Last updated 14 January 2019

Traditionally, borrowers have little bargaining power in negotiating loans.

The National Credit Code (Credit Code) regulates all consumer lending, including new loans for residential investment property by non-corporate borrowers (individuals). The Credit Code is a schedule to the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act).

This law applies to all continuing loans that were entered prior to 1 July 2010 and that were regulated by the previous state law (the Consumer Credit Code).

Some of the new protections introduced by the NCCP Act had staggered commencement dates, and some new protections only apply to new loans or loans varied after 1 July 2010.

Section 5 of the Credit Code details the loans that are regulated. These are loans:

  • primarily for personal purposes or
  • provided to purchase, renovate, improve or refinance a residential investment property (i.e. not for business or investment purposes) and
  • that provide for interest or charges (the money you pay back exceeds the cash price of the goods or amount borrowed)
  • provided by the lender as part of a business
  • where the contract date is after 1 November 1996.

The Credit Code has special requirements for mortgages, guarantees, consumer leases, and small and medium-amount loans.

Some types of lending are not covered. Some or all of the Credit Code (s 6(1)) does not apply to:

  • some short-term loans
  • loans made to a company
  • loans primarily for investment purposes (except loans made after 1 July 2010 for residential investment)
  • loans without prior agreement (e.g. when an account is overdrawn)
  • bill of exchange discounting facilities
  • insurance premiums paid by instalments
  • pawnbroking (see narrow exemptions s 6(9))
  • loans to beneficiaries by trustees of estates
  • staff loans where the terms are more favourable than those to the public.

Application of the Credit Code

The Credit Code is presumed to apply to consumer credit, and it is up to the lender to show a court why the Credit Code should not apply to a particular loan (s 13).

When a borrower signs a Business Purposes Declaration saying that the loan is for business purposes, the presumption will not apply. However, if a lender knows the loan is not for business purposes and asks a borrower to sign a declaration, then the presumption does apply as the lender is attempting to avoid the application and therefore the consumer protection provisions of the Credit Code.