Australia: KFS Regulations made and PPS commencement delayed
regulation and compliance update

The Regulations for Home Loan Key Fact Sheets (KFS) were made on 1 September 2011. Home loan lenders will generally need to provide KFSs from 1 January 2012. In other news, it appears likely that the Personal Property Security Regime is likely to be postponed until 1 March 2012.

PPS start date postponed

The PPS Regime was intended to start on 31 October 2011. On 2 September 2011, the Attorney General's Department announced that the public release date of 31 October 2011 is no longer achievable.

The PPS Act provides that 1 February 2012 is the last possible commencement date. However, there are practical issues associated with that timeframe, and hopefully the government will make amendments to the law to allow the start date to be 1 March 2012 to avoid the Christmas and IT lock-up periods.

Home Loan Key Fact Sheet (KFS) regulations released

On 1 September 2011, the Home Loan Key Fact Sheets Regulations were made – see National Consumer Credit Protection Amendment Regulations 2011 (No. 5). KFSs are essentially a personalised comparison rate statement, setting out the specific cost for the specific loan a borrower requires. The intention is to allow consumers to shop between lenders. Some commentators have expressed concern that KFSs will focus consumer's attention on price rather than product features and service.

The National Consumer Credit Protection Act has been amended with effect from 1 January 2012 to require licensees who are lenders to:

• have a website that can generate a KFS, if the licensee has a website that can be used to apply for or make an enquiry about standard home loans; and
• in any event, make a KFS available on request.

A standard home loan is a loan to purchase residential property or to refinance credit that has been wholly or predominantly used to purchase residential property.

The regulations specify that a standard home loan is one which obliges repayments of principal and interest for the full term of the home loan and is either a variable rate loan or a fixed rate home loan (fixed for the whole or part of the term). Accordingly, lines of credit, interest only loans, and other non standard loan types are not subject to KFS requirements.

The style and content of a KFS is prescribed and is available here.

Who has to provide KFSs?

Under the current law, only licensees who are lenders are obliged to provide KFSs. Treasury has indicated that it proposes amendments to provide for KFSs to be provided by:

• servicers on behalf of exempt lenders;
• mortgage managers on behalf of managed mortgages.

Assuming there are changes to this effect, the commencement date still needs to be determined and may not be 1 January 2012.

Until these amendments are made, lenders of record for mortgage management programs who are not exempt trustees will need to find a way to provide a KFS for their managers.

It may become common practice for borrowers to ask for a KFS, and so servicers and managers who are not required to produce KFSs under the existing law may decide to develop a system to produce KFSs voluntarily.

If a KFS is produced when not required by law (eg because a loan is not regulated or because the lender is not a licensee), the KFS must be amended to omit any reference to the production of the KFS being an Australian Government requirement.

Gadens Lawyers can assist lenders, servicers and mortgage managers address the new requirement for KFSs.

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This report does not comprise legal advice and neither Gadens Lawyers nor the authors accept any responsibility for it.