carried over instrument" is a contract or other instrument that:

  • was made, and was in force, immediately before 1 July 2010, and
  • was subject to the old Consumer Credit Code.

Thus, CCI policies that, immediately before 1 July 2010, were regulated under the old Consumer Credit Code are, from 1 July 2010, regulated under the National Credit Code.

ASIC has general administration of the Act (including the National Credit Code): section 239.

Insurance regulation is just a small part of the new national credit regime. The key components of the regime are:

  • national licensing of persons engaging in credit activities
  • responsible lending conduct requirements
  • enhanced consumer remedies and regulator powers of enforcement, and
  • dispute resolution.

These components are modelled, to a considerable extent, on the regulation of financial services under Chapter 7 of the Corporations Act 2001 (Cth).

Different definitions of "consumer credit insurance"

From an insurance perspective, one unsatisfactory aspect of the National Credit Code is that it replicates (in section 204) the definition of "consumer credit insurance" in the old Consumer Credit Code, which is substantially different from – and broader than – the definitions of "consumer credit insurance" in regulation 21 of the Insurance Contracts Regulations 1985 (Cth) and "consumer credit insurance product" in regulations 7.1.15 and 7.9.16 of the Corporations Regulations 2001 (Cth). This means that a particular kind of insurance policy might be caught as CCI by the National Credit Code, when it is not treated as CCI under the Insurance Contracts Act 1984 (Cth) or the Corporations Act.

Double disclosure

Another unsatisfactory aspect is that the National Credit Code replicates (in section 17(15)) the pre-contractual insurance disclosures required under the Consumer Credit Code. This represents an unnecessary "doubling up" of some of the disclosures that are made to the client in the Product Disclosure Statement (including the additional disclosures required for CCI products by Corporations Regulation 7.9.16), the Financial Services Guide and any Statement of Advice, under the Corporations Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.