Last updated 9 August 2016
The National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) introduces a licensing regime for any party providing credit assistance; this includes acting as a lender, intermediary, broker, mortgage manager, loan referrer, debt collector or lawyer. However, exemptions do apply (e.g. the point of sale exemption for car yards and retail stores selling cars and goods on credit) under the National Consumer Credit Protection Regulations 2010 (Cth) (the NCCP Regulations).
Credit assistance includes recommending a loan, assisting with a loan application or recommending that a borrower stay with an existing lending product.
The National Credit Code (Credit Code) provides for certain requirements specific to:
- lenders relating to arrangements before and after a contract is entered including:
- giving the borrower loan information before the loan is made (pre-contract disclosure)
- responsible lending obligations contained in ch 3 of the NCCP Act to assess if the borrower can afford the loan inclusion of certain information in loans (s 17)
- giving the borrower statements and other documents during the term of the loan (ss 33–34)
- mortgages and guarantees (e.g. requiring written mortgage or special disclosure)
- consumer leases
- reverse mortgages (from 18 September 2012)
- small-amount loans following amendments to the Credit Code with new interest rate caps for such loans commencing 1 July 2013
- the review by a court of the terms of a loan including a borrower’s rights to ask the court to:
- vary the terms of a contract if they are experiencing hardship (s 72)
- re-examine and change the terms of unjust contracts (s 76)
- review changes to interest rate and unconscionable fees and charges (s 78), and procedures for the lender to follow when enforcing contracts or repossessing property or goods.
The following section will canvass some of these rights and obligations in the context of the borrower experiencing difficulty.
The main obligations attached to holding a licence under the NCCP Act are:
- to hold compulsory membership of an Australian Securities and Investments Commission approved external dispute resolution scheme (currently the Financial Ombudsman Service or the Credit and Investments Ombudsman)
- to fulfill general conduct obligations to engage efficiently, honestly and fairly (s 47)
- to lend responsibly (ch 3)
- to demonstrate compliance with the law and the NCCP Act.
Responsible lending (leases)
According to the NCCP Act, all licensees and credit assistance providers are obliged to:
- give additional disclosure documents (e.g. a credit guide or quote)
- make reasonable enquiries about the borrower’s requirements for the loan and their objectives (what is reasonable will depend on the type of product and the amount lent)
- take reasonable steps to verify the borrower’s financial information
- assess if the credit contract or lease is unsuitable (ss 151, 153). It will be unsuitable if the borrower has to sell their home to make repayments (s 154(3)), if repaying will cause substantial hardship (s 156), or the loan, lease or credit card offered does not meet the consumer’s requirements and objectives (e.g. a lease is being sold when the consumer wanted to buy the goods).
Remedies for unsuitable leases are:
- declaring part or all of contract void
- varying the contract
- terms unenforceable
- refund or return of property
- compensation for loss or damage.
Before a consumer signs a credit agreement under the NCCP Act, the following has to be supplied by the credit provider:
- a credit guide (s 113)
- a credit quote (s 114)
- a preliminary assessment whether the loan is suitable within 90 days of providing the credit assistance (s 116)
- a credit proposal disclosure document (discloses fees) (s 121)
- a copy of the credit assessment if requested (s 132)
- a pre-contractual statement (s 16(a) Credit Code)
- an information statement (s 16(b) Credit Code)
- a signed copy of the contract within 14 days of signing a credit contract (s 20 Credit Code).
The credit contract
Section 16 of the Credit Code lists the requirements for pre-contractual disclosure for certain types of credit contracts. Pre-contractual disclosure is designed to ensure that a potential borrower is aware of their rights and obligations before entering into a loan contract.
The Credit Code requires that written contracts (s 14) must contain certain information (s 17) including:
- the name of the lender
- the amount of the loan or the credit limit available
- the annual interest rate
- the way interest is calculated
- the total amount of interest payable
- details about repayments
- details of credit fees and charges
- a statement by the lender that they can change credit fees, charges and interest rates, and how they will notify the borrower of such changes
- how often the lender will provide statements of account
- the interest rate when the borrower is in default
- a statement that the lender may charge enforcement expenses if the borrower is in default
- information about whether a mortgage or guarantee is part of the contract and a description of any property affected
- a statement by the lender if they have paid any commission to a third party and, if so, to whom and the amount of commission paid
- details of any insurance financed by the loan
- other matters required by regulation to be included in the credit contract.
Non-compliance with the Credit Code means that the lender could be liable to pay damages to the borrower, or a fine or penalty to the government. The regulator for credit is the Australian Securities and Investments Commission, which can prosecute lenders for non-compliance with the NCCP Act or the Credit Code.
The lender’s failure to deliver information could be used in a case to end the contract on the basis of misrepresentation or to show that the particular loan arrangement was unjust.
Documents required after a loan is made
The lender must give the borrower a copy of the loan contract.
A borrower is entitled to receive certain documents during the period of the loan. According to the Credit Code, the documents must include:
- a copy of the loan contract within 14 days of the agreement (if the use of a credit card is deemed acceptance of the contract, within 14 days of the use of the card) (s 20)
- extra copies of documents requested by the borrower. These must be supplied within 14 days of request when the contract is less than 12 months old, and 30 days if the contract is older. The lender can charge a reasonable fee for this (s 33)
- regular statements of the account for some loan contracts (e.g. credit cards) and by request for other loan contracts (the information to be provided in the account is specified in the Credit Code) (s 33)
- a statement about the amount required to pay out the loan within seven days of the request (s 83)
- a notice of rights the first time a direct debit repayment fails (s 87).