Retailers Unexpectedly Included in Royal Commission Clampdown on Car Dealerships
The Financial Services Royal Commission released their final report on 4 February 2019, with some recommendations coming as a surprise to the retail industry.
The Report has critiqued the widespread use of interest-free deals offered in-store by many retailers to facilitate the sale of expensive items such as appliances, jewellery and furniture.
Under the National Consumer Credit Protection Act 2009 (Commonwealth), car dealers and point-of-sale shop assistants do not need to hold a credit licence in order to offer loans and credit cards. This is known as the “point-of-sale exemption”. The exemption means that dealerships and retailers do not need to comply with responsible lending obligations. Instead, those obligations fall on the bank or lender issuing the loan.
In their final report, the Commission recommended the of the point-of-sale exemption be abolished. If implemented, this would mean dealers and retailers would have to obtain a credit licence and train staff in responsible lending practices.
This recommendation comes in light of the findings of the Commission and the exposure of poor practices by some car dealers signing customers up for car loans, including the charging of exorbitant interest rates, repayments not being explained to customers and loan applications being incomplete or filled out incorrectly.
Although the recommendation takes aim at the findings relating to car dealerships, it also impacts the retail industry as many stores and chains use the same exemption to provide interest-free loans in-store.
I am a retail store that provides interest-free loans. Do I need to do anything?
At this stage, the recommendation is exactly that – a recommendation. It has not yet been made into law and thus the point-of-sale exemption still applies.
However, the Government has backed this recommendation and is intending to implement the reforms after consideration is made to ensure consumer protection and access to products and services are balanced.
In the strong likelihood that the law will be amended to reflect the Commission’s recommendations, it is probable that retailers and dealerships will be required to gain a credit licence in order to issue loans at some point in the future.
Don’t let changes in the law take you by surprise. Speak to your legal adviser to ensure that you stay up to date with any laws and regulations that may impact your business.