If you’re in the business of lending money for personal use, then you have a range of obligations under the National Consumer Credit Protection Act.
The NCCP is a nationally consistent legislation that is designed to protect consumers and ensure the finance and credit industries operate in an ethical manner, according to professional standards. Its aim is to provide borrowers with rights and protection, both when a loan is applied for and during the term of the loan.
As a lender, you may have some knowledge of these regulations and your obligations, but can you confidently say your employees are aware of their duties under the Act?
Failure to comply with the NCCP can result in criminal charges for individuals including fines and jail terms of up to 2 years. Company penalties include fines and cease and desist orders. Ignorance of the law is not an excuse so ensuring your compliance training is in order and up to date should be a priority part of your business strategy.
Your responsibilities include ensuring your employees are fully aware of the legal obligations associated with providing credit to consumers. The specific process of applying for a loan as set out by the Act is:
- Make enquiries: reasonable enquiries must be made as to client financial position, requirements & objectives.
- Verification: reasonable steps must be taken to verify client financial position.
- Preliminary assessment: with the information gathered from steps one and two, providers must make a preliminary assessment as to which loan(s) are appropriate for client, before recommending them to client.
The NCCP has added to previous regulations set out by the Uniform Consumer Credit Code, the state based legislation that was established before the NCCP. Some of the provisions set out by the UCCC have been modified and built into the NCCP, including:
- Harassment and canvassing – this is persistent, repeated conduct which attempts to induce someone to enter into a credit agreement, particularly after that person has requested that you stop doing so.
- Unjust contracts – a contract may be deemed to be unjust if you unfairly pressure someone to enter into it, or fail to explain the terms to them, when you know, or could be reasonably expected to know through enquiry, that they will be unable to fulfil the terms of the agreement without incurring substantial hardship as a result.
- False and misleading representation – this is making a false or misleading claim in relation to any matter involved with entering into a credit contract.
The NCCP allows for anyone suffering a loss as a result of these behaviours to fully recover the amount of that loss. It also considers anyone who is knowingly involved in these sorts of behaviours to be personally liable and open to criminal convictions.
Therefore, compliance training as part of a learning management system will not only help to protect your business, but it will help to protect your employees as well.
The best way to build a culture of compliance within your organisation is through:
- Effective training, which should be ongoing and subject to regular review and delivered in an efficient and timely manner
- Effective communication, by making compliance information available to everyone and providing access to help and advice where needed
- Regular internal auditing to ensure compliant practices are being adhered to
- Appointment of risk management and compliance manager(s)
- Regular monitoring and review procedures, including reporting non-compliance and instituting remedial action
- Accurate and detailed record keeping, should non-compliance become an issue
- External support, including retaining external auditors and legal advisers
- Comprehensive policies and procedures with regard to compliance.
Whatever size your business, being pro-active about compliance is the best way to ensure that you are doing the right thing by your customers, while protecting yourself and your employees as much as possible from the risks of non-compliance with the NCCP.