The Insurance Council of Australia (ICA) is pressing for an exemption for lenders’ mortgage insurers from the National Consumer Credit Protection Act’s record-keeping obligations.

CEO Rob Whelan acknowledges in a submission that the Federal Treasury is opposed to the proposed exemption.

“We understand Treasury does not support an exemption but is willing to consider removing the strict liability that would otherwise apply to an offence under this section,” Mr Whelan says.  

“While an exemption remains our first preference, ICA recognises that the non-application of the strict liability provisions would be a definite improvement for members.”

ICA argues that the original credit provider of the mortgage has to meet the obligations of the Act regardless of any right the lenders’ mortgage insurance has on the recovery process.

“There is a real risk to lenders’ mortgage insurance (LMI) providers that they may comply with their credit licence conditions but nevertheless be subject to civil or criminal penalties under the Act,” Mr Whelan says in the submission.

“The risk arises because the original credit provider may not provide the credit assessment to an LMI provider within the statutory time limit to enable them to comply with a (recovery) request.

“If an LMI provider failed to provide a credit assessment to the consumer, the insurer could face an action from them for non-compliance with the Credit Protection Act.

“These actions would require an LMI provider to cease all recovery action while the matter was being investigated.” 

ICA also wants LMI providers exempted from the Act’s “strict liability civil penalty”.

It argues that as the insurer is not the original credit provider it does not undertake the assessment.

“In order to fulfil a request made under the Act, the LMI provider must rely on the original credit provider for a copy of the assessment,” Mr Whelan says. 

“The LMI provider has no control over whether the original credit provider provides the assessment within such a period of time.

“But due to the strict liability associated with the offence, there is no defence available based on the reasonableness of the LMI provider’s actions in seeking the assessment from the original credit provider.”

The council believes that subjecting LMI providers to these requirements unfairly exposes them to civil and criminal penalties. 

“It is our preference that the Act be amended so that LMI providers are not subject to this provision,” Mr Whelan says. 

“Alternatively, ICA requests that the strict liability associated with non-compliance of this obligation by an LMI provider be removed.”