Last updated 14 January 2019
Non-bank lenders who are not providing small-amount credit contracts or bridging finance must not charge more than 48% per annum inclusive of fees and charges (s 32A National Credit Code (Credit Code)). The cost of credit may include interest, and fees and charges.
If the contract provides for it, the lender can on a 30-day notice make variations to interest rates, repayments, credit fees and charges by newspaper advertisement or individual notice. A borrower can apply to the court to review unconscionable changes to interest and charges.
Loans between $2001 and $5000, and repayable within two years are medium amount credit contracts under the Credit Code (s 32A(1)) and, in addition to the 48% interest rate cap, lenders can charge an establishment fee of $400.
Small loans (including payday loans)
There are special rules to protect people borrowing less than $2000 and where the contract is for 15 days or more. This type of loan is called a small-amount credit contract (SACC). Loans under $2000 that must be repaid within 15 days are prohibited. Lenders can charge an establishment fee (no more than 20% of the loan amount) and a monthly fee (no more than 4% of the loan amount).
Before making a small-amount credit contract, the lender must ask the following questions:
Is the borrower already in default in an existing SACC, or have they had two or more SACCs in the last 90 days? (ss 118(3A), 123(3A), 131(3A), 133(3A) National Consumer Credit Protection Act 2009 (Cth) (NCCP Act))
A loan will be presumed unsuitable for the borrower, and the lender will be in breach of their obligations if they lend the money unless they can prove that the loan was suitable.
Where does the borrower’s income come from?
Section 133CC of the NCCP Act and regs 28S(2) and 28S(3) of the National Consumer Credit Protection Regulations 2010 (Cth) prohibit SACCs for borrowers who receive more than 50% of their income from payments under the Social Security Act 1991 (Cth) and where the repayments would exceed 20% of that borrowers gross income.
Lenders must look at prospective borrowers’ bank statements for the previous 90 days (ss 117(1A), 130(1A) NCCP Act).
Credit contracts must contain certain information including:
- the amount of money to be lent
- who the money must be repaid to
- annual percentage rate/s
- calculation of interest charges
- repayments to be made
- credit fees and charges
- changes affecting interest, and the credit fees and charges payable
- frequency of statements of account
- default rate payable (if applicable) and enforcement expenses
- if a mortgage is to be taken out over property, a description of the property
- details of commission payable.
If the lender does not provide the above information, they can be penalised and consumers can seek compensation.