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Credit assistance: when a coach’s view on a loan needs a credit licence

Suggesting or assisting with a particular credit contract or consumer lease is a credit activity, and anyone who engages in credit activities generally needs an Australian credit licence, or authorisation from a licensee, first. Those rules are about consumer credit: ASIC’s guidance says credit taken wholly or predominantly for business purposes falls outside the National Credit Code and the National Credit Act, even when the borrower is an individual.

General information about ASIC’s credit licensing guidance, not financial or legal advice. The official place to check is ASIC, linked at the foot of this page.

Coaching side

ASIC: not credit assistance, or outside the Code

  • Suggesting a person consider borrowing to buy residential property, without naming a lender or a product
  • Generic advice about credit, in ASIC’s answer for financial planners
  • Credit to buy equipment for use in a business

Licensed side

ASIC: credit assistance, or a licence required

  • Suggesting a consumer approach a particular bank or finance company about a specific product
  • Suggesting a consumer stay in a particular contract with a specific provider
  • A referral about a particular loan that is a credit activity and doesn’t fit the narrow referral exemption

From ASIC’s Regulatory Guide 203 and Information Sheet 101, summarised.

First question: is it consumer credit?

A coaching client who trades as a sole trader can borrow for the business and for themselves, and ASIC treats the two differently.

Business purposes

Regulatory Guide 203 says the National Credit Code doesn’t apply to credit or hire that is wholly or predominantly for a business or investment purpose, with one exception: investing in residential property. Its examples are a business leasing cars, plant or equipment, and a person borrowing to buy equipment for their business. The Code and the Act don’t apply to that credit even if the borrower is a natural person, because it is for business purposes.

The consumer test

Information Sheet 101 puts the test from the other side: the loan is caught where the advance is predominantly for personal, domestic or household purposes, and “predominantly” means “more than a 50% consumer component”.

Investment property

Credit for an investment, such as shares, is generally outside the Code unless the investment is in residential property. A loan to a natural person wholly or predominantly to buy, renovate or improve residential property for investment is regulated, and the credit provider needs to be licensed. Loans to companies are not subject to the credit legislation.

So for an individual borrower, ASIC’s guidance turns on what the money is for. The same client can be outside the rules when asking about an equipment loan and inside them when asking about a loan for an investment property.

Second question: is it about a particular contract?

ASIC’s list of credit activities includes “suggesting or assisting for a particular credit contract or consumer lease”, and acting as an intermediary between a credit provider and a consumer. Regulatory Guide 203 says “suggesting” can extend to offering advice or making a recommendation, and that the way a person promotes their services can affect whether their suggestions are credit assistance.

ASIC’s example 5, in Regulatory Guide 203, summarised

Suggesting that a consumer consider borrowing to finance residential property, without referring to a particular credit provider or product, is not credit assistance. Suggesting that they approach a named bank or finance company about a specific product is credit assistance, even if the person making the suggestion doesn’t arrange the credit.

Pointing to a particular provider that offers very few products may still be credit assistance without naming a product. Pointing to a range of providers that each carry a wide range of products is not, unless the suggestion is about their specific products.

ASIC gives a similar answer for financial planners. Generic advice relating to credit needs no credit licence; suggesting or assisting a consumer with a specific contract from a specific credit provider, including suggesting they stay in a particular contract, does.

Referrals and commissions

A coach who passes clients to a broker or lender is making referrals, and ASIC works through them in two steps.

  1. Step 1Is the referral a regulated credit activity? That depends on whether it relates to a particular loan contract from a particular provider.
  2. Step 2If it is, does the referral exemption apply? ASIC calls it narrow. A person may be able to rely on it if they only tell the consumer that a particular licensee or credit representative can provide particular credit activities and how to contact them, and they disclose any benefit or commission they may receive.

Regulatory Guide 203 points to the regulations for the same exemption: a mere referral, with any benefit such as a commission disclosed.

Who doesn’t need a licence

ASIC says a person doesn’t need to hold a credit licence if they engage in credit activities on behalf of a licensee as its representative, which may be possible if they are authorised as a credit representative or if they are each “an employee or director of a credit licensee or one of its related bodies corporate”; if they, or the kind of credit activity they engage in, are exempt; or if ASIC grants them relief.

ASIC’s examples of people who may be able to rely on an exemption are insolvency practitioners (corporate or personal), lawyers and registered tax agents; point-of-sale retailers; financial counsellors or counselling agencies engaging in credit activity as part of a financial counselling service; clerks and cashiers; and debt collectors or repossession agents licensed by a state. Its examples of exempt activities are handing over prepared documents or factual information when asked, and referring a consumer to a credit licensee. Business coaches are not among the examples, and ASIC adds that many exemptions apply only in certain circumstances, with every requirement met.

Where a loan question sits beside a question about insurance or super, the financial product advice guide covers the other licence, and the tax advice guide covers the tax side of the same decision.