Introduction

  • National Consumer Credit Protection Act 2009 (Cth) (‘the Act’):
    • Established a single and uniform regime for consumer credit regulation.
    • Introduced provisions to ensure credit is ‘not unsuitable’ for borrowers.
    • Requires credit providers and credit assistants (brokers) be licensed.
    • National Credit Code (‘the Code’) enacted as sch 1 of the NCCPA:
      • Provides consumer protection framework for consumer credit and related transactions.
      • Covers credit investment properties.
      • Increased monetary threshold for financial hardship provisions.
      • Operates as Commonwealth legislation.
    • Unfair terms legislation (eg Australian Consumer Law) should also apply to consumer credit contracts.

When the NCCPA applies to transactions

  • Definitions exist in both the Act and the Code.
    • Generally definitions in the Act do not apply to the Code.
    • Definitions in the Code may be incorporated in definitions in the Act.

Credit providers

  • Under s 5 of the Act, a ‘credit provider’:
    • has the same meaning as in s 204 of the Code, and
    • includes a person who is a credit provider because of s 10.
      • Under the Act (but not the Code), a person who has been assigned or passed the rights of a credit provider will be taken as such: s 10.
  • Under s 204 of the Code, a ‘credit provider’ is a person that provides credit.
    • This includes prospective credit providers.
    • The credit must be supplied under a contract: s 5(1).
    • The debtor must be a natural person or strata corporation: s 5(1)(a).
    • The credit must be provided wholly or predominantly for at least one of the following:
      • Personal, domestic or household purchases: s 5(1)(b)(i).
      • Purchase, renovation or improvement of residential property for investment purposes: s 5(1)(b)(ii).
      • Refinancing of credit provided wholly or predominantly for the purchase, renovation or improvement of residential property for investment purposes: s 5(1)(b)(iii).
    • A charge must be made for the credit: s 5(1)(c).
    • The credit provider must provide the credit in the course of a business of providing credit carried on in this jurisdiction or as part of or incidentally to any other business of the credit provider carried on in this jurisdiction: s 5(1)(d).

Debtors

  • Under s 5 of the Act, ‘debtor’ has the same meaning as in s 204 of the Code.
  • A debtor is a person other than a guarantor who is liable to pay for (or repay) credit: s 204.
    • Includes prospective debtors.
  • As per explanation of creditor, the Code only applies where the debtor is a natural person or strata corporation: s 5(1)
    • Under s 204 of the Code, a strata corporation is:
      • a body corporate incorporated in relation to land subdivided wholly or mainly for residential purposes under a law of the Commonwealth, a State or a Territory providing for strata, cluster, precinct or other subdivision of land, or
      • a body corporate whose issues shares confer a right to occupy land for residential purposes.
    • Since the abolition of the doctrine of ultra vires, inquiry may need to be directed as to whether the company owns any shares giving a right to occupy land for residential purposes; relying on the objects of the company might not be enough.
  • The credit must be provided wholly or predominantly for at least one of the following:
    • Personal, domestic or household purchases: s 5(1)(b)(i).
    • Purchase, renovation or improvement of residential property for investment purposes: s 5(1)(b)(ii).
    • Refinancing of credit provided wholly or predominantly for the purchase, renovation or improvement of residential property for investment purposes: s 5(1)(b)(iii).
  • Explanation of ‘business’ — Shakespeare Haney Securities Ltd v Crawford [2009] 2 Qd R 156:
    • Credit may be obtained in part for personal, domestic or household purposes: [40].
    • Matters that suggest a business or investment purpose can include — [41]:
      • Acquisition and development of land for resale at a profit.
      • Whether the loan is an extension of a business loan.
      • The length of the term of the loan and whether its intended duration is linked to the completion of a business transaction.
      • Whether the loan was a stopgap measure was to provide income while waiting for the completion of a sale.
      • The magnitude of the borrowing relative to the debtor’s assets.
    • ‘Of all words, the word “business” is notorious for taking its colour and its content from its surroundings’: [42], quoting Re Australian Industrial Relations Commission; Ex parte Australian Transport Officers Federation (1990) 171 CLR 216, 226 (Mason CJ, Gaudron and McHugh JJ).
    • ‘In the context of statutory or contractual provisions referring to the carrying on of a business, system, continuity and/or regularity are frequently identified as necessary features of a business’: [43], citing Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355, 381, 383.
      • ‘Speaking generally, the phrase “to carry on business” means to conduct some form of commercial enterprise, systematically and regularly, with a view to profit and implicit in this idea are the features of continuity and system’: [43], quoting Hyde v Sullivan (1956) 56 SR (NSW) 113, 119.
    • ‘But a “one off” transaction or venture may have a business character’: [44], citing Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355, 376–377, 383.
    • ‘In some contexts “business deal” and “operation of business” may signify a transaction entered into by a person in the course of carrying on a business; in other contexts they denote a transaction which is business or commercial in character’: [45], citing Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355, 378–379.
    • The Code uses ‘business’ in contradistinction to ‘personal, domestic or household’; for something to be for a business purpose, there needs to be a commercial aspect to the transaction: [46].
      • Acquisition of property with intention of resale at a profit is a commercial aspect: [46], citing Federal Commissioner of Taxation v Whitfords Beach Pty Ltd (1982) 150 CLR 355, 380.

Credit

  • Meaning of ‘credit’ given in s 3(1) of the Code:
    • Credit is provided under a contract if payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred, or the debtor incurs a deferred debt to the credit provider.
    • The definition captures contractually incurred debts that are put off to a later time, postponed or delayed; the debt will usually be incurred at the same time that payment is deferred: Geeveekay Pty Ltd v Director of Consumer Affairs Victoria (2008) 19 VR 512 [70].
  • Meaning of ‘credit contract’ given in s 4 of the Code:
    • A contract under which credit is provided, being the provision of credit to which the Code applies.
  • Meaning of ‘continuing credit contract’ given in s 204 of the Code:
    • A credit contract under which multiple advances of credit are contemplated and the amount of available credit ordinarily increases as the amount of credit is reduced.
  • A contract for the hire of goods under which the hirer has the right or obligation to purchase goods is regarded as a sale of the goods by instalment if the charge that is or may be made for hiring the goods (together with any other amount payable under the contract) exceeds the cash price of the goods — a debt is regarded as having been incurred and credit provided: s 9(1)–(2).

Exceptions

Short term credit

  • Under s 6(1), the Code does not apply to the provision of credit if:
    • the provision of credit is limited to a total period that does not exceed 62 days, and
    • the maximum amount of credit fees and charges that may be imposed or provided for does not exceed 5% of the amount of credit, and
    • the maximum amount of interest charges that may be imposed or provided for does not exceed an amount (calculated as if the Code applied to the contract) equal to the amount payable if the annual percentage rate were 24% per annum.
      • Annual percentage rate is defined in s 27 as whatever the annual percentage rate is specified to be in the contract.
  • Under s 6(2), credit fees and charges imposed include fee or charges payable:
    • for an introduction to the credit provider, or
    • for any service if the person has been introduced to the debtor by the credit provider, or
    • for any service related to the provision of a service.
      • It does not matter if there is an association between the referrer and the credit provider.

Credit without express prior agreement

  • Under s 6(4), the Code does not apply if there was no express agreement between the credit provider and the debtor prior to the provision of credit.
    • When a cheque account becomes overdrawn but there is no expressly agreed overdraft facility or when a savings account falls into debit, the Code will not apply.

Credit for which only account charge payable

  • Under s 6(5), the Code does not apply to the provision of credit under a continuing credit contract if the only charge is a periodic or other fixed charge that does not very according to the amount of credit provided.
    • However, the Code does apply if the charge is of a nature prescribed by the regulations or if the charge exceeds the maximum charge if prescribed.

Joint credit and debit facilities

  • Under s 6(6), the Code does not apply to any part of a credit contract under which both credit and debit facilities are available to the extent that the contract or any amount payable or other matter arising out of it relates only to the debit facility.

Bill facilities

  • Under s 6(7), the Code does apply to the provision of credit arising out of a bill facility.
    • A bill facility is one under which credit is provided by the credit provider accepting, drawing, discounting or endorsing a bill of exchange or promissory note.
    • However, it does not apply if:
      • The credit is provided by an authorised deposit-taking institution
        • An authorised deposit-taking institution is a body corporate granted authority to carry on a banking business in Australia by APRA: Banking Act 1959 (Cth) ss 5(1), 9(3).
      • The regulations provide that the Code does not apply to the provision of all or any credit arising out of such a facility.

Insurance premiums by instalments

  • Under s 6(8), the Code does not apply to credit provided by an insurer for the purpose of paying insurance premiums by instalments if on cancellation the insured would not be liable for further contractual payments.
    • This is even where the instalments exceed the total of the premium payable if the premium had been paid on a lump sum.

Pawnbrokers

  • Under s 6(9), the Code does not apply to the provision of credit on the security of pawned or pledged goods by a pawnbroker in the ordinary course of a pawnbroker’s business, as long as the pawnbroker’s only recourse where the debtor is in default is against the goods provided as security.
    • However, ss 76–81 apply: the Court may reopen unjust transactions.

Trustees of estates

  • Under s 6(10), the Code does not apply to the provision of credit by the trustee of a deceased estate by way of an advance to a beneficiary or prospective beneficiary of the estate.
    • However, ss 76–81 apply: the Court may reopen unjust transactions.

Employee loans

  • Under s 6(11), only certain provisions of the Code apply to the provision of credit by an employer (or related body corporate under the Corporations Act 2001 (Cth) of an employer) to an employee or former employee.
    • Provisions that apply are pt 1, pt 4, pt 5 div 3, pt 7 div 4–5, pts 12–14.
    • Where the Code applies to a credit provider that provides credit to others apart from their employees or former employees, the subsection only applies where the credit is provided on more favourable terms to the employees or former employees.

Margin loans

  • Under s 6(12), the Code does not apply by way of a margin loan.
    • Margin loan defined in s 761EA(1) of the Corporations Act 2001 (Cth).

Regulations may exclude credit

  • Under s 6(13), the regulations may exclude the application of the Code to a class of credit provision specified in the regulations.
    • This may (or may not) be done with reference to the amount of credit provided or the class of the credit provider.

ASIC may exclude credit

  • Under s 6(14), the Australian Securities and Investments Commission (‘ASIC’) may exclude provision of credit from the Code.
  • Under s 6(15), without limiting s 6(14), ASIC may exclude provision of credit if:
    • the amount of credit exceeds or may exceed a specified amount, or
    • the credit is provided by a specified credit provider.
  • Under s 6(16), an exemption made under s 6(14) is not a legislative instrument.
  • Under s 6(17), ASIC may by legislative instrument exclude from the application of the Code the provision of credit of a class specified in the instrument.
  • Under s 6(18), without limiting s 6(17), ASIC may exclude provision of credit if:
    • the amount of the credit exceeds or may exceed a specified amount, or
    • the credit is provided by a specified credit provider or class of credit providers.

Mortgages and guarantees

  • Under s 7(1), the Code applies to mortgages if it secures obligations under a credit contract or related guarantee and the mortgagor is a natural person or strata corporation.
    • Under s 7(2), if the mortgage secures other obligations the Code applies to the mortgage to the extent only that it secures obligations under the credit contract or related guarantee.
    • Under s 7(3), the regulations may exclude a mortgage of a specific class from the Code.
  • Under s 8, the Code applies to guarantees if it guarantees obligations under a credit contract and the guarantor is a natural person or strata corporation.
    • Under s 8(2), if the guarantee also guarantees other obligations the Code applies applies only to the extent that it guarantees obligations under the credit contract.
    • Under s 8(3), the regulations may exclude a guarantee of a class specified in the regulations.

Consumer leases

  • Under s 169, a consumer lease is a contract for hire of goods by a natural person or strata corporation under which there is no right or obligation to purchase goods.
  • Under s 170(1), pt 11 (consumer leases) applies if when the consumer lease is entered into:
    • the goods are hired wholly or predominantly for personal, domestic or household purposes, and
    • a charge is made for hiring the goods that, together with any other amount payable under the lease, exceeds the cash price of the goods, and
    • the lessor hires the goods in the course of a business of hiring goods carried on in this jurisdiction or as part of or incidentally to any other business carried on in this jurisdiction.
  • Under s 170(2), if pt 11 applies to a consumer lease it applies to all transactions under it (regardless of jurisdiction) and continues to apply even if the lessee ceases to carry on a business in the jurisdiction.
  • Under s 170(3), for the purposes of s 170 the amount payable under a consumer lease includes any agreed or residual value of the goods at the end of the lease or on termination of the lease by the lessor lessee, but does not include:
    • any amount payable for services that are incidental to the hire of goods, or
    • any amount that ceases to be payable on the termination of the contract following exercise of a right of cancellation by the lessee at the earliest opportunity.
  • Under s 170(4), for the purposes of s 170 the predominant purpose for which goods are hired is:
    • the purpose for which more than one half of the goods are intended to be used, or
    • if the same goods are intended to be used for different purposes, the purpose for which the goods are intended to be most used.
  • Under s 142(1), a credit-related insurance contract is a contract for insurance of any of the following kinds in connection with a credit contract:
    • Insurance over mortgaged property.
    • Consumer credit insurance.
    • Insurance of a nature prescribed for the purposes of this section by the regulations.
  • Under s 142(2), the Code does not apply to insurance over mortgaged property that:
    • is insurance for an extended period of warranty for goods, or
    • is insurance over property that is not mortgaged to secure obligations under the credit contract.
  • Under s 142(3), the Code does not apply to consumer credit insurance in connection with a credit contract unless the contract for consumer credit insurance insures the obligations of the debtor under the credit contract.
  • Under s 125, a sale contract is defined for the purposes of the Code as being a contract for the sale of goods or supply of services.
  • Under s 126, pt 7 (related sales contracts) of the Code applies to sale contracts only if the sale of the goods or supply of services concerned is financed wholly or partly by the provision of credit to which the Code applies.
  • Definitions of goods and services in s 204:
    • Goods extend to include ships, aircraft, other vehicles, animals (including fish), minerals, trees and crops (whether on, under or attached to land or not).
      • It does not include anything declared by regulations not to be goods.
    • Services extend to include rights and interests in real property, insurance, professional services and rights to services.
      • It does not include the provision of credit or a right to credit or services provided under a consumer lease.

Deemed sale of goods on credit

  • Under the Sale of Goods Act, hiring and leasing agreements are divided into two types:
    • Agreements in which there is a right to buy.
    • Agreements in which there is an obligation to buy.
  • If the NCC applies, the transaction may be a deemed sale irrespective of the obligation or option to buy.

Goods leases with option to purchase to be regarded as sale by instalments

  • Under s 9(1), a contract for hire of goods under which the hirer has a right or obligation to purchase the goods is regarded as a sale of the goods by instalment if the charge for hiring the goods together with any other amount payable under the contract exceeds the cash price of the goods.
    • This includes other amounts payable to purchase the goods or exercise such an option.
    • A contract includes a series of contracts, or contracts and arrangements.
  • Under s 9(2), in a contract under s 9(1) credit is regarded as having been provided.
  • Under s 9(3), if because of s 5(1) of the Code the contract is a credit contract the Code applies (including pt 6) as if the contract had always been a sale of goods by instalments, and for that purpose:
    • the amounts payable under the contract are the instalments, and
    • the credit provider is the person who receives those payments, and
    • the debtor is the person who makes those payments, and
    • the property of the supplier in the goods passes under the contract to the person to whom the goods are hired on delivery of the goods or the making of the contract, whichever occurs last, and
    • the charge for providing the credit is the amount by which the charge that is or may be made for hiring the goods, together with any other amount payable under the contract (including an amount to purchase the goods or to exercise an option to do so), exceeds the cash price of the goods, and
    • a mortgage containing the terms and conditions set out in the regulations is taken to have been entered into in writing between the person to whom the goods are hired under the contract and the supplier as security for payment to the supplier of the amount payable to the supplier by the person to whom the goods are hired under the contract, and
    • any provision in the contract for hiring by virtue of which the supplier is empowered to take possession, or dispose, of the goods to which the contract relates is void.
  • Under s 9(4), the amount payable under the contract includes any agreed or residual value of the goods at the end of the hire period or on termination of the contract, apart from:
    • any amount payable in respect of services incidental to the hire of goods under the contract, and
    • any amount that ceases to be payable on the termination of the contract following the exercise of a right of cancellation by the hirer at the earliest opportunity.

Licensing

  • Under the Act, all persons who engage in credit activities must must hold an Australian credit licence (entered into effect 1 July 2011).
  • Under s 6 of the Act, a person engages in a credit activity if:
    • In relation to credit contracts:
      • They are a credit provider under a credit contract.
      • They carry on a business of providing credit, the provision of which the National Credit Code applies to.
      • They perform the obligations or exercise the rights of a credit provider in relation to a credit contract (as or on behalf of the credit provider).
    • In relation to a credit service:
      • They provide a credit service.
    • In relation to consumer leases:
      • They are a lessor under a consumer lease.
      • They carry on a business of providing consumer leases.
      • They perform the obligations or exercise the rights of a lessor in relation to a consumer lease (as or on behalf of the lessor).
    • In relation to mortgages:
      • They are a mortgagee under a mortgage.
      • They perform the obligations or exercise the rights of a mortgagee in relation to a mortgage (as or on behalf of the mortgagee).
    • In relation to guarantees:
      • They are a beneficiary of a guarantee.
      • They perform the obligations or exercise the rights of a beneficiary of a guarantee in relation to the guarantee (as or on behalf of the beneficiary).
    • In relation to prescribed activities:
      • They engage in activities prescribed by the regulations in relation to credit to which the National Credit Code applies.
    • Under s 6(2) of the Act, subclasses of the conduct in s 6(1) are also credit activities.
    • Under s 7 of the Act, a person provides a credit service if they:
      • provide credit assistance to a consumer, or
      • act as an intermediary.
    • Under s 8 of the Act, a person provides credit assistance to a consumer if by dealing directly with the consumer or the consumer’s agent in the course of, as part of, or incidentally to a business carried on in the jurisdiction by the person or another person:
      • suggests that the consumer apply for a particular credit contract with a particular credit provider, or
      • suggests that the consumer apply for an increase to the credit limit of a particular credit contract with a particular credit provider, or
      • suggests that the consumer remain in a particular credit contract with a particular credit provider, or
      • assists the consumer to apply for a particular credit contract with a particular credit provider, or
      • assists the consumer to apply for an increase to the credit limit of a particular credit contract with a particular credit provider, or
      • suggests that the consumer apply for a particular consumer lease with a particular lessor, or
      • suggests that the consumer remain in a particular consumer lease with a particular lessor, or
      • assists the consumer to apply for a particular consumer lease with a particular lessor.
  • Under s 47(1) of the Act, licensees have general conduct obligations:
    • Licensees must:
      • do all things necessary to ensure that credit activities authorised by the licence are engaged in efficiently, honestly and fairly, and
      • have in place adequate arrangements to ensure that clients of the licensee are not disadvantaged by any conflict of interest that may arise in relation to credit activities engaged in, and
      • comply with the conditions on the licence, and
      • comply with the credit legislation, and
      • take reasonable steps to ensure that its representatives comply with the credit legislation, and
      • maintain the competence to engage in the credit activities authorised by the licence, and
      • ensure that its representatives are adequately trained and are competent to engage in the credit activities authorised by the licence, and
      • have an internal dispute resolution that:
        • complies with standards and requirements made or approved by ASIC in accordance with the regulations, and
        • covers disputes in relation to the credit activities engaged in by the licensee or its representatives, and
      • be a member of an approved external dispute resolution scheme, and
      • have compensation arrangements in accordance with s 48, and
      • have adequate arrangements and systems to ensure compliance with its obligations under this section, and a written plan that documents those arrangements and systems, and
      • unless the licensee is a body regulated by APRA:
        • have available adequate resources (including financial, technological and human resources) to engage in the credit activities authorised by the licence and to carry out supervisory arrangements, and
        • have adequate risk management systems, and
      • comply with any other obligations that are prescribed by the regulations.
  • Under s 47(2) of the Act, adequacy under s 47(1) takes into account the nature, scale and complexity of the credit activities.
  • Under s 47(3) of the Act, regulations made may also deal with the variation or revocation of standards, requirements or approvals made or given by ASIC.
  • Under s 48(1) of the Act, a licensee must have adequate arrangements for compensating persons for loss or damage suffered because of a contravention of the Act.
    • Under s 48(2) of the Act, arrangements are adequate only if they satisfy the requirements of the regulations or are approved in writing by ASIC.
    • Under s 48(3) of the Act, ASIC must have regard to the credit activities authorised by the licence, whether the arrangements will continue to cover persons after the licensee ceases to engage in credit activities, the length of time for which that coverage will continue, and any other matters that are prescribed by the regulations.
    • Under s 48(4) of the Act, without limiting s 48(3), the regulations may prescribe additional details in relation to the matters to which ASIC must have regard.

No ‘unsuitable’ lending

  • Suitable or responsible lending obligations were introduced in response to the perception that some brokers and lenders provided loans to persons who could not repay them.
    • Sometimes borrowers applied to reopen these loans: Cook v Permanent Mortgages Pty Ltd [2007 NSWCA 219.
  • Under the conduct requirements above, credit assistants and providers must enquire and verify the requirements and financial situation of prospective borrowers and assess whether the credit contract is unsuitable for the borrower.
  • Assessments by credit assistants and providers must be given to the consumer on request.
  • A contract must be assessed as unsuitable if:
    • it will not meet the consumer’s requirements or objectives if the consumer remains in the contract, or
    • the consumer will be unable to comply with the financial obligations, or able to comply only with substantial hardship.
      • Substantial hardship includes having to sell their residence to comply.
  • Credit assistance providers:
    • Under s 115(1) of the Act, a licensee must not provide credit assistance to a consumer by suggesting or assisting the consumer apply for a particular credit contract (or an increase to the credit limit of such a contract) with a particular credit provider unless within the previous 90 days it has:
      • Made a preliminary assessment that is accordance with subsection 116(1) and that covers the period proposed for entering of the contract or increasing the credit limit.
      • Made the inquiries and verification in accordance with s 117.
      • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
    • Under s 115(2) of the Act, a licensee must not provide credit assistance to a consumer by suggesting the consumer remain in a particular credit contract with a particular credit provider unless within the previous 90 days it has:
      • Made a preliminary assessment that is accordance with subsection 116(1) and that covers the period day that the assistance is provided.
      • Made the inquiries and verification in accordance with s 117.
      • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
    • Under s 116(1) of the Act, for the purposes of s 115(1) a licensee must make a preliminary assessment that:
      • specifies the period the assessment covers, and
      • assesses whether the credit contract will be unsuitable for the consumer if the contract is entered or the credit limit is increased in that period.
    • Under s 116(2) of the Act, for the purposes of s 115(2) a licensee must make a preliminary assessment that
      • specifies the period the assessment covers, and
      • assesses whether the credit contract will be unsuitable for the consumer if the consumer remains in the contract in that period.
    • Under s 116 preliminary assessments are not required if the credit assistance is not provided.
    • Under s 117(1) of the Act, for the purposes of s 115, the licensee must, before making the preliminary assessment:
      • make reasonable inquiries about the consumer’s requirements and objectives in relation to the credit contract, and
      • make reasonable inquiries about the consumer’s financial situation, and
      • take reasonable steps to verify the consumers financial situation, and
      • make any inquiries prescribed by the regulations about any matter prescribed by the regulations, and
      • take any steps prescribed by the regulations to verify any matter prescribed by the regulations.
      • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
    • Under s 117(1A) of the Act, if the credit contract is a small amount credit contract and the consumer holds an account (alone or jointly) with an ADI into which income payable to the consumer is credited, the licensee must obtain and consider account statements covering at least the immediately preceding period of 90 days.
      • Under s 5 of the Act, a small amount credit contract is one where:
        • the contract is not a continuing credit contract, and
        • the credit provider is not an ADI, and
        • the credit limit of the contract is $2,000 or less, and
        • the term of the contract is at least 16 days but less than 1 year, and
        • the debtor’s obligations under the contract are not and will not be secured, and
        • the contract meets any other requirements prescribed by the regulations.
    • Under s 5 of the Act, ‘ADI’ has the same meaning as in s 5(1) of the Banking Act 1959 (Cth):
      • An ADI is an authorised deposit-taking institution: a body corporate to which an authority under s 9(3) is in force:
      • If an application has been made, APRA may grant the body corporate an authority to carry on banking business in Australia. The authority must be in writing, and APRA must give the body corporate written notice of the granting of the authority.
    • Under s 118(1) of the Act, a preliminary assessment under s 116(1) must assess that the contract will be unsuitable if it would be unsuitable for the consumer under s 118(2).
      • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
    • Under s 118(2) of the Act, the criteria for unsuitability under s 118(1) are if it is likely that:
      • the consumer will be unable to comply with their financial obligations under the contract, or
        • the consumer will only be able to comply with substantial hardship, or - the contract will not meet the consumer’s requirements or objectives, or
        • circumstances prescribed in the regulations apply.
    • Under s 118(3) of the Act, it is presumed that if the consumer could only comply with their financial obligations under the contract by selling their principal place of residence, this is considered substantial hardship.
    • Under s 118(3A) of the Act, if the contract is a small credit contract and at the time of the preliminary assessment the consumer is a debtor in default under another small amount credit contract or in the 90 day period before the time of the preliminary assessment the consumer has been a debtor under two or more other small amount credit contracts then it is presumed they could only comply with their financial obligations with substantial hardship, unless the contrary is proved.
    • Under s 118(4) of the Act, when determining unsuitability, only information about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations is to be taken into account, so long as the licensee had reason to believe it was true or would have had reason to believe it was true if they had made inquiries or verification under s 117.
    • Under s 119(1) of the Act, for a preliminary assessment under s 116(2) about remaining in a credit contract, the licensee must assess that the contract will be unsuitable if it would be unsuitable under s 119(2).
      • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
      • The licensee may assess that the contract will be unsuitable for reasons other than those under s 119(2).
    • Under s 119(2) of the Act, the criteria for unsuitability under s 118(1) are if it is likely that:
      • the consumer will be unable to comply with their financial obligations under the contract without suffering substantial hardship, or
      • the contract will not meet the consumer’s requirements or objectives, or
      • circumstances prescribed in the regulations apply.
    • Under s 119(3) of the Act, it is presumed that if the consumer could only comply with their financial obligations under the contract by selling their principal place of residence, this is considered substantial hardship.
    • Under s 119(4), of the Act, when determining unsuitability, only information about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations is to be taken into account, so long as the licensee had reason to believe it was true or would have had reason to believe it was true if they had made inquiries or verification under s 117.
    • Under s 120 of the Act, a consumer is entitled to a copy of the preliminary assessment within seven years of the credit assistance quote under s 114:
      • If made within two years of the quote, it must be provided in writing before the end of 7 business days of the request being received.
      • If made later than two years of the quote, it must be provided in writing before the end of 21 days of the request being received.
      • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
      • Under s 120(2) of the Act, the licensee must give the copy of the assessment in the manner (if any) prescribed by the regulations.
      • Under s 120(3) of the Act, the licensee is prohibited from requesting or demanding payment for an amount for giving the consumer a copy of the preliminary assessment.
        • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
      • Under s 120(4)–(5) of the Act, a strict liability offence is committed if a person is subject to requirements under s 120(1) or 120(3) and they engage in conduct that contravenes the requirement:
        • Criminal penalty of 50 penalty units applies (50 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
    • Under s 123(1) of the Act, a licensee must not provide credit assistance to a consumer by suggesting that they apply for a particular credit contract (or increase thereof) with a particular credit provider if it would be unsuitable for the consumer under s 123(2).
      • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
    • Under s 123(2) of the Act, a contract will be unsuitable for the consumer if at the time the licensee provides the credit assistance it is likely that:
      • the consumer will be unable to comply with their financial obligations under the contract without suffering substantial hardship, or
      • the contract will not meet the consumer’s requirements or objectives, or
      • circumstances prescribed in the regulations apply.
    • Under s 123(3) of the Act, it is presumed that if the consumer could only comply with their financial obligations under the contract by selling their principal place of residence, this is considered substantial hardship.
    • Under s 123(3A) of the Act, if the contract is a small credit contract and at the time of the preliminary assessment the consumer is a debtor in default under another small amount credit contract or in the 90 day period before the time of the preliminary assessment the consumer has been a debtor under two or more other small amount credit contracts then it is presumed they could only comply with their financial obligations with substantial hardship, unless the contrary is proved.
    • Under s 123(4) of the Act, when determining unsuitability, only information about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations is to be taken into account, so long as the licensee had reason to believe it was true or would have had reason to believe it was true if they had made inquiries or verification under s 117.
    • Under s 123(5) of the Act, the regulations may prescribe particular situations in which a credit contract is taken not to be unsuitable for a consumer.
    • Under s 123(6) of the Act, an offence is committed if a person is subject to a requirement under s 123(1) and they engage in conduct that contravenes the requirement:
      • Criminal penalty of 100 penalty units (100 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA) or two years imprisonment or both applies.
    • Under s 124(1) of the Act, a licensee must not provide credit assistance to a consumer by suggesting that the consumer remain in a particular credit contract with a particular credit provider if the contract is unsuitable for the consumer under s 124(2).
      • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
    • Under s 124(2) of the Act, a contract will be unsuitable for the consumer if at the time the licensee provides the credit assistance it is likely that:
      • the consumer will be unable to comply with their financial obligations under the contract without suffering substantial hardship, or
      • the contract will not meet the consumer’s requirements or objectives, or
      • circumstances prescribed in the regulations apply.
    • Under s 124(3) of the Act, it is presumed that if the consumer could only comply with their financial obligations under the contract by selling their principal place of residence, this is considered substantial hardship.
    • Under s 124(4) of the Act, when determining unsuitability, only information about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations is to be taken into account, so long as the licensee had reason to believe it was true or would have had reason to believe it was true if they had made inquiries or verification under s 117.
    • Under s 124(5) of the Act, the regulations may prescribe particular situations in which a credit contract is taken not to be unsuitable for a consumer.
    • Under s 124(6) of the Act, an offence is committed if a person is subject to a requirement under s 124(1) and they engage in conduct that contravenes the requirement:
      • Criminal penalty of 100 penalty units (100 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA) or two years imprisonment or both applies.
    • Defence:
      • Under s 124(7) of the Act, it is a defence to s 124(1) and s 124(6) if:
        • the licensee suggested that the consumer remain in the credit contract because, after making reasonable inquiries, the licensee reasonably believed that there was no other credit contract that was not unsuitable for the consumer, and
        • the licensee informed the consumer that there is a procedure under ss 72 and 94 of the Code for consumers in hardship.
      • The evidential burden is on the defendant. -Under s 124(8) of the Act, The regulations may prescribe particular inquiries that must be made, or do not need to be made, for the purposes of s 124(6).
  • Credit providers:
    • Obligation to assess unsuitability:
      • Under s 128 of the Act, unless a licensee has made an assessment in accordance with s 129 and made the inquiries and verification in accordance with s 130 they must not:
        • enter a credit contract with a consumer who will be the debtor under the contract, or
        • make an unconditional representation to a consumer that the licensee considers that the consumer is eligible to enter a credit contract with the licensee, or
        • increase the credit limit of a credit contract with a consumer who is the debtor under the contract, or
        • make an unconditional representation to a consumer that the licensee considers that the credit limit of credit contract between the consumer and the licensee will be able to be increased.
        • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
      • Under s 129 of the Act, the licensee must make an assessment that specifies the period the assessment covers and assesses the suitability of the contract or increase in credit limit for the consumer.
        • The licensee is not required to make an assessment if the contract is not entered or the credit limit is not increased.
    • Reasonable inquiries about the consumer:
      • Under s 130(1) of the Act, a licensee must, prior to making the assessment:
        • make reasonable inquiries about the consumer’s requirements and objectives in relation to the credit contract, and
        • make reasonable inquiries about the consumer’s financial situation, and
        • take reasonable steps to verify the consumer’s financial situation, and
        • make any inquiries prescribed by the regulations, and
        • take any steps prescribed by the regulations.
        • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
      • Under s 130(1A) of the Act, if the credit contract is a small amount credit contract, and the consumer holds (alone or jointly) an account with an ADI into which income payable to the consumer is credited the licensee must obtain and consider account statements that cover at least the immediately preceding 90 days.
      • Under s 130(2) of the Act, the regulations may prescribe particular inquiries or steps that must be taken, or do not need to be taken.
    • Requirement to assess the contract as unsuitable:
      • Under s 131(1) of the Act, the licensee must assess that the credit contract will be unsuitable for the consumer if the contract will be unsuitable for the consumer under s 131(2).
        • Civil penalty of 2,000 penalty units apples (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
        • Regardless of s 131(2) the contract may be deemed unsuitable for other reasons.
      • Under s 131(2) of the Act, the contract will be unsuitable if it is likely that:
        • the consumer will be unable to comply with the financial obligations without suffering substantial hardship, or
        • the contract will not meet the consumer’s requirements or objectives, or
        • circumstances prescribed in the regulations apply.
      • Under s 131(3) of the Act, it is presumed that if the consumer could only comply with their financial obligations under the contract by selling their principal place of residence, this is considered substantial hardship.
      • Under s 131(3A) of the Act, if the contract is a small credit contract and at the time of the preliminary assessment the consumer is a debtor in default under another small amount credit contract or in the 90 day period before the time of the preliminary assessment the consumer has been a debtor under two or more other small amount credit contracts then it is presumed they could only comply with their financial obligations with substantial hardship, unless the contrary is proved.
      • Under s 131(4) of the Act, when determining unsuitability, only information about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations is to be taken into account, so long as the licensee had reason to believe it was true or would have had reason to believe it was true if they had made inquiries or verification under s 130.
    • Giving the consumer the assessment:
      • Under s 132(1) of the Act, if the consumer requests a copy of the assessment prior to entering into the contract or increasing the credit limit, the licensee must provide a written copy.
        • Civil penalty of 2,000 penalty units apples (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
      • Under s 132(2) of the Act, if within seven years of the contract being entered into or the credit limit being increased, the licensee must give the consumer a written copy of the assessment if requested.
        • If made within two years of the quote, it must be provided in writing before the end of 7 business days of the request being received.
        • If made later than two years of the quote, it must be provided in writing before the end of 21 days of the request being received.
        • Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
    • Prohibition on entering or increasing the limit of unsuitable credit contracts:
      • Under s 133(1) of the Act, a licensee must not enter into a contract with or increase the credit limit of a contract that is unsuitable for the consumer under s 133(2). - Civil penalty of 2,000 penalty units applies (2,000 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA).
      • Under s 133(2) of the Act, the criteria for unsuitability under s 133(1) are if it is likely that:
        • the consumer will be unable to comply with their financial obligations under the contract without suffering substantial hardship, or
        • the contract will not meet the consumer’s requirements or objectives, or
        • circumstances prescribed in the regulations apply.
      • Under s 133(3) of the Act, it is presumed that if the consumer could only comply with their financial obligations under the contract by selling their principal place of residence, this is considered substantial hardship.
      • Under s 133(3A) of the Act, if the contract is a small credit contract and at the time of the preliminary assessment the consumer is a debtor in default under another small amount credit contract or in the 90 day period before the time of the preliminary assessment the consumer has been a debtor under two or more other small amount credit contracts then it is presumed they could only comply with their financial obligations with substantial hardship, unless the contrary is proved.
      • Under s 133(4), of the Act, when determining unsuitability, only information about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations is to be taken into account, so long as the licensee had reason to believe it was true or would have had reason to believe it was true if they had made inquiries or verification under s 130.
      • Under s 133(5) of the Act, the regulations may prescribe other situations where a credit contract will be unsuitable.
      • Under s 133(6) of the Act, an offence is committed if a person is subject to a requirement under s 133(1) and they engage in conduct that contravenes the requirement:
        • Criminal penalty of 100 penalty units (100 x $170 as at 2015 — Crimes Act 1914 (Cth) s 4AA) or two years imprisonment or both applies.

Disclosure

Credit assistants

  • An Australian credit licensee must provide information to a prospective debtor.
  • This includes a credit guide with information about the licensee, fees and charges, and about credit providers with whom the credit assistant does business: s 113 of the Act.
  • The credit assistant must give a quote setting out the services and maximum amount of various fees and services before suggesting a prospective debtor apply for a particular credit contract, increase a credit limit or remain in a credit contract: s 114 of the Act.
  • At the same time as they provide credit assistance, licensees must also provide a credit proposal disclosure document that sets out fees or charges likely to be paid by the consumer and commissions likely to be received by the credit assistant: s 121 of the Act.

Credit providers

  • Credit providers must include comparison interests rates in advertisements if an interest rate is advertised: ss 157–168 of the Act.
  • As soon as it appears that licensees are likely to enter into a credit contract, they must provide the consumer with a credit guide with information about the licensee, internal and external dispute resolution, the consumer’s right to the unsuitability assessment, and the prohibition on providing an ‘unsuitable’ credit contract: s 126 of the Act.
  • The obligation to give a credit guide also applies to licensees who are assignees of rights and obligations under a credit contract: s 127 of the Act.

Credit contracts

  • The credit provider must disclose obligatory information to the debtor at all stages in the course of the loan, including the pre-contractual phase and any variation to the contract.
  • At certain stages in the life of the contract, the credit provider is also obliged to provide the debtor with prescribed plain English Information Statements setting out things that the potential debtor(s) should know.
  • The form in which the contract is made must accord with the requirements of the Code.
  • The Code introduces the notion of ‘key requirements’ that are mostly disclosure obligations: s 111 of the Code.
    • Not all disclosure obligations are key requirements.
    • If a key requirement is contravened, the Code imposes a civil penalty.
      • The credit provider, debtor, guarantor or ASIC may apply for the imposition of the penalty: s 112 of the Code.
  • The Code requires that the credit provides gives the debtor a pre-contractual statement in the required form.
    • There is a hierarchy of information that must be disclosed and the ‘relevant financial information’ must be set out in tabular form.
      • Other information may be included in the table, but only after the ‘relevant financial information.’
    • The pre-contractual statement may be the actual contract itself.
  • Consult the table in Pearson et al, ‘Consumer Credit’ in Commercial Transactions Law: Commentary and Materials (Thomson Reuters, 2015) 390–393 (first published in Pearson et al, Commercial Law: Commentary and Materials (Lawbook Co, 3rd ed, 2010) ch 18).

Further matters

  • Further matters that must be disclosed or notification give in the course of the loan include:
    • Statements of account: s 33 of the Code.
    • Unilateral changes to the credit contract: ss 64–68 of the Code.
    • Agreed changes to the credit contract: s 71 of the Code.
    • Changes to credit card contracts: s 67 of the Code.
    • Changes because of hardship to the debtor: s 72 of the Code.
    • Information for the debtor to pay out the credit contract voluntarily: s 83 of the Code.
    • Estimated value and amount realised on sale of surrendered goods: s 85 of the Code.
    • Default notice prior to enforcement: s 88 of the Code.
    • Notice prior to the operation of an acceleration clause: s 93 of the Code.
  • Holdbacks must be disclosed so that persons to whom credit was to be paid and the amount payable can be identified: Australian Finance Direct Ltd v Director of Consumer Affairs Victoria (2007) 234 CLR 962.

Changes to credit contracts (and mortgages and guarantees) — including hardship

  • Changes to obligations of parties are regulated by pt 4 divs 1–2 of the Code.
    • Division 1 (ss 63–70) deals with unilateral variations by the credit provider.
    • Division 2 (s 71) deals with with changes by agreement of the parties.
  • Division 3 (ss 72–75) deals with changes on grounds of hardship.
  • The provisions deal apply to unjust credit contracts, mortgages and guarantees.
  • The provisions which deal with re-opening unjust credit contracts, mortgages or guarantees and with reviewing unconscionable changes in interest rates, establishment fees and early termination or prepayment fees are in ss 76–78.

Right of credit provider to make unilateral changes

  • Division 1 applies only to changes made unilaterally by a credit provider under a credit contract, mortgage or guarantee: s 63(1) of the Code.
    • It does not apply to the following changes under a credit contract — s 63(2):
      • A change to a new annual percentage rate payable under the contract (not being a rate determined by referring to a reference rate), if both the new rate and when it takes effect are ascertainable from the contract.
      • An increase in the amount of repayments, if the increase occurs automatically, as specified by the contract, and both the amount of the increase and when it takes effect are ascertainable from the contract.
      • An increase in the term of a credit contract, if the increase occurs only because of an increase in the annual percentage rate or rates payable under the contract.
      • A change made under Division 3.
    • It does not grant credit providers or debtors any powers or rights to change the credit contract or its terms in addition to those conferred by the contract: s 63(1).
  • If the annual percentage rate under a credit contract is currently fixed for a specific term (including the whole term) of the contract, the contract cannot be changed unilaterally by a credit provider so as to increase, or change the method of calculation of a fee or charge so as to increase, a fee or charge payable by the debtor on early termination of the credit contract or payable on prepayment of an amount under the credit contract: s 70.

Unilateral changes to interest rates

  • The credit provider must provide written notice to the debtor on or before the day on which a change in the annual percentage rate or rates payable under a credit contract takes effect — s 64(1).
    • The notice must set out:
      • s 64(1)(a) — the new rate, rates or reference rate, and
      • s 64(1)(b) — any information required by the regulations.
    • Criminal penalty of 100 penalty units applies (100 x $170).
    • Written notice may be given by publishing a notice in a newspaper circulating throughout each State and Territory; but also given the debtor particulars of the change before or when the next statement of account is issued: s 64(2).
      • Criminal penalty of 100 penalty units applies (100 x $170).
    • s 64(1) does not apply to a change in a rate determined by referring to a reference rate if the changed reference rate is notified in a newspaper circulating throughout each State and Territory not later than the date the change takes effect: s 64(3).
    • A credit provider must, not later than 20 days before a change in the manner in which interest is calculated or applied under a credit contract (including a change in or abolition of any interest free period under the contract) takes effect, give to the debtor written notice setting out particulars of the change and any information required by the regulations: s 64(4).
      • Criminal penalty of 100 penalty units applies (100 x $170).
    • These changes do not apply to reductions in debtor’s obligations: s 64(5).
    • s 64(1)–(2), (4) are strict liability offences: s 64(6).
    • s 64 applies whether or not the change is a change to the terms of the contract: s 64(7).

Unilateral changes to repayments

  • A credit provider must give debtors written notice at least 20 days before a change in the amount, frequency, time, minimum amount or calculation of instalments of the particulars of the change and any information required by the regulations: s 65(1).
    • Criminal penalty of 100 penalty units applies (100 x $170).
    • This does not apply if it reduces the obligations of the debtor; particulars of the change must be supplied before or when the next statement of account is issued: s 65(2).
      • Criminal penalty of 100 penalty units applies (100 x $170).
    • For changes in a specified method of calculation, the credit provider need only give particulars of the change in that method: s 65(3).
    • s 65(1)–(2) are strict liability offences.
    • s 65 does not apply to changes that occur while the credit contract does not require any repayment of the amount of credit provided: s 65(5).
    • s 65 applies whether or not the change is a change to the terms of the contract: s 65(6).

Unilateral changes to credit fees and charges

  • A credit provider must give debtors written notice at least 20 days before a change in the amount of a credit fee or charge (including new fees or charges) or changes in the frequency or time for payment of credit fees of the particulars of the change and any information required by the regulations: s 66(1).
    • Criminal penalty of 100 penalty units applies (100 x $170).
    • Written notice may be given by publishing a notice in a newspaper circulating throughout each State and Territory; but also given the debtor particulars of the change before or when the next statement of account is issued: s 66(2).
      • Criminal penalty of 100 penalty units applies (100 x $170).
    • This does not apply if it reduces the obligations of the debtor; particulars of the change must be supplied before or when the next statement of account is issued: s 66(3).
      • Criminal penalty of 100 penalty units applies (100 x $170).
    • s 66(1)–(3) are strict liability offences.
    • s 66 applies whether or not the change is a change to the terms of the contract: s 65(5).

Unilateral changes to credit limits etc in continuing credit contracts

  • If a credit provider decides not to provide any further credit under a continuing credit contract, the credit contract continues in force in relation to any credit previously provided under the contract; but this does not prevent the termination of the contract if otherwise permitted by the Code or the contract: s 67(1).
    • A credit provider must, unless the debtor is in default under the contract, as soon as practicable after deciding not to provide further credit or to reduce the credit limit, give to the debtor a written notice to that effect if such notice has not previously been given: s 67(2).
      • Criminal penalty of 100 penalty units applies (100 x $170).
      • This is a strict liability offence: s 67(3).
    • A credit provider may increase the credit limit under a continuing credit contract only at the request or with the written consent of the debtor: s 67(4).

Other changes

  • A credit provider must not exercise a power under a credit contract, mortgage or guarantee to unilaterally change its terms without giving to the other party, not less than 20 days before the change takes effect, written notice setting out particulars of the change in the terms and any information required by the regulations: s 68(1).
    • Criminal penalty of 100 penalty units applies (100 x $170).
    • This does not apply if it reduces the obligations of the debtor; particulars of the change must be supplied before or when the next statement of account is issued: s 68(2).
    • s 68(1)–(2) are strictly liability offences: s 68(3).
    • s 68 does not apply to changes for which notice is required under ss 64–67.

Changes by agreement

  • If the parties agree to change the terms of a credit contract, mortgage or guarantee the credit provider must give the other party written notice of the particulars of the change and any information required by the regulations within 30 days: s 71(1).
    • Criminal penalty of 100 penalty units applies (100 x $170).
    • This does not apply to a change that defers or otherwise reduces the obligations of the debtor for a period not exceeding 90 days or an agreement to increase the amount of credit: s 71(2).
    • If the parties under a credit contract (other than a continuing credit contract) proposed to increase the amount of credit, the credit provider must before the agreement is made provide to the debtor written notice containing information required by the regulations: s 71(3).
      • Criminal penalty of 100 penalty units applies (100 x $170).

Changes due to hardship

  • If a debtor considers that they will be unable to meet their obligations under a credit contract, the debtor may give the credit provider a hardship notice, orally or in writing, of this inability: s 72(1).
    • If the debtor provides a hardship notice the credit provider may have additional requirements beyond those in s 88 that must be complied with before bringing enforcement proceedings (see s 89A).
  • Within 21 days of receiving a hardship notice, the credit provider must give the debtor written or oral notice requiring specified information within 21 days of the date of the notice stated in the notice: s 72(2).
    • The information must be relevant to deciding whether the debtor is or will be unable to meet their obligations or how to change the contract in those circumstances.
      • The debtor must comply with the requirement: s 72(3).
    • The credit provider does not need to agree to the change especially if it does not believe there is a reasonable cause (eg illness, unemployment) for the debtor’s inability to matter their obligations or reasonably believes the debtor would not be able to meet their obligations even with the change: s 72.
    • ‘Reasonable cause’ is read with wide application and in their ordinary meaning: Parmanent Custodians Ltd v Upston [2007] NSWSC 223 [156].
  • These apply to consumer leases: s 177.

Civil and criminal penalties

  • There is a civil penalty regime under the Act and the Code.
  • There is also a criminal penalty regime for certain contraventions.
  • See ss 111–114 of the Code and ch 4 pt 4-1 of the Act.

Security and credit contracts

  • If security is given for a credit contract, the Code regulates the form in which it must be given and imposes disclosure obligations.
  • In the case of mortgages, the Code also limits the property of which security can be given.

Mortgages

  • The Code applies to mortgages that secure obligations under a credit contract or related guarantee where the mortgagor is a natural person or strate corporation: s 7(1) of the Code.
    • If the mortgage secures other obligations, the Code applies to the mortgage only to the extent that it secures obligations under the credit contract or related guarantee: s 7(2).
    • The regulations may exclude a mortgage of a class specified in the regulations: s 7(3).

Form of mortgage

  • A mortgage must be in the form of a written mortgage document signed by the mortgagor: s 42(1).
  • s 42(1) is complied with if the mortgage is contained in a credit contract signed by the mortgagor or one of the documents comprising the mortgage document is signed by the mortgagor (and the other documents are referred to in the signed document): s 42(2).
  • A goods mortgage does not need to be in the form of a written mortgage if the credit provider lawfully had possession of the goods before the mortgage was entered into: s 42(3).
  • A mortgage is not enforceable unless it complies with s 42: s 42(4).

Copy of mortgage for mortgagor

  • If a mortgage is in the form of a written document and is not part of a credit contract, the credit provider must give the mortgagor a copy to keep in the form in which it was made within 13 days after it is made: s 43(1).
  • s 43 does not apply if a copy has previously been provided: s 43(2).

Mortgages over all property void

  • A mortgage that does not describe or identify the property which is subject to the mortgage is void: s 44(1).
  • A provision in a mortgage that charges all the property of the mortgagor is void: s 44(2).

Restriction on mortgage of future property

  • A provision in a mortgage that in effect creates or agrees to create a mortgage over future property is void: s 45(1).
  • s 45(1) does not apply:
    • s 45(2)(a) — to a provision in a mortgage of property that is to be acquired wholly or partly with the credit provided under the credit contract secured by the mortgage.
    • s 45(2)(b) — to a provision in a mortgage relating to property or a class of property (whether or not ascertained) described or identified in the mortgage.
    • s 45(2)(c) — to a provision in a mortgage relating to goods acquired in replacement for, or as additions or accessories to, other goods subject to the mortgage.
    • s 45(2)(d) — to any other provision specified by the regulations.

Mortgages and continuing credit contracts

  • A provision in a mortgage to the effect that goods supplied from time to time under a continuing credit contract are subject to the mortgage is void: s 46(1).
  • s 46(1) does not apply to a provision in a mortgage relating to specified goods securing payment of a debt under a continuing credit contract: s 46(2).

All accounts mortgages

  • In addition to securing credit provided by the credit contract to which a mortgage initially applies, the mortgage may contain a provision that secures all credit provided under another future credit contract or future related guarantee: s 47(1).
    • This also applies to proposed credit contracts, or securing obligations under a related guarantee or proposed guarantee.
  • Any such mortgage is unenforceable in relation to such a future credit contract or future related guarantee unless the credit provider has given the mortgagor a copy of the contract document or guarantee and subsequently obtained from the mortgagor written acceptance of the extension: s 47(2).
  • s 42 does not apply to an extension under s 47: s 47(3).

Third party mortgages prohibited

  • A credit provider must not enter into a mortgage to secure obligations under a credit contract unless each mortgagor is a debtor under the contract or a guarantor under a related guarantee: s 48(1).
  • A credit provider must not enter into a mortgage to secure obligations under a guarantee unless each mortgagor is a guarantor under the guarantee or a debtor under the related credit contract: s 48(2).
  • A mortgage that does not comply with s 48 is avoid: s 48(2).
  • The court may on the application of a party to an unenforceable mortgage because of s 48 order that the credit provider takes steps necessary to discharge the mortgage: s 48(4).
  • In s 48 a reference to a credit contract or guarantee includes a proposed credit contract or proposed guarantee: s 48(5).

Maximum amount which may be secured

  • A mortgage is void to the extent that it secures an amount that exceeds the sum of the amount of the liabilities of the debtor under the credit contract and the reasonable enforcement expenses of enforcing the mortgage: s 49(1).
  • A mortgage is void to the extent that it secures an amount that exceeds the limit of the guarantor’s liability under the guarantee and the reasonable enforcement expenses of enforcing the mortgage: s 49(2).
  • s 49 does not affect a provision of a mortgage permitted by s 47: s 49(3).

Prohibited securities

  • A mortgage cannot be created over:
    • s 50(1) — employees’ remuneration, or employment or superannuation benefits unless permitted by the regulations.
    • s 50(2) — goods that are essential household property unless the mortgagee supplied them to the mortgagor as part of a business carried on by the mortgagor of supplying goods and the mortgagor has not, as a previous owner, sold them to the mortgagee for the purposes of the supply or the mortgagee is a linked credit provider of the person who supplied the goods to the mortgagor.
      • Essential household property includes goods of a type prescribed under the regulations: s 50(3).
        • A type of goods may be prescribed only if the type is similar to a type of household property mentioned in regulations made under s 116(2)(b)(i) of the Bankruptcy Act 1966 (Cth).
    • s 50(5) — goods that are property used by the mortgagor in earning income by personal exertion if the goods do not have a total value greater than the relevant limit.
  • An obligation under a credit contract cannot be secured by a cheque, or bill of exchange or promissory note, endorsed or issued by the debtor or guarantor: s 50(6).
  • A mortgage or security is void to the extent that it contravenes this section: s 50(7).
  • Goods do not include antique items; items of household property where the market value is substantially attributable to its age or historical significance: s 50(8).

Assignment or disposal of mortgaged property by mortgagor

  • A mortgagor must not assign or dispose of property that is subject to a mortgage without the credit provider’s consent or the authority of the court under s 51(3): s 51(1).
    • Criminal penalty of 50 penalty units applies (50 x $170).
    • This is a strict liability offence: s 51(4).
  • The credit provider must not unreasonably withhold consent or attach unreasonable conditions to the consent: s 51(2).
    • A condition requiring security over property of an equivalent kind and value is not to be regarded as unreasonable.
  • The court may on application by a mortgagor authorise them to dispose of mortgaged property on conditions determined by the court if the credit provider fails to reply to a request for consent to do so within a reasonable time, or consent is unreasonably withheld, or unreasonable conditions are attached to the consent: s 51(4).
  • As a condition of granting consent to an assignment or disposal of property subject to a mortgage the credit provider may make any or all of the requirements set out in s 52: s 52(1).
    • This does not limit any other requirements that may be made by the credit provider.
  • The credit provider may require any breaches of the credit contract to which the mortgage relates and of the mortgage to be remedied: s 52(2).
  • The credit provider may require the mortgagor and the assignee or person to whom the property is disposed to execute and deliver to the credit provider an agreement relating to the assignment or disposal in a form approved by the credit provider under which without prejudicing or affecting the liability of the mortgagor, the assignee or person to whom the property is disposed agrees with the credit provider to be personally liable to pay the amounts due or that become due under the mortgage and to perform and observe all other requirements and conditions of the mortgage: s 52(3).
  • The credit provider may require the mortgagor and the assignee or person to whom the property is disposed to pay the reasonable costs (if any) incurred by the credit provider for stamp duty in respect of the assignment or disposal agreement, or any other document the credit provider reasonable requires to be executed in connection with the assignment or disposal, and fees payable to a duly qualify lawyer.

Offence for noncompliance

  • A credit provider must not enter into a mortgage that contravenes a requirement of pt 3 div 1 (ss 41–53) or otherwise contravene a requirement of the division: s 53(1).
    • This is a strict liability offence: s 53(3).
    • Criminal penalty of 50 penalty units (50 x $170).
  • A credit provider must not enter into a mortgage that is void or unenforceable, or that includes a provision that is void or unenforceable, because of this division: s 53(2).
    • This is a strict liability offence: s 53(3).
    • Criminal penalty of 50 penalty units (50 x $170).

Guarantees

  • The Code applies to a guarantee if it guarantees obligations under a credit contract and the guarantor is a natural person or a strate corporation: s 8.

Form of guarantee

  • A guarantee must be writing signed by the guarantor: s 55(1).
  • s 55(1) is complied with if the guarantee is contained in a mortgage signed by the guarantor: s 55(2).
  • The regulations may make provision for or with respect to the content of guarantees and the way they are expressed: s 55(3).
  • A guarantee is not enforceable unless it complies with s 55 and any related regulations: s 55(4).

Disclosure

  • Before a guarantee is signed by the guarantor, the credit provides must give the prospective guarantor a copy of the contract document of the credit contract and a document in the form prescribed by the regulations explaining the rights and obligations of a guarantor: s 56(1).
  • A guarantee is unenforceable unless the copy is provided: s 56(2).

Copies of documents for guarantor

  • A credit provider must give the guarantor a copy of the guarantee signed by the guarantor and a copy of the credit contract not later than 14 days after the guarantee is signed and given to the credit provider: s 57(1).
  • A copy of the guarantee or contract does not need to be supplied if a copy has already been provided for the guarantor to keep: s 57(2).

Guarantor may withdraw before credit is provided

  • A guarantor may withdraw from the guarantee at any time before the credit is first provided (or after credit is first provided if the credit contract made differs from the proposed credit contract given to the guarantor before the guarantee is signed) by written notice to the credit provider: s 58(1).
  • The guarantor may withdraw only to the extent that it guarantees obligations under the credit contract: s 58(2).
  • s 58 is subject to s 61: s 58(3).

Extensions of guarantee

  • In addition to guaranteeing obligations under a credit contract, a guarantee may contain a provision that makes credit provided under another future credit contract subject to the guarantee: s 59(1).
  • Any such guarantee is unenforceable in relation to such a future credit contract unless the credit provider has given the guarantor a copy of the contract document and subsequently obtained from the guarantor a written acceptance of this extension of the guarantee or obtained acceptance in some form provided for by the regulations: s 59(2).
  • s 55 (‘form of guarantee’) and s 56 (‘disclosure’) do not apply to an extension of a guarantee under s 59: s 59(3).

Limitation of guarantor’s liability

  • A guarantee is void to the extent that it secures an amount that exceeds the sume of the amount of the liabilities of the debtor under the credit contract and the reasonable expenses of enforcing the guarantee or any lesser amount agreed: s 60(1).
    • s 60(1) does not prevent a credit provider from enforcing a guarantee relating to liabilities under a credit contract that is unenforceable solely because of the debtor’s death, insolvency or incapacity: s 60(2).
  • A guarantee for a debtor under the age of 18 years when the liability was incurred cannot be enforced unless it contains a prominent statement to the effect that the guarantor may not be entitled to an indemnity against the debtor: s 60(3).
  • In the case of a continuing credit contract, a guarantor may limit the guarantee by written notice to the credit provider so that it applies only to liabilities related to credit previously provided to the debtor under the credit contract (including liabilities not yet debited) and such further amount as the guarantor agrees: s 60(4).
  • A guarantee is void to the extent that it limits the guarantor’s right to indemnity from the person whose liability the guarantor has guaranteed or it postpones or otherwise purports to limit the guarantor’s right to enforce the indemnity: s 60(5).
  • s 60 does not affect a provision of a guarantee permitted by s 59: s 60(6).

Increase in guarantor’s liabilities

  • If the terms of a credit contract are changed to increase or allow for an increase in liability, the liabilities of a guarantor are not increased unless the credit provider gives to the guarantor a written notice setting out particulars of the change in the terms and the credit provider has subsequently obtained a written acceptance from the guarantor of the extension of the guarantee to those increased liabilities: s 61(1).
  • This does not apply to an increase in liabilities resulting from:
    • s 61(2)(a) — a change of a kind referred to in s 63(2)(a)–(b).
    • s 61(2)(b) — a change of which notice is required to be given under pt 4 div 1 (not being a change referred to in s 67(4) or s 68).
    • s 61(2)(c) — a change under s 74(2) or a postponement under s 96(2).
    • s 61(2)(d) — a deferral or waiver of a debtor’s obligations for a period not exceeding 90 days.

Offence for noncompliance

  • A credit provider must not enter into a guarantee that contravenes a requirement of the division or otherwise contravene a requirement of the division: s 62(1).
  • A credit provider must not enter into a guarantee that is void or unenforceable, or that contains a provision that is void or unenforceable, because of the division: s 62(2).
  • Subsections (1)–(2) are strict liability offences.
    • Criminal penalty of 50 penalty units applies (50 x $170).

Ending and enforcing credit contracts, mortgages and guarantees

  • The Code regulates the performance of credit contracts.
  • Debtors and guarantors may pay out the contract at any time: ss 26(5), 82(1), 82–84.
  • The Code sets out obligations imposed on a credit provider seeking to enforce a contract or bring an acceleration clause into play.
  • The contract may also be terminated by the debtor or mortgagor surrendering goods mortgaged to secure a credit contract: ss 85–86.
    • If a credit contract is in the form of a sale of goods by instalments and tite in the goods does not pass until all instalments are paid (or the credit provider has a mortgage over goods of the debtor or guarantor) the debtor or mortgagor may give written notice of an intention to return the goods to the credit provider or require the credit provider to sell the goods: s 85(1).
    • A debtor or mortgagor may return the goods to the credit provider at their place of business during ordinary business hours within seven days of the date of the notice or as otherwise agreed: s 85(2).
    • The credit provider must give the debtor or mortgagor written notice of the estimated value (and other information required by the regulations) within 14 days of the return or request of sale: s 85(3).
    • If the debtor or mortgagor requests a return of the goods or withdraws the requirement to sell made under s 85(3) by written notice within 21 days of making the original request, the credit provider must return the goods and must not comply with the requirement to sell: s 85(4).
    • The debtor may nominate a person in writing within 21 days who is prepared to purchase the goods, and the credit provider must offer to sell to the person for its estimated value or the value of the written offer if higher: s 85(5).
    • The credit provider must otherwise sell the goods for the best price reasonably obtainable: s 85(6).
    • The credit provider must credit the debtor or mortgagor with payment equivalent to the proceeds of the sale less any amounts which the credit provider is entitled to deduct — on sale of the goods, the amount required to pay out the goods becomes due: s 85(7).
    • A credit provider that sells mortgaged goods is entitled to deduct only the following amounts — s 85(8):
      • the amount currently secured by the mortgage in relation to the credit contract or guarantee, not being more than the amount required to discharge the contract or guarantee.
      • the amount payable to discharge any prior mortgage to which the goods were subject.
      • the amounts payable in successive discharge of any subsequent mortgages to which the goods were subject and of which the credit provider had notice.
      • the credit provider’s reasonable enforcement expenses.
      • the expenses reasonably incurred by the credit provider in connection with the possession and sale of the mortgaged goods.
    • The credit provider must give the debtor or mortgagor a written notice stating the gross amount realised on the sale, the net proceeds, the amount credit to the debtor or mortgagor and the amount required to pay out the credit contract or the amount due under the guarantee: s 85(9).
    • A strict liability offence applies for contravention of s 85: s 85(10)–(11).
      • Criminal penalty of 50 penalty units applies (50 x $170).
  • The Code limits the ways in which the credit provider may exercise its right sunder the contract in enforcing a credit contract, mortgage or guarantee: pt 5 div 2.
  • Pt 5 div 2 of the Code allows for the debtor, mortgagor or guarantor to postpone enforcement proceedings.
    • See also Anseline v GMAC (1998) ASC 155–020; George v Bank of Western Australia Ltd (1998) ASC 155-022.
      • References to ss 80, 86–89 are largely reproduced in ss 88, 94–97 of the Code.
    • Under s 90(1) of the Code, a credit provider must not, under a guarantee, enforce a judgment against the guarantor unless
      • they have obtained a judgment against the debtor for payment of the guaranteed liability and the judgment remains unsatisfied for 30 days after the credit provider has made a written demand for payment of the judgment debt, or
      • the court has relieved the credit provider from the obligation to obtain a judgment against the debtor on the ground that recovery is unlikely, or
      • the credit provider has made reasonable attempts to locate the debtor without success, or
      • the debtor is insolvent.
      • Strict liability offence: s 90(2).
        • Criminal penalty of 50 penalty units (50 x $170) applies.
  • Restrictions on the way in which a credit provider may repossess goods are set out in pt 5 div 4 ss 98–106 of the Code.

Consumer leases

  • If a lease of goods is not treated as a deemed sale of goods it may still be regulated by the code: s 169–172.
  • If a lease is a regulated consumer lease, the least must be in a prescribed form, certain matters must be disclosed and the provisions of the Code with respect to hardship and unjust transactions, requiring information about the location of goods, and entry to residential premises to repossess goods apply.
    • There are also specific provisions concerning notice of repossession and termination of the lease: ss 178–179.

Further conduct rules

  • The Code also contains specific rules for credit which compliment general rules about advertising and selling.
  • These rules are also linked to disclosure obligations discussed above, especially rules on providing and comparison rates.
  • See Code s 150–156.