CAFBA has sought a clarification of the application of the new NSW Fair Trading Act (FTA) commission disclosure obligations and consumer definition to assist members understand the operational implications of the amendments as they affect intermediaries. Our legal advisor, CreditWise Pty Ltd, has provided the following explanation of how the law sits in the broader regulatory framework, expanding on the article appearing in the August 2020 edition of CAFBA’s Commercial Insider.
CAFBA members need to be careful about confusing the term ‘consumer’ across Commonwealth and State jurisdictions and, inadvertently, conflating their compliance obligations. Across Commonwealth and State legislation there are various definitions of the term ‘consumer’. The applications vary though and are very specific to the jurisdiction of the legislation.
Members, especially those involved in consumer and well as commercial finance, should be careful not to conflate National Consumer Credit Protection Act (NCCP Act) obligations with the NSW Fair Trading Act obligations through a misunderstanding of the term ‘consumer’ and how the laws apply. The NCCP Act is a Commonwealth law with national jurisdiction while the NSW law is relevant to any business, whether located in NSW or elsewhere, providing goods or services to customers in that State only. Both have differing approaches to the scope of ‘consumer’ protections.
While it is a State law, the FTA applies the term ‘consumer’ as it is defined in the Australian Consumer Law (ACL) under the Commonwealth Competition and Consumer Act. Under this law, ‘consumer’ includes transactions with businesses, currently up to $40,000 in value and, from 1/7/21, up to $100,000, as well as individual consumers for personal, household or domestic purposes, regardless of value. In addition, businesses acquiring vehicles designed for transporting goods (e.g. trucks) are ‘consumers’, regardless of the value or customer type (e.g. company).
So, under the FTA, the term ‘consumer’ is based on the amount of the goods or service, not its purpose. Consequently, the term applies to both individuals and businesses.
This is considerably different to a consumer or debtor under the NCCP Act ,and its National Credit Code, which is confined to finance for individuals, and to residential strata corporations, primarily for personal, household or domestic purposes. It is finance to individuals or strata corporations for those purposes which makes a transaction either ‘consumer’ credit or leasing.
Given the two laws have differing jurisdictions and applications, brokers need to be very clear about what applies when and how, rather than merging very different regulatory obligations into a single approach. It is the NCCP Act that regulates what is known as ‘consumer’ finance across all States and Territories and under which credit guides must be provided, based on purpose.
While it may appear convenient for Members who are licensed under the NCCP Act to address the commission disclosures required by the FTA by giving all clients, whether businesses or ‘ordinary’ consumers a credit guide, we suggest those Members seek advice before doing so. As mentioned, the FTA and the NCCP Act, while appearing to serve similar purposes, are quite different in context and regulatory requirements.
Our caution is based on the concern that, should a member provide a business client with a credit guide, they are potentially misleading that client about their rights. The provision of a credit guide indicates the client has rights under the NCCP Act. That further implies the broker will manage that client’s application in compliance with NCCP Act requirements such as responsible lending, copies of preliminary assessments etc, which are totally irrelevant and inappropriate to commercial finance.
In summary, CAFBA members offering services to NSW clients must disclose commission arrangements to all client types who are ACL ‘consumers’. However, it is suggested an NCCP credit guide should not be provided to business clients
Finally, we suggest to CAFBA members the simplest operational approach to manage these regulatory compliance and other requirements is to consider transparent statements of commission arrangements being in place –
These suggested measures would also be broadly consistent with secret commission laws and CAFBA’s professional standards.
This note is only for the benefit of CAFBA members and of general information. It should not be relied upon as a substitute for specific legal advice.