Credit provider fee for Perth wrappers - Dale?

W

WebBoard

Guest
From: Susan Pope


Does anyone know if a Perth wrapper must register as a credit provider with Fair Trading and incur a 1% fee in turnover?

Dale - you were particularly helpful with my query re GST - any clues about this one??

Regards

Susan
 
Last edited by a moderator:
Reply: 1
From: Mike .


Hi Susan,

I enquired with WA Ministry of Fair Trading a while back. This is their reply:

Thank you for your Email transmission of December 22, 2000 regarding "wrapping or vendor finance".

Section 6 (1) of the Credit (Administration) Act 1984 states;

"Subject to this Act, a person shall not carry on a business of providing credit unless the person is the holder of a credit provider's licence."

If a person is not carrying on a business of providing "wrapping or vendor finance", then they are not required to be the holder of a credit provider's licence.

I regret to advise that as this type of finance is unregulated, the Ministry of Fair Trading does not have any Business Notes pertaining to this type of finance.

I would like to thank you once again for contacting the Ministry with regards to this issue.

Yours sincerely
Stuart Dowling
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1.1
From: Susan Pope


Thanks for your reply Mike.

Sorry to be so dumb but - what exactly was the Fair Trading's answer to your query?

May be it's just late at night & I've missed something obvious??

Regards,

Susan
 
Last edited by a moderator:
Reply: 1.1.1
From: Mike .


Hi Susan,

My interpretation of that legalese is that wrapping is considered a form of vendor finance which apparently is not covered under their consumer credit legislation. Therefore, no licence required.

Having said that perhaps wrapping is not a form of vendor finance but a sub-mortgage in which case it may require a licence.

My strategy would be to initially operate without a licence but keep checking Fair Trading site for articles on Wraps. I think there have been articles posted on their site before.

If they are concerned about wraps, there's a fair chance they will push to include it in consumer credit code. You really only need to act if and when they do.

Regards, Mike
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 1.1.1.1
From: Susan Pope


Hi Mike,

Again, thanks very much for interpreting for me - I agree with the kind of strategy you mention.

Regards,

Susan
 
Last edited by a moderator:
Reply: 1.1.1.2
From: Tony Dixon


Hi Mike,

>My interpretation of that
>legalese is that wrapping is
>considered a form of vendor
>finance which apparently is
>not covered under their
>consumer credit legislation.
>Therefore, no licence
>required.

My brain is a little fried today but I got exactly the *opposite* interpretation?

*If a person is not carrying on a
*business of providing "wrapping
*or vendor finance", then they are
*not required to be the holder of
*a credit provider's licence.

...so if a person *is* wrapping, then they *are* required to hold a credit provider's license.

Do you agree with that re-interpretation?

cheers, Tony
(in Perth)
 
Last edited by a moderator:
Reply: 1.1.1.2.1
From: Dale Gatherum-Goss


Hi

I must admit, only scanned the section, but, I got the same result as you, Tony.

Thanks

Dale
 
Last edited by a moderator:
Reply: 1.1.1.2.1.1
From: Glenn Mott


This could also be interpreted so that if a person bought a property, held it for say 6 months as a rental and still had other properties held as rentals, they could then on sell the said property without conducting a "wrap or vendor finance business". My thoughts being that the majority of the person's holdings are just that..held

Glenn
 
Last edited by a moderator:
Reply: 1.1.1.2.1.1.1
From: Mike .


Hi Folks,

There are 3 paragraphs causing the confusion. So let's take them one at a time.

1)

Section 6 (1) of the Credit (Administration) Act 1984 states;

"Subject to this Act, a person shall not carry on a business of providing credit unless the person is the holder of a credit provider's licence."

Paragraph 1 is an extract from the Act. It is a general statement only because it doesn't describe what businesses require a license. However, other sections of the Act do. Did you know that Banks and Building Societies don't require a credit provider's license? The Act does not mention the words "wrap" or "vendor" anywhere.

2)

If a person is not carrying on a business of providing "wrapping or vendor finance", then they are not required to be the holder of a credit provider's licence.

This is Stuart Dowling's comment and a rather silly one because it is self-evident that if you don't provide credit you don't need a license. However, the opposite is not necessarily correct either. As I pointed out above that only certain types of businesses require a license.

3)

I regret to advise that as this type of finance is unregulated, the Ministry of Fair Trading does not have any Business Notes pertaining to this type of finance.

Sad, sad, sad...Stuart has thrown this in the "too hard basket" because he can't reference my enquiry to their Business Notes which are available online.

Summing up, it appears Stuart only did a cursory amount of research and his comments appear to be of a "cautionary" nature, only.

Please go to this site for the FACTS:

http://www.creditcode.gov.au

Read eveything, including the CODE PRINCIPLES AND ADMINISTRATION at http://www.creditcode.gov.au/dload/princip.doc

You will discover that the Consumer Credit (Queensland) Act 1994
CONSUMER CREDIT CODE
is the template used by all states except WA.

I did find some references in the QLD Act to instalment contracts which is causing confusion amongst wrappers who are using instalment contracts for their wraps but my interpretation is that instalment contracts are only covered by the Act if they are used in purchasing household goods and services. There is no reference in the Act to instalment contracts being used to purchase property.

If you are using the Lease Option method then there is no doubt that a credit providers license is not required.

Try Lewis O'Brien at http://www.freelawyer.com.au He may know something about WA.

Also try Jeff, email: coolawyer@justice.com
He is an industrial lawyer interested in researching wraps in WA. He may know more about it.

At the end of the day you need a solicitor to draw up all the legal documents you require to do wraps. Most solicitors haven't heard of wraps so the first hurdle is to describe the concept to them and then they need to see if and how it can be done in their state. If you can't find someone then take the lease option route although the FHOG won't be available until the option is exercised.

Regards, Mike
 
Last edited by a moderator:
Reply: 2
From: Michael G


Susan,

Two things to consider:

1) You may be able to structure your wraps as principal only. Rick Otton has written a post about this on this forum. Do a search. If its all principal, then there's no interest. No interest, then you may not be providing credit. Also see how Muslims borrow money, I heard that their religion prevents them from charging interest, so see how they do it.

2) Now if you do decide to charge interest, what exactly are you charging. For example:

You buy house for $50k borrow 90% at 6% then wrap for $60k at 8% interest, what credit have you provided?

This is my interpretation...

$45,000 is the bank's money that has been provided to you as credit, which they have paid their credit fee on.

That leaves, $15,000 @ 8% (the balance of the sale price) that you are actually providing credit for PLUS 2% on $45,000 (which is the markup on interest you place onto of the bank's money).

In theory, this would be less then being charged a fee on the whole amount.

Another way to think about it is as a 1st and 2nd mortgage, the bank is providing the funds to the wrappee as a 1st mortgage (so they pay credit fee on that amount) and you only pay the fee and the amount of the 2nd mortgage.

Just a thought, see a professional advisor.

Michael G
 
Last edited by a moderator:
Reply: 2.1
From: Tony Dixon


Hi Michael,
>Also see how
>Muslims borrow money, I heard
>that their religion prevents
>them from charging interest,
>so see how they do it.

This is fascinating. I never realised this.
A bit of research gave me the keyword: Murabahah

http://www.maybank.com.my/business/other_services/islamic_banking/maybank/murabahah_overdraft.shtml

"Murabahah is another type of sale and purchase contract, with a deferred payment element. The contract of sale may take place when a buyer who wishes to purchase assets, requests the Bank to purchase assets at cost (purchase price) and in return the Bank will charge the buyer an agreed profit margin which is incorporated into the selling price. The selling price is subsequently payable on a deferred single payment."

This is obviously for short-term financing (single payment), but it could easily be adapted to long-term financing with regular payments.

cheers, Tony
 
Last edited by a moderator:
Reply: 2.1.1
From: Paul Zagoridis


Actually Tony

There are many banks in the world who take a 20-30 year amortization schedule and construct an interest free loan using installment payments links to occupation rights.

Christians were also forbidden to charge or pay interest at one time. Loans were structured with "penalties" to compensate the lender for loss of use of money.

This stuff is centuries old.

Paul Zag
Dreamspinner
The Oz Film Biz site is archived at...
http://wealthesteem.dyndns.org/
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 2.1.1.1
From: Susan Pope


Hi Mike

Thanks for your great post.

You said:

"Also try Jeff, email: coolawyer@justice.com
"

I can't seem to get onto this site - is this the correct address?

Regards

Susan
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 2.1.1.1.1
From: Susan Pope


Hi All,

Expecting to waste my time, I nevertheless decided to ring Fair Trading to get their current opinion on credit providers licences.

The short answer they gave was "yes - to run wrapping as a business such a licence is required".

If you do one wrap - no licence required (a bit like selling 1 car in 1 year compared to 20 cars in 1 year ie 1 car is not "running a business").

To get a licence you complete the usual application form, provide referee, police clearance, bank statements etc and pay $239. If you provide the "perfect" application you may get it approved in approx 2 weeks. If it is rejected - you get your $239 back.

Annual renewal fee is 1% of turnover. For example:

Year 1 - You "lend" $300,000 therefore fee is $300

Year 2 - You "lend" $500,000 in new business therefore fee is $500.

This "ruling" apparently applies to WA, Victoria and ACT.

Does this sound right to all you wrappers in Victoria?

Thanks so much for all your collective input over the last couple of days - it has been very much appreciated!

Regards,

Susan
 
Last edited by a moderator:
Reply: 2.1.1.1.1.1
From: Glenn Mott


Susan,

Could you elaborate on how 1% of turnover of $300,000 comes to $300 please.

Glenn
 
Last edited by a moderator:
Reply: 2.1.1.1.1.1.1
From: Jakk Bass - The SLUM LORD


Hi all,

I wish my lenders calculated interest in this fashion.

regards
Jakk
 
Last edited by a moderator:
Reply: 2.1.1.1.1.1.1.1
From: Mike .


Hi Susan,

Could you clarify a few things, please:

1) Did you have to explain what a wrap is to MFT? I find it hard to believe that they know what a wrap is when many solicitors DON'T.

2) Did they quote the relevant sections of the Credit (Administration) Act 1984 that wraps is covered by? If not please obtain that info so we can see for ourselves. Where can we see this so-called ruling that only applies to WA, Vic and ACT? Can you get a copy of the ruling?

3) Could you reply back and ask why many financial institutions are exempt from licensing as stated at:
http://www.creditcode.gov.au/wanews.htm

Licencing of Credit Providers

A person who, in the course of a business, provides credit regulated by the Consumer Credit (Western Australia) Code must hold a Credit Providers Licence under the Credit (Administration) Act 1984.

Credit providers exempt from licensing include; the Crown, banks, building societies, credit unions, insurers (when incidental to insurance), pawnbrokers and pastoral finance companies.

Why should wrappers need a license when banks etc don't?

Finally, I've e-mailed Jeff at the address I gave you. So far it hasn't bounced. Will let you know if he replies.

Regards, Mike
 
Last edited by a moderator:
Reply: 2.1.1.1.1.2
From: Michael G


Susan,

If you do need the license, I'd still argue that only a fraction of the money is financed by you and the rest has been financed by the bank.

Easy way to prove this is check who owns what mortgages on the deed. 80% of the purchase price will be mortgaged by the bank, therefore only the balance of the wrap contract is credit provided by you.

Michael G
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 2.1.1.1.1.2.1
From: Susan Pope


Hi Glenn,

"Could you elaborate on how 1% of turnover of $300,000 comes to $300 please."

Sorry that should have read 0.1% - not 1%. I rang and checked with Fair Trading when I realised what I had typed. They reassured me it is 0.1% and said to refer to the Credit Administration Act (1985). Apparently the associated regulations for (1986) give the calculation for annual fees. (I haven't checked this out yet.)

Fair Trading also said the minimum charge per annum is approx $240 and the fee is capped at about $15,900. These figures are not exact and I haven't checked on them yet.

I had asked her to send me an application form and I received it this morning. It certainly looks like an arduous task to complete - and some questions also seem to give them an opportunity to knock applications back if they wish! For example they mention a requirement of "sufficient expertise" to carry on a business involving providing credit. I feel this could certainly be open to interpretation!!

Regards,

Susan
 
Last edited by a moderator:
W

WebBoard

Guest
Reply: 2.1.1.1.1.2.2
From: Susan Pope


Hi Mike

You said:

"1) Did you have to explain what a wrap is to MFT? I find it hard to believe that they know what a wrap is when many solicitors DON'T."

Hard to believe - but yes this woman seemed to know all about wraps and also happened to mention that some prosecutions were occurring in Perth at the moment!

You said:

"2) Did they quote the relevant sections of the Credit (Administration) Act 1984 that wraps is covered by? If not please obtain that info so we can see for ourselves. Where can we see this so-called ruling that only applies to WA, Vic and ACT? Can you get a copy of the ruling?"

No quotes were made from the relevant sections of the Credit (Administration) Act 1984 by Fair Trading (I didn't ask). At the first opportunity I certainly shall be reading up on the Credit (Administration) Act myself.

You said:

"3) Could you reply back and ask why many financial institutions are exempt from licensing as stated at:
http://www.creditcode.gov.au/wanews.htm
etc
Why should wrappers need a license when banks etc don't?"

I happened to ask this question to someone informally last night. The response I got was that the institutions exempted have their own [Acts/Regulations?] to comply with. Does anyone know anything further about this??

You said:

"Finally, I've e-mailed Jeff at the address I gave you. So far it hasn't bounced. Will let you know if he replies."

Thanks for this - I'll keep trying.

Regards

Susan
 
Last edited by a moderator:
Top