National Consumer Credit Protection Act 2009

The National Consumer Credit Protection Act 2009 provides consumer protection law for credit in Australia. It governs those who provide credit, as well as contracts and transactions, and aims to ensure responsible lending. It is administered solely by the Australian Securities & Investment Commission (ASIC). The operation of the Act is directed by the National Consumer Credit Protection Regulations 2010.

The Act applies to everyday banking products such as car loans, personal loans, home loans, credit cards and consumer leases. It provides important consumer safeguards such as the licensing of lenders, and laws to ensure credit is suitable, and contains the National Credit Code, which regulates credit lending conduct.

Licensing

Under the National Consumer Credit Protection Act 2009, those who engage in “credit activity” require a licence or authorisation from a licensee. Credit activity includes activity relates to credit contracts, consumer leases, mortgages and guarantees.

An Australian Credit Licence has conditions that the licensee is a member of an external dispute resolution scheme and that they abide by laws that ensure responsible lending.

Responsible lending

The National Consumer Credit Protection Act 2009 sets out obligations for responsible lending. They include assessing whether a credit product or credit limit increase is unsuitable, via gathering information about the consumer and taking reasonable steps to verify that information.

Section 118 of the Act prescribes a test for unsuitability:

• the consumer will be unable to comply with their financial obligations;
• the consumer will only be able to apply with their financial obligations with substantial hardship;
• the product will not meet the consumer’s requirements or objectives.

National Credit Code

The National Credit Code forms Schedule 1 of the National Consumer Credit Protection Act 2009 and covers almost all credit contracts. The Code applies when:

• the debtor is a natural person or business;
• the credit is provided wholly or predominantly for personal, domestic or household purposes; or to buy, renovate or improve residential investment property, or to refinance credit provided for this;
• a charge is made for providing credit;
• the credit is provided in the course of a business.

The Code does not apply to loans including low-cost, short-term credit (less than 62 days), pawnbroker loans, margin loans, bill facilities, insurance premiums paid by instalments, and staff loans.

Key obligations

Under Section 17 of the Code, credit contracts for loans must contain:

• the amount of the loan;
• the credit provider and the amount payable;
• the interest rate and how it is calculated;
• the amount, frequency and total number of repayments;
• the frequency of statements of account;
• details of any mortgage or guarantee taken;
• details of any commission payable;
• details of action to be taken if the borrower is in default.

Under Section 33, a credit provider must provide a borrower with periodic statements of account. The maximum period for most statements of account is 40 days, but can be up to 12 months in the case of a reverse mortgage. A statement must contain the dates on which the statement period begins and ends, and the opening and closing balances. A statement does not have to be provided in certain situations, such as when credit is provided under a contract for which the interest rate is fixed for the whole term of the contract.

Under Section 31A, specific rules apply to a Small Amount Credit Loan (SACC), which is defined under the National Consumer Credit Protection Act 2009 as a loan of less than $2000 under a contract of at least 16 days but no longer than one year. Credit providers can charge an interest rate of no more than $48%, an establishment fee of no more than 20% of the loan amount, and a monthly fee of no more than 4% of the loan amount. Also, the Code requires a credit provider to determine whether a borrower is in default on an existing SACC, or whether they have taken out two or more SACCs in the past 90 days, before issuing a further SACC. The Code prohibits loans under $2000 that require repayment within 15 days. It also prevents a credit provider from recovering more than twice the credit amount if there is a default in payment.

Under Section 157, a comparison rate must be included when credit providers advertise fixed-term credit for personal domestic or household purposes. The comparison rate is made up of the interest rate plus most fees and charges. It does not include government fees and charges, or charges for specific actions. The legislation aims to protect borrowers by forcing a credit provider to show a rate  “which most closely represents the typical amount of credit and term provided”.

ASIC can prosecute a credit provider for non-compliance with the National Consumer Credit Protection Act 2009. The credit provider could be liable to pay damages to a consumer, or to a fine or penalty from the government.

For advice or representation in any legal matter, please contact Armstrong Legal.