Compliance: Theory and Practice in the Financial Services Industry

11C. Credit Facilities

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Outline

   Definitions
   Credit Activities Covered by the NCCPA
   Australian Credit Licences
   Credit Guides
   Responsible Lending Obligations
   Fees and Charges for Credit Assistance
   National Credit Code Obligations
   Other NCCPA Requirements

Note: the materials in Lecture 11A on the Banking Act, Financial Sector (Collection of Data) Act and Industry Codes of Practice are also relevant to the providers of credit facilities.


Definitions

CA s765A(1) - Things that are not Financial Products
Despite anything in subdivision B (ss763A-763E) or subdivision C (s764A), the following are not financial products for the purposes of Chapter 7: ...
(h)   any of the following:
  (i)   a credit facility within the meaning of the regulations (other than a margin lending facility);
  (ii)   a facility for making non-cash payments (see s763D), if payments made using the facility will all be debited to a credit facility covered by (i).

 

CR r7.1.06(1) – Definition of Credit Facility
Each of the following is a credit facility:
(a)   the provision of credit:
  (i)   for any period;
  (ii)   with or without prior agreement between the credit provider and the debtor;
  (iii)   whether or not both credit and debit facilities are available;
  (iv)   that is not a financial product mentioned in CA s763A(1)(a);
  (v)   that is not a financial product mentioned in CA s764A(1)(a), (b), (ba), (f), (g), (h) or (j); and
  (vi)   that is not a financial product mentioned in CA s764A(1)(i), other than a product the whole or predominant purpose of which is, or is intended to be, the provision of credit; and
(b)   a facility:
  (i)   known as a bill facility; and
  (ii)   under which a credit provider provides credit by accepting, drawing, discounting or indorsing a bill of exchange or promissory note;
(c)   the provision of credit by a pawnbroker in the ordinary course of a pawnbroker's business (being a business which is being lawfully conducted by the pawnbroker);
(d)   the provision of credit by the trustee of the estate of a deceased person by way of an advance to a beneficiary or prospective beneficiary of the estate;
(e)   the provision of credit by an employer, or a related body corporate of an employer, to an employee or former employee (whether or not it is provided to the employee or former employee with another person);
(f)   a mortgage:
  (i)   that secures obligations under a credit contract (other than a lien or charge arising by operation of any law or by custom);
  (ii)   that is not a financial product mentioned in s763A(1)(a);
  (iii)   that is not a financial product mentioned in s764A(1)(a), (b), (ba), (f), (g), (h) or (j);
  (iv)   that is not a financial product mentioned in s764A(1)(i), other than a product the whole or predominant purpose of which is, or is intended to be, the provision of credit;
(g)   a guarantee related to a mortgage mentioned in para (f);
(h)   a guarantee of obligations under a credit contract.

The provision of consumer credit insurance that includes a contract of general insurance for the Insurance Contracts Act 1984 is not a credit facility (r7.1.06(2)).

For a discussion on how the definition of "credit facility" operates in relation to bills of exchange and promissory notes, see Lewis, "When is a Financial Product not a Financial Product?" (2004) 22 CSLJ 103.

CR r7.1.06(3) – Definition of Credit
Credit means a contract, arrangement or understanding:
(a)   under which:
  (i)   payment of a debt owed by one person (a debtor) to another person (a credit provider) is deferred; or
  (ii)   one person (a debtor) incurs a deferred debt to another person (a credit provider); and
(b)   including any of the following:
  (i)   any form of financial accommodation;
  (ii)   a hire purchase agreement;
  (iii)   credit provided for the purchase of goods or services;
  (iv)   a contract, arrangement or understanding for the hire, lease or rental of goods or services, other than a contract, arrangement or understanding under which:
    (A)   full payment is made before or when the goods or services are provided; and
    (B)   for the hire, lease or rental of goods - an amount at least equal to the value of the goods is paid as a deposit in relation to the return of the goods;
  (v)   an article known as a credit card or charge card;
  (vi)   an article, other than a credit card or a charge card, intended to be used to obtain cash, goods or services;
  (vii)   an article, other than a credit card or a charge card, commonly issued to customers or prospective customers by persons who carry on business for the purpose of obtaining goods or services from those persons by way of a loan;
  (viii)   a liability in respect of redeemable preference shares;
  (ix)   a financial benefit arising from or as a result of a loan;
  (x)   assistance in obtaining a financial benefit arising from or as a result of a loan;
  (xi)   issuing, indorsing or otherwise dealing in a promissory note;
  (xii)   drawing, accepting, indorsing or otherwise dealing in a negotiable instrument (including a bill of exchange);
  (xiii)   granting or taking a lease over real or personal property;
  (xiv)   a letter of credit.

 

CR r7.1.06A – Dual Investment/Credit Products
(1)   This regulation applies in relation to a financial product that would be a credit facility in accordance with r7.1.06 if rr7.1.06(1)(a)(iv), (v) and (vi), and 7.1.06(1)(f)(ii), (iii) and (iv) did not apply.
(2)   For CA s761E(7)(a), and in relation to the financial product:
  (a)   the credit provider is not taken to be the issuer of the financial product; and
  (b)   the debtor is taken to be the issuer of the financial product.
(3)   For CA s766A(2)(b), and in relation to the financial product:
  (a)   the provision of financial product advice to the debtor, or the debtor's representative, is taken not to be the provision of a financial service; and
  (b)   a dealing in the credit facility by the credit provider, or the credit provider's representative, is taken not to be the provision of a financial service.
(4)   In this regulation:
  credit, credit provider and debtor have the same meanings as in r7.1.06(3).

Under CR rr7.1.06(1)(a)(iv)-(vi) and (f)(ii)-(iv), products which are specifically defined to be "financial products" under various provisions in s764A or are an investment product as defined in s763A(1)(a) are excluded from the combined operation of s765A(1)(h) and r7.1.06 even though they may have a credit element to them (eg a debenture is a facility for making an investment from the perspective of the person acquiring the debenture but is a form of credit from the perspective of the issuer). They are thus still regulated as financial products even though they might otherwise be considered to be credit facilities. While such products are included in the definition of financial product to ensure that the investment element is appropriately regulated, it is not intended to regulate the credit element. This is achieved through the provisions in CR rr7.1.06A(2) and (3).

ASICA s12BAA(7) - Things that are Financial Products

The following are financial products for the purposes of this division: ...

(k)   a credit facility within the meaning of the regulations.

ASICR r2B(1) has a similar definition of "credit facility" to that set out in CR r7.1.06(1) above, with one additional item: (i) a facility for making non-cash payments (within the meaning of CA s763D) if payments made using the facility will all be debited to a facility mentioned in paragraphs (a) to (h) of that definition.

ASICR r2B(3) has a similar definition of "credit" to that set out in CR r7.1.06(3) above.

The Interaction of these Provisions
•     Subject to CR r7.6.01A (see above), credit facilities (other than margin lending facilities) are excluded from the definition of "financial product" and therefore are not regulated by CA Chapter 7 (CA s765A(1)(h)).
•     All credit facilities (including margin lending facilities) are subject to the general consumer protection provisions in Division 2 of Part 2 of the ASIC Act (ASICA s12BAA(7)(k)).
•     Consumer credit is regulated by the National Consumer Credit Protection Act 2009 (Cth) and the National Credit Code (schedule 1 to NCCPA).

Click here for a copy of the National Consumer Credit Protection Act 2009 and the National Consumer Credit Protection Regulations 2010.

The National Credit Code ("NCC") replaced the former Uniform Consumer Credit Code ("UCCC"), effective 1 July 2010. The UCCC was a uniform regime for regulating consumer credit enacted under the Uniform Consumer Credit Laws Agreement 1993 between the States and Territories. Under that agreement, Queensland would enact template legislation (the Consumer Credit (Queensland) Act 1994 and Consumer Credit (Queensland) Regulations)) and each of the other States and Territories would adopt that legislation as its own.

The NCCPA addresses a number of perceived deficiencies in the regulatory framework of the UCCC. It imposes an ASIC administered national licensing regime for regulated credit activities, which brings with it enhanced compliance, training, dispute resolution and compensation requirements similar to those applicable to financial service licensees under CA Chapter 7 and also broader powers for ASIC to exclude or remove unscrupulous operators from the industry. It also imposes responsible lending obligations requiring those providing credit or assisting in obtaining credit (such as finance or mortgage brokers) to assess whether the credit will be 'unsuitable' for the customer.

The NCC is substantially the same as the UCCC, save that it has been extended to apply to credit used to purchase, renovate, improve or refinance residential property for investment purposes and the threshold under which a debtor can request a change to their credit contract on the grounds of hardship has been increased to $500,000 (or such higher amount as may be prescribed in the regulations).

NCC s3(1) – Meaning of 'Credit'
Credit is provided if under a contract:
(a)   payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or
(b)   one person (the debtor) incurs a deferred debt to another (the credit provider).

A contract for the sale of goods is taken to involve the incurrence of debt and the provision of credit if the amount payable to purchase the goods under the contract is payable by instalments and exceeds the cash price of the goods (NCC s11).

A contract for the 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 instalments and is taken to involve the incurrence of debt and the provision of credit if 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 (NCC s9).

A 'terms sale of land contract' (ie an executory contract for the sale of land under which the purchaser is entitled to enter into possession of the land before becoming entitled to receive a conveyance or transfer of the land and is bound to make a payment or payments (other than a deposit or rent payment) to, or in accordance with the instructions of, the vendor without becoming entitled to receive a conveyance or transfer of the land in exchange for the payment or payments) is also taken to involve the incurrence of debt and the provision of credit if the amount payable to purchase the land under the contract exceeds the cash price of the land (NCC s10).

NCC s204(1) defines the "cash price" of goods or services to which a credit contract relates to mean: (a) the lowest price that a cash purchaser might reasonably be expected to pay for them from the supplier; or (b) if the goods or services are not available for cash from the supplier or are only available for cash at the same, or a reasonably similar, price to the price that would be payable for them if they were sold with credit provided, the market value of the goods or services. "Services" is defined to include rights in relation to, and interests in, real property.

The Explanatory Memorandum for the Bill that introduced these provisions stated that ss3 and 11 are not intended to regulate lay-by contracts, where the requirement to make payments is not a "deferred debt" within the meaning of section 4.

NCCPA s7 - Meaning of 'Credit Service'
A person provides a credit service if they:
(a)  provide credit assistance to a consumer; or
(b)  act as an intermediary.

The credit service provisions are intended to regulate the activities of finance brokers and mortgage brokers who operate in the consumer credit area. They are also intended to capture the activities of "aggregators", who act as a conduit between individual brokers and credit providers.

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 this jurisdiction by the person or another person, the person: (a) suggests that the consumer apply for a particular credit contract with a particular credit provider; (b) suggests that the consumer apply for an increase to the credit limit of a particular credit contract with a particular credit provider; (c) suggests that the consumer remain in a particular credit contract with a particular credit provider; (d) assists the consumer to apply for a particular credit contract with a particular credit provider; (e) assists the consumer to apply for an increase to the credit limit of a particular credit contract with a particular credit provider; (f) suggests that the consumer apply for a particular consumer lease with a particular lessor; (g) suggests that the consumer remain in a particular consumer lease with a particular lessor; or (h) assists the consumer to apply for a particular consumer lease with a particular lessor. It does not matter whether the person does so on the person’s own behalf or for or on behalf of another person (NCCPA s8).

A person acts as an "intermediary" if, in the course of, as part of, or incidentally to, a business carried on in this jurisdiction by the person or another person, the person: (a) acts as an intermediary (whether directly or indirectly) between a credit provider and a consumer wholly or partly for the purposes of securing a provision of credit for the consumer under a credit contract for the consumer with the credit provider; or (b) acts as an intermediary (whether directly or indirectly) between a lessor and a consumer wholly or partly for the purposes of securing a consumer lease for the consumer with the lessor. It does not matter whether the person does so on the person’s own behalf or for or on behalf of another person (NCCPA s9).

NCCPA - Other Core Definitions
Consumer - a natural person or a strata corporation (NCCPA s5(1)).
Strata corporation - 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 whose issued shares confer a right to occupy land for residential purposes (NCCPA s5(1) and NCC s204(1)).
Credit contract - a contract under which credit is or may be provided, being the provision of credit to which the NCC applies (NCCPA s5(1) and NCC s4).
Consumer lease - a consumer lease to which Part 11 of the NCC applies (NCCPA s5(1)).
Guarantee - a guarantee to which the NCC applies (NCCPA s5(1)).
Mortgage - a mortgage to which the NCC applies (NCCPA s5(1)).

NCC s169 defines "consumer lease" as a contract for the hire of goods by a natural person or strata corporation under which that person or corporation does not have a right or obligation to purchase the goods. If a person has a right or obligation to purchase goods under a contract for the hire of goods and the aggregate amount payable under the contract exceeds the cash price of the goods, that contract is treated as a sale of the goods by instalments and regulated as a credit contract rather than a consumer lease (see the notes to NCC s3(1) above). "Contract" includes a series or combination of contracts, or contracts and arrangements (NCC s204(1)).

The NCCPR also have two other key concepts - "mortgage manager" and "product designer" - that are used in some of the disclosure requirements in the regulations.

"Mortgage manager" means a licensee who has a written agreement with a credit provider or lessor, or a third party who is authorised by a written agreement to act for a credit provider or lessor, and under the terms of which: (a) the licensee is required to manage the relationship with the consumer on a day-to-day basis for the credit provider or lessor in accordance with the credit provider’s, lessor’s or third party’s policies and procedures; and (b) the credit contracts, consumer leases and associated documentation used by the licensee are branded or co‑branded with the name of the licensee (r26).

"Product designer" means a licensee who engages in a credit activity only through a written agreement with a credit provider or lessor under the terms of which: (a) the licensee manages a pool of funds from which credit contracts or consumer leases are provided; (b) the licensee receives commission that is worked out in relation to the net profit from operating the pool of funds; and (c) the licensee has responsibility for creating the policy for usage of the credit contracts or consumer leases, including the eligibility requirements for consumers (r26).

Return to Outline


Credit Activities Covered by the NCCPA

NCCPA s6(1) – Meaning of 'Credit Activity'
A person engages in a credit activity if the person:
•     Credit contracts: (a) is a credit provider under a credit contract; (b) carries on a business of providing credit, being credit the provision of which the NCC applies to; or (c) performs the obligations, or exercises the rights, of a credit provider in relation to a credit contract or proposed credit contract (whether the person does so as the credit provider or for or on behalf of the credit provider).
•     Credit services: provides a credit service.
•     Consumer leases: (a) is a lessor under a consumer lease; (b) carries on a business of providing consumer leases; or (c) performs the obligations, or exercises the rights, of a lessor in relation to a consumer lease or proposed consumer lease (whether the person does so as the lessor or for or on behalf of the lessor).
•     Mortgages: (a) is a mortgagee under a mortgage; or (b) performs the obligations, or exercises the rights, of a mortgagee in relation to a mortgage or proposed mortgage (whether the person does so as the mortgagee or for or on behalf of the mortgagee).
•     Guarantees: (a) is the beneficiary of a guarantee; or (b) performs the obligations, or exercises the rights, of another person who is a beneficiary of a guarantee or proposed guarantee, in relation to the guarantee or proposed guarantee (whether the person does so on the person’s own behalf or for or on behalf of the other person); or
•     Prescribed activities: engages in an activity prescribed by the regulations in relation to credit, being credit the provision of which the NCC applies to, or would apply to if the credit were provided.

For these purposes it does not matter whether the person is: (a) the original credit provider, lessor, mortgagee or beneficiary of a guarantee under a credit contract, consumer lease, mortgage or guarantee; or (b) a person to whom the rights of a credit provider, lessor, mortgagee or beneficiary of a guarantee under a credit contract, consumer lease, mortgage or guarantee have been assigned or passed by law (NCCPA s10(1)).

Given the way in which each of the terms used in s6(1) is defined, the NCCPA effectively only applies to credit activities entered into in the course of a business carried on in this jurisdiction. To explain, the manner in which "credit contract" and "consumer lease" are defined limits them to credit and consumer leases to which the Code applies (see above) and one of the requirements for the Code to apply in each case is that the credit or consumer lease is provided in the course of a business carried on in this jurisdiction (see below). "Credit service" is defined to include "credit assistance" or "acting as an intermediary" and the definitions of each of those terms requires that the relevant acts occur in the course of a business (see above). "Mortgages" and "guarantees" are only caught if they relate to credit contracts to which the Code applies (see below).

NCCPA s12 provides that CA Part 1.2 Div 3 applies for the purposes of working out whether a business is carried on in this jurisdiction. It also provides that a business is taken to be carried on in this jurisdiction by a person if, in the course of carrying on the business, the person engages in conduct that is: (a) intended to induce people in this jurisdiction to use the goods or services the person provides; or (b) is likely to have that effect; whether or not the conduct is intended, or likely, to have that effect in other places as well. These provisions broadly correspond to CA ss761C and 911D, which we looked at in lecture 1.

NCC s5(1) - Credit to Which the NCC Applies
This Code applies to the provision of credit (and to the credit contract and related matters) if when the credit contract is entered into or (in the case of pre-contractual obligations) is proposed to be entered into:
(a)   the debtor is a natural person or a strata corporation; and
(b)   the credit is provided or intended to be provided wholly or predominantly:
  (i)   for personal, domestic or household purposes;
  (ii)   to purchase, renovate or improve residential property for investment purposes; or
  (iii)   to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes;
(c)   a charge is or may be made for providing the credit; and
(d)   the credit provider provides 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.

If the NCC applies to the provision of credit (and to the credit contract and related matters), it applies in relation to all transactions or acts under the contract whether or not they take place in this jurisdiction and it continues to apply even though the credit provider ceases to carry on a business in this jurisdiction (NCC s5(2)).

For these purposes, investment by the debtor is not a "personal, domestic or household purpose" (NCC s5(3)) and the "predominant purpose" for which credit is provided is: (a) the purpose for which more than half of the credit is intended to be used; or (b) if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used (NCC s5(4)).

NCC s6 – Credit to Which the NCC does not Apply
•     Short term credit that does not exceed 62 days, except where the fees and charges exceed 5% of the amount of credit or where the interest rate is greater than 24% pa.
•     Credit provided without an express prior agreement (eg when a cheque account becomes overdrawn but there is no expressly agreed overdraft facility or when a savings account falls into debit).
•     Continuing credit where no interest is paid and where account charges do not exceed $200 in the first year or $125 in any subsequent year (see NCCPR r51).
•     The debit part of contract under which both credit and debit facilities are available.
•     Credit provided under a bill or promissory note facility (unless the regulations provide otherwise).
•     Payment of insurance premiums by instalments, even though the instalments exceed the total of the premium that would be payable if the premium were paid in a lump sum, provided on cancellation the insured has no liability to make further payments under the contract.
•     Credit provided on the security of pawned or pledged goods by a pawnbroker in the ordinary course of a pawnbroker’s business provided the pawnbroker’s only recourse is against the goods provided as security for the provision of the credit.
•     Credit provided by the trustee of the estate of a deceased person by way of an advance to a beneficiary or prospective beneficiary of the estate.
•     Credit provided by an employer or a related body corporate to an employee or former employee (including credit provided jointly to the employee or former employee with another person).
•     Margin loans (within the meaning of CA s761EA(1)).
•     Credit excluded by the regulations or by ASIC.

NCCPR rr52-65C specify other types of credit to which the NCC does not apply.

Where a loan is made to an employee or former employee by a regulated credit provider, the exception above for employee loans only applies to the provision of credit on terms that are more favourable to the debtor than the terms on which the credit provider provides credit to non-employees.

Note that even though pawnbroker and trustee/beneficiary loans are excluded from the general operation of the NCC, the provisions of NCC ss76 to 81 (Court may reopen unjust transactions) still apply to them.

NCC s170(1) - Consumer Leases to Which the NCC Applies
NCC Part 11 applies to a consumer lease if when the lease is entered into:
(a)   the goods are hired wholly or predominantly for personal, domestic or household purposes;
(b)   a charge is or may be made for hiring the goods and the charge together with any other amount payable under the consumer lease exceeds the cash price of the goods; and
(c)   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 of the lessor carried on in this jurisdiction.

If Part 11 applies to a consumer lease, it applies to all transactions or acts under the lease whether or not they take place in this jurisdiction and it continues to apply even though the lessee ceases to carry on a business in this jurisdiction (NCC s170(2)).

For these purposes, 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 or lessee, but does not include: (a) any amount payable for services that are incidental to the hire of the goods under the lease; or (b) any amount that ceases to be payable on the termination of the contract following the exercise of a right of cancellation by the lessee at the earliest opportunity (NCC s170(3)).

The predominant purpose for which goods are hired is: (a) the purpose for which more than one half of the goods are intended to be used; or (b) if the same goods are intended to be used for different purposes, the purpose for which the goods are intended to be most used (NCC s170(4)).

NCC s171 - Consumer Leases to Which the NCC does not Apply
•     Consumer leases for a fixed period of 4 months or less or for an indefinite period.
•     Consumer leases under which goods are hired by an employee in connection with the employee’s remuneration or other employment benefits.
•     Consumer leases excluded by the regulations or by ASIC.

 

NCC s7(1) - Mortgages to Which the NCC Applies
This Code applies to a mortgage if:
(a)   it secures obligations under a credit contract or a related guarantee; and
(b)   the mortgagor is a natural person or a strata corporation.

If a mortgage also secures other obligations, the NCC applies to the mortgage to the extent only that it secures obligations under the credit contract or related guarantee (NCC s7(2)).

NCC s8(1) - Guarantees to Which the NCC Applies
This Code applies to a guarantee if:
(a)   it guarantees obligations under a credit contract; and
(b)   the guarantor is a natural person or a strata corporation.

If a guarantee also guarantees other obligations, the NCC applies to the guarantee to the extent only that it guarantees obligations under the credit contract (NCC s8(2)).

NCC s13 - Presumptions About Application of NCC
(1)   In any proceedings (whether brought under the NCC or not) in which a party claims that a credit contract, mortgage or guarantee is one to which the NCC applies, it is presumed to be such unless the contrary is established.
(2)   It is presumed for the purposes of the NCC that credit is not provided or intended to be provided under a contract wholly or predominantly for any or all of the following purposes (a Code purpose):
  (a)   for personal, domestic or household purposes;
  (b)   to purchase, renovate or improve residential property for investment purposes;
  (c)   to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes;
  if the debtor declares, before entering the contract, that the credit is to be applied wholly or predominantly for a purpose that is not a Code purpose, unless the contrary is established.
(3)   However, the declaration is ineffective if, when the declaration was made, the credit provider or a person (the prescribed person) of a kind prescribed by the regulations:
  (a)   knew, or had reason to believe; or
  (b)   would have known, or had reason to believe, if the credit provider or prescribed person had made reasonable inquiries about the purpose for which the credit was provided, or intended to be provided, under the contract;
  that the credit was in fact to be applied wholly or predominantly for a Code purpose.

If a declaration is ineffective under s13(3), s5(1)(b) is taken to be satisfied in relation to the contract (s13(4)).

A person commits an offence if: (a) the person engages in conduct; (b) the conduct induces a debtor to make a declaration under s13 that is false or misleading in a material particular; and (c) the declaration is false or misleading in a material particular. This is a criminal offence punishable by a fine of 100 penalty units and/or 2 years imprisonment (s13(6)).

There are equivalent provisions for consumer leases in s172 of the NCC.

A declaration under s13 or s172 has to be substantially in the form (if any) required by the regulations and is ineffective for the purposes of those sections if it is not (s13(5) and s172(5)). The prescribed form of declaration for credit contracts can be found in NCCPR r68, and for consumer leases in r104.

These provisions are designed to stop credit providers and lessors trying to escape the operation of the NCC by getting consumers to give a false declaration as to the purpose of a credit contract or consumer lease.

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Australian Credit Licences

NCCPA s29(1) - Prohibition on Engaging in Credit Activities Without a Licence
A person must not engage in a credit activity if the person does not hold an Australian Credit Licence ("ACL") authorising the person to engage in the credit activity.

See generally ASIC Regulatory Guide 203 - Do I need a credit licence? and ASIC Regulatory Guide 204 - Applying for and varying a credit licence.

In most instances, a person will only engage in a credit activity if they do so in the course of, as part of, or incidentally to, a business carried on in this jurisdiction by the person. As mentioned above, a business is taken to be carried on in this jurisdiction where a person engages in conduct that is intended to induce people in Australia to use the goods or services the person provides, or is likely to have that effect (NCCPA s12).

Breach of s29(1) is a civil penalty punishable by 2,000 penalty units. It is also a criminal offence punishable by a fine of 200 penalty units and/or 2 years imprisonment (s29(2)).

It is a defence if: (a) the person engages in the credit activity on behalf of another person (the principal); (b) the person is: (i) an employee or director of the principal or of a related body corporate of the principal; or (ii) a credit representative of the principal; (c) the person’s conduct in engaging in the credit activity is within the authority of the principal; and (d) the principal holds a licence authorising the principal to engage in the credit activity (s29(3)). In this regard, NCCPA Part 2-3 contains a regime for the appointment of “credit representatives” by credit licensees that is broadly similar to the regime for the appointment of authorised representatives by financial services licensees under CA Part 7.6 Div 5.

The holder of an ACL is only authorised to engage in the credit activities which are specified by ASIC in a condition of the licence (s35).

NCCPA s30 makes it both a civil penalty and an offence for a person to hold out: (a) that they hold a licence; (b) that they hold a licence authorising them to engage in a particular credit activity; (c) that a credit activity engaged in by them or by someone else is exempt from a requirement to hold a licence; (d) that, in engaging in a credit activity, they act on behalf of another person; or (e) that their conduct, or proposed conduct, is within the authority of a licensee, if that is not the case. It also makes it both a civil penalty and an offence for a person to hold out or advertise that they engage or are able to engage in a credit activity if they would, by engaging in that credit activity, contravene s29.

NCCPA s31(1) - Prohibition on Conducting Business with Unlicensed Persons
A licensee must not:
(a)   engage in a credit activity; and
(b)   in the course of engaging in that credit activity, conduct business with another person who is engaging in a credit activity;
if, by engaging in the credit activity, the other person contravenes s29.

Thus, a licensed credit provider who receives a loan application from an unlicensed broker, or a licensed broker who introduces their client to an unlicensed credit provider, potentially breaches this section.

Breach of s31(1) is a civil penalty punishable by 2,000 penalty units. It is also a criminal offence punishable by a fine of 200 penalty units and/or 2 years imprisonment (s31(2)).

NCCPA s32(1) - Prohibition on Charging Fees
A person must not demand, receive or accept any fee, charge or other amount from a consumer for engaging in a credit activity if, by engaging in that credit activity, the person contravenes, or would contravene, s29.

Breach of s32(1) is a civil penalty punishable by 2,000 penalty units. It is also a criminal offence punishable by a fine of 50 penalty units and/or 1 year imprisonment (s32(2)).

NCCPA s47(1) - General Obligations of Licensees
A licensee must:
(a)   do all things necessary to ensure that the credit activities authorised by the licence are engaged in efficiently, honestly and fairly;
(b)   have in place adequate arrangements to ensure that clients of the licensee are not disadvantaged by any conflict of interest that may arise wholly or partly in relation to credit activities engaged in by the licensee or its representatives;
(c)   comply with the conditions on the licence;
(d)   comply with the credit legislation;
(e)   take reasonable steps to ensure that its representatives comply with the credit legislation;
(f)   maintain the competence to engage in the credit activities authorised by the licence;
(g)   ensure that its representatives are adequately trained, and are competent, to engage in the credit activities authorised by the licence;
(h)   have an internal dispute resolution procedure that:
  (i)   complies with standards and requirements made or approved by ASIC in accordance with the regulations; and
  (ii)   covers disputes in relation to the credit activities engaged in by the licensee or its representatives;
(i)   be a member of an approved external dispute resolution scheme;
(j)   have compensation arrangements in accordance with s48;
(k)   have adequate arrangements and systems to ensure compliance with its obligations under this section, and a written plan that documents those arrangements and systems;
(l)   unless the licensee is a body regulated by APRA:
  (i)   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
  (ii)   have adequate risk management systems; and
(m)   comply with any other obligations that are prescribed by the regulations.

This corresponds to the obligations of AFSL holders under CA s912A. See generally ASIC Regulatory Guide 205 - Credit licensing: General conduct obligations, ASIC Regulatory Guide 206 - Credit licensing: Competence and training and ASIC Regulatory Guide 210 - Compensation and insurance arrangements for credit licensees.

For these purposes, "credit legislation" means: (a) the NCCPA; (b) the National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009; (c) Division 2 of Part 2 of the ASIC Act and regulations made for the purpose of that Division; and (d) any other Commonwealth, State or Territory legislation that covers conduct relating to credit activities (whether or not it also covers other conduct), but only in so far as it covers conduct relating to credit activities (NCCPA s5(1)).

Compliance with the obligations in ss47(1)(b), (g), (k) and (l) is to be determined according to the nature, scale and complexity of the credit activities engaged in by the licensee (s47(2)). According to the Explanatory Memorandum for the Bill that introduced these provisions, this enables a licensee to tailor the way in which they comply with their obligations, taking into account factors such as: (a) the types of credit activities the licensee engages in; (b) the diversity and structure of the licensee‘s operations (including the geographical spread of the operations and the extent to which the licensee outsources any of its functions); (c) the volume and size of the transactions the licensee is responsible for; and (d) the number of people in the licensee‘s organisation.

The NCCPA imposes specific obligations on licensees to assist ASIC in gathering intelligence and information about licensees, in order to assist it in its functions in regulating those engaging in credit activities (ss49 to 51). It also requires a licensee to cite their ACL number on documents of a kind prescribed by the regulations (s52). NCCPR r13 prescribes the following documents for these purposes: (a) a document that is required to be created or produced in accordance with Chapter 3; (b) a printed advertisement that relates to the provision of credit to which the Code would apply; (c) a document that is required to be created, produced, given or published by a provision of the NCC; and (d) a document lodged with ASIC that relates to the provision of credit to which the Code would apply.

NCCPA s53 - Obligation to Lodge Annual Compliance Certificate

A licensee must, no later than 45 days after the licensee’s licensing anniversary in each year, lodge a signed compliance certificate in the approved form with ASIC.

This is a civil penalty punishable by a penalty of 2,000 penalty units.

NCCPR r14 specifies who can sign the annual compliance certificate where the licensee is a body corporate. If the licensee is not an ADI, it must be signed by its Chief Executive Officer or, if it does not have a Chief Executive Officer, the person who is responsible for managing the affairs of the body corporate and has authority to make decisions in relation to the allocation of resources so that the body corporate complies with the Act. If the licensee is an ADI, it must be signed by its Chief Executive Officer or a person who satisfies the criteria to be fit and proper to hold a responsible person position under Prudential Standard APS 520.

NCCPA s217 provides that a document that the Act requires to be lodged with ASIC in an approved form must, if ASIC has approved a form for the document, be in the approved form. ASIC's approved form for an annual compliance certificate is quite detailed and requires a licensee to update details about its business activities, credit or credit intermediary activities and representatives for the previous 12 months; if the licensee provides credit services, provide information about the money it has held in trust during the past financial year; provide information about its dispute resolution and compensation activity – the number of accounts it held, the number of complaints it received and the number of voluntary, proactive compensation programs it ran; calculate its annual compliance certificate fee; certify that it is complying with its credit licence obligations; certify matters and notify changes about all its fit and proper people, both current and those that have ceased to perform that role in the past 12 months; complete a statement of personal information for all new fit and proper people; and notify changes about its responsible managers.

The full list of questions asked on the annual compliance certificate can be viewed at: http://download.asic.gov.au/media/1310173/About%20the%20Australian%20credit%20licence%20annual%20compliance%20certificate%20201308.pdf.

An information sheet on annual compliance certificates for credit licensees can be viewed at: http://www.asic.gov.au/for-finance-professionals/credit-licensees/your-ongoing-credit-licence-obligations/annual-compliance-certificates-for-credit-licensees/.

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Credit Guides

NCCPA s126 - Credit Guide of Credit Providers
(1)   A licensee must, as soon as practicable after it becomes apparent to the licensee that it is likely to enter a credit contract with a consumer who will be the debtor under the contract, give the consumer the licensee’s credit guide in accordance with s126(2).
(2)   The licensee’s credit guide must:
  (a)   be in writing;
  (b)   be in the form (if any) prescribed by the regulations;
  (c)   specify the licensee’s name and contact details;
  (d)   specify the licensee’s Australian credit licence number;
  (e)   give information about the licensee’s procedure for resolving disputes with a consumer, including contact details for a consumer to access:
    (i)   the licensee’s internal dispute resolution procedure; and
    (ii)   the approved external dispute resolution scheme of which the licensee is a member;
  (f)   give information about the licensee’s obligations under ss132 and 133; and
  (g)   comply with any other requirements prescribed by the regulations.

Breach of s126(1) attracts a civil penalty of 2,000 penalty units. It is also a criminal offence punishable by a fine of 50 penalty units (s126(5)).

The obligations under ss132 and 133 mentioned in (f) above are, in reverse order, not to provide an unsuitable credit facility and to provide a copy of the unsuitability assessment to the consumer upon request.

NCCPA s149 imposes a similar obligation on lessors under consumer leases (with the references above to ss132 and 133 replaced by references to ss155 and 156). Their credit guide must be given as soon as practicable after it becomes apparent to the licensee that it is likely to enter a consumer lease with a consumer who will be the lessee under the lease.

Note that under NCCPR r26B additional information may be required in the credit guide of a credit provider in relation to relationships with mortgage managers and product designers.

NCCPA s113 - Credit Guide of Credit Assistance Providers
(1)   A licensee must, as soon as practicable after it becomes apparent to the licensee that it is likely to provide credit assistance to a consumer in relation to a credit contract, give the consumer the licensee’s credit guide in accordance with s113(2).
(2)   The licensee’s credit guide must:
  (a)   be in writing;
  (b)   be in the form (if any) prescribed by the regulations;
  (c)   specify the licensee’s name and contact details;
  (d)   specify the licensee’s Australian credit licence number;
  (e)   give information about:
    (i)   any fees that are payable by a consumer to the licensee for the licensee’s credit assistance;
    (ii)   any charges that are payable by a consumer to the licensee for matters associated with providing the credit assistance; and
    (iii)   the method for working out the amount of the fees and charges;
  (f)   give information about:
    (i)   if there are 6 or fewer credit providers that the licensee conducts business with when providing credit assistance in relation to credit contracts - the names of those credit providers; and
    (ii)   if there are more than 6 credit providers that the licensee conducts business with when providing credit assistance in relation to credit contracts - the names of the 6 credit providers with whom the licensee reasonably believes it conducts the most business;
  (g)   give information about:
    (i)   any commissions that the licensee, or an employee, director or credit representative of the licensee, is likely to receive, directly or indirectly, from credit providers in relation to credit contracts for which the licensee has provided credit assistance;
    (ii)   a reasonable estimate of the amounts of those commissions or the range of those amounts; and
    (iii)   the method for working out those amounts;
  (h)   give information about the licensee’s procedure for resolving disputes with a consumer, including contact details for a consumer to access:
    (i)   the licensee’s internal dispute resolution procedure; and
    (ii)   the approved external dispute resolution scheme of which the licensee is a member;
  (i)   give information about the licensee’s obligations under ss120 and 123; and
  (j)   comply with any other requirements prescribed by the regulations.

Breach of s113(1) attracts a civil penalty of 2,000 penalty units. It is also a criminal offence punishable by a fine of 50 penalty units (s113(5)).

The obligations under ss120 and 123 mentioned in (i) above are, in reverse order, not to provide credit assistance in relation to an unsuitable credit facility and to provide a copy of the preliminary unsuitability assessment to the consumer upon request.

NCCPA s136 imposes a similar obligation on licensees who provide credit assistance to a consumer in relation to a consumer lease (with the references above to ss120 and 123 replaced by references to ss143 and 146). Their credit guide must be given as soon as practicable after it becomes apparent to the licensee that it is likely to provide credit assistance to a consumer in relation to a consumer lease.

Note that under NCCPR r26A additional information may be required in the credit guide of a credit assistance provider in relation to commissions paid for the introduction of business, volume bonus arrangements, and relationships with mortgage managers and product designers. NCCPR r27 also modifies the information that is required in relation to fees, charges and commissions in certain circumstances.

NCCPA s158 - Credit Guide of Credit Representatives
(1)   If a credit representative of a licensee gives a consumer the licensee’s credit guide when acting on behalf of the licensee under Part 3-1, 3-2, 3-3 or 3-4, the credit representative must at the same time give the consumer the credit representative’s credit guide in accordance with s158(2).
(2)   The credit representative’s credit guide must:
  (a)   be in writing;
  (b)   be in the form (if any) prescribed by the regulations;
  (c)   specify the credit representative’s name and contact details;
  (d)   specify the credit representative’s credit representative number;
  (e)   give information about:
    (i)   any fees that are payable by a consumer to the credit representative for acting as a credit representative;
    (ii)   any charges that are payable by a consumer to the credit representative for matters associated with acting as a credit representative; and
    (iii)   the method for working out the amount of the fees and charges;
  (f)   give information about:
    (i)   if there are 6 or fewer licensees for whom the credit representative is a credit representative - the names of those licensees;
    (ii)   if there are more than 6 licensees for whom the credit representative is a credit representative - the names of the 6 licensees for whom the credit representative reasonably believes it conducts the most business; and
    (iii)   the credit activities the credit representative is authorised to engage in on behalf of the licensees referred to in (i) or (ii) above;
  (g)   give information about:
    (i)   any commissions the credit representative is likely to receive, directly or indirectly, from those licensees;
    (ii)   a reasonable estimate of the amounts of those commissions or the range of those amounts; and
    (iii)   the method for working out those amounts;
  (h)   give information about the credit representative’s procedure for resolving disputes with a consumer, including contact details for a consumer to access the approved external dispute resolution scheme of which the credit representative is a member; and
  (i)   comply with any other requirements prescribed by the regulations.

Breach of s158(1) attracts a civil penalty of 2,000 penalty units. It is also a criminal offence punishable by a fine of 50 penalty units (s158(5)).

Note that under NCCPR r27A additional information may be required in the credit guide of a credit representative in relation to commissions paid for the introduction of business, volume bonus arrangements, and the names of the primary credit providers or lessors with whom the representative conducts business. NCCPR r27B also modifies the information that is required in relation to fees, charges and commissions in certain circumstances and r28 provides that information about the credit representative's external dispute resolution scheme is not required if the representative is not required to be, and is not, a member of such a scheme.

NCCPR r28P(1) provides an exemption from s158(1) for credit representatives (both natural persons and corporate credit representatives) operating in a franchise structure from having to provide their own credit guide if the franchise agreement subjects the representative to, and requires compliance by the representative with, the policies of the franchisor and the credit guide of the franchisor explains that the licensee takes responsibility for the credit activities engaged in by the person (or class of persons of which the person is a member). The franchisor must be a licensee or a body corporate that is a credit representative of a licensee.

NCCPA s160 - Credit Guide of Debt Collectors
(1)   A person who is a licensee or credit representative must, as soon as practicable after it becomes authorised by a credit provider to collect, on the credit provider’s behalf, repayments made by a debtor under a credit contract, give the debtor the person’s credit guide in accordance with s160(3).
(2)   A person who is a licensee or credit representative must, as soon as practicable after it becomes authorised by a lessor to collect, on the lessor’s behalf, payments made by a lessee under a consumer lease, give the lessee the person’s credit guide in accordance with s160(3).
(3)   The person’s credit guide must:
  (a)   be in writing;
  (b)   be in the form (if any) prescribed by the regulations;
  (c)   specify the person’s name and contact details;
  (d)   if the person is a licensee - specify the licensee’s Australian credit licence number;
  (e)   if the person is a credit representative - specify the person’s credit representative number;
  (f)   give information about the person’s procedure for resolving disputes with a consumer, including contact details for a consumer to access:
    (i)   if the person is a licensee - the person’s internal dispute resolution procedure; and
    (ii)   in all cases - the approved external dispute resolution scheme of which the person is a member; and
  (g)   comply with any other requirements prescribed by the regulations.

Breach of s160(1) or (2) attracts a civil penalty of 2,000 penalty units. Breach of s160(1) is also a criminal offence punishable by a fine of 50 penalty units (s160(6) - note the omission of s160(2) from s160(6) appears to be a drafting error).

NCCPR r28P(3) provides an exemption from s160(1) and (2) for a licensee or a credit representative if they have given the consumer their credit guide in accordance with the requirements of ss113, 136 or 158 and it relates to: (i) the same credit contract as that under which they are authorised by the credit provider to collect, on behalf of the credit provider, repayments made by the consumer under the credit contract; or (ii) the same consumer lease as that under which they are authorised by the lessor to collect, on behalf of the lessor, payments made by the consumer under the consumer lease.

NCCPA s127 - Credit Guide of Credit Providers who are Assignees
(1)   A licensee must, as soon as practicable after it has been assigned any rights or obligations of a credit provider under a credit contract, give the debtor under the contract the licensee’s credit guide in accordance with s127(2).
(2)   The licensee’s credit guide must:
  (a)   be in writing;
  (b)   be in the form (if any) prescribed by the regulations;
  (c)   specify the licensee’s name and contact details;
  (d)   specify the licensee’s Australian credit licence number;
  (e)   give information about the licensee’s procedure for resolving disputes with a consumer, including contact details for a consumer to access:
    (i)   the licensee’s internal dispute resolution procedure; and
    (ii)   the approved external dispute resolution scheme of which the licensee is a member;
  (f)   comply with any other requirements prescribed by the regulations.

Breach of s127(1) attracts a civil penalty of 2,000 penalty units. It is also a criminal offence punishable by a fine of 50 penalty units (s127(5)).

NCCPA s150 imposes a similar obligation on assignees of rights or obligations of a lessor under a consumer lease. Their credit guide must be given as soon as practicable after they have been assigned any rights or obligations of a lessor under a consumer lease.

Finally, in relation to all of the slides under this heading, note that NCCPR r28P(2) relieves licensees and credit representatives from having to provide a second credit guide under ss113(1), 126(1), 136(1), 149(1), 158(1) or 160 (1) or (2) where the consumer has already received a credit guide in the previous 12 month period and the contact details for access to the relevant external dispute resolution scheme have not changed.

Note also CR r7.7.08B, which modifies s942DA (the section which allows an FSG and PDS to be combined into a single document in certain circumstances) to allow a person to combine an FSG and a Credit Guide if they are a financial services licensee or an authorised representative of a financial services licensee and are required to give a FSG to a client under the CA, and if they also hold an Australian credit license or are a credit representative under the NCCPA and are required to give a Credit Guide under that Act.

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Responsible Lending Obligations

See generally ASIC Regulatory Guide 209 - Credit licensing: Responsible lending conduct obligations.

NCCPA s128 - Obligations Licensees Must Satisfy Before Providing Credit
A licensee must not:
•     enter a credit contract, or increase the credit limit of a credit contract, with a consumer who will be the debtor under the contract;
•     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 that the credit limit of credit contract between the consumer and the licensee will be able to be increased;
on a day (the credit day) unless the licensee has, within 90 days (or other period prescribed by the regulations) before the credit day:
(c)   made an assessment that is in accordance with s129 and covers a period in which the credit day occurs; and
(d)   made the inquiries and verification in accordance with s130.

Breach of s128 attracts a civil penalty of 2,000 penalty units.

NCCPA s151 imposes similar obligations on licensees entering into consumer leases.

The 90 day period above is extended to 120 days if the credit to be provided under the credit contract will be used for the purchase of a residential property and the credit will be secured by a mortgage over the property (NCCPR r28J).

In 2015 and 2016, ASIC penalised BMW Australia Finance close to $700,000 for: (a) failing to make reasonable inquiries about, and take reasonable steps to verify, consumers' stated living expenses, income and cash at bank when there was an unexplained discrepancy in the figures provided, and making insufficient  inquiries about consumers' capacity or plans to repay substantial balloon repayments due at the conclusion of the loan term; (b) failing to assess credit contracts it entered into with consumers as unsuitable, and entering into unsuitable credit contracts, when documentation provided by consumers showed there was insufficient income available after expenses to service monthly loan repayments; and (c) failing or delaying in its obligations to provide customers with statutory information setting out their rights and the options available to them after a finance company repossesses a mortgaged vehicle or the consumer voluntarily returns that vehicle: see ASIC Media Releases 16-019MR and 15-037MR.

NCCPA s129 - Assessment of Unsuitability
For the purposes of s128(1)(c), the licensee must make an assessment that:
(a)   specifies the period the assessment covers; and
(b)   assesses whether the credit contract will be unsuitable for the consumer if the contract is entered into or the credit limit is increased in that period.

The note to s129 states that the licensee is not required to make the assessment if the contract is not entered into or the limit is not increased.

NCCPA s132 entitles clients to request the licensee to provide them with a written copy of their assessment of unsuitability up to 7 years after the credit contract is entered or the credit limit increased. If the request is made before the contact is entered or the limit increased, then the copy must be provided before entering the contract or increasing the limit. If the request is made within 2 years after the contract is entered or the limit increased, the copy must be provided within 7 business days. If the request is made between 2 and 7 years after the contract is entered or the limit increased, the copy must be provided within 21 business days. The copy of the assessment must be given to the client without charge.

The credit guide issued by a credit provider must mention the consumer's entitlement to request a copy of the credit provider's unsuitability assessment (s126(2)(f)).

NCCPA ss152 and 155 impose similar obligations on licensees entering into consumer leases.

NCCPA s130(1) - Reasonable Inquiries to be Made
For the purposes of s128(1)(d), the licensee must, before making the assessment:
(a)   make reasonable inquiries about the consumer’s requirements and objectives in relation to the credit contract;
(b)   make reasonable inquiries about the consumer's financial situation;
(c)   take reasonable steps to verify the consumer’s financial situation;
(d)   make any inquiries prescribed by the regulations about any matter prescribed by the regulations; and
(e)   take any steps prescribed by the regulations to verify any matter prescribed by the regulations.

Breach of s130(1) attracts a civil penalty of 2,000 penalty units.

NCCPA s153 imposes similar obligations on licensees entering into consumer leases.

NCCPA s130(1A) provides that if the credit contract is a "small amount credit contract" and the consumer holds (whether alone or jointly with another person) an account with an ADI into which income payable to the consumer is credited, the licensee must, in verifying the consumer’s financial situation for the purposes of s128(d), obtain and consider account statements that cover at least the immediately preceding period of 90 days.

For these purposes, a credit contract is a "small amount credit contract" if: (a) the contract is not a continuing credit contract; (b) the credit provider under the contract is not an ADI; (c) the credit limit of the contract is $2,000 (or such other amount as is prescribed by the regulations) or less; (d) the term of the contract is at least 16 days but not longer than 1 year (or such other number of years as is prescribed by the regulations); (e) the debtor’s obligations under the contract are not, and will not be, secured; and (f) the contract meets any other requirements prescribed by the regulations (NCCPA s5(1)).

NCCPR r28HA requires a licensee, if the credit to be provided under the credit contract will be used to secure a reverse mortgage over a dwelling or land, to make reasonable inquiries about the consumer’s requirements and objectives in meeting possible future needs, including a possible need for aged care accommodation and whether the consumer prefers to leave equity in the dwelling or land to the consumer’s estate.

NCCPR r28JA requires a licensee to make reasonable inquiries about the maximum credit limit that a consumer requires.

ASIC expresses the view in ASIC Regulatory Guide 209 - Credit licensing: Responsible lending conduct obligations (at paras 19-22) that the obligations to make reasonable inquiries and take reasonable steps to verify information are scalable - that is, what you need to do to meet these obligations will vary depending on the circumstances. Factors relevant to the scalability of the reasonable inquiries and verification obligations include: (a) the potential impact on the consumer of entering into an unsuitable credit contract; (b) the complexity of the credit contract; (c) the capacity of the consumer to understand the credit contract; and (d) whether the consumer is an existing customer of a credit provider or a new customer.

ASIC says (at para 36) that reasonable inquiries about a consumer's requirements and objectives could include inquiries about: (a) the amount of credit needed or the maximum amount of credit sought (eg, the desired limit for a credit card); (b) the timeframe for which the credit or consumer lease is required; (c) the purpose for which the credit or consumer lease is sought and the benefit to the consumer; (d) whether the consumer seeks particular product features or flexibility, the relative importance of different features to the consumer, and whether the consumer is prepared to accept any additional costs or risks associated with these features; and (e) whether the consumer requires any additional expenses, such as premiums for insurance related to the credit or consumer lease, to be included in the amount financed, and whether the consumer is aware of the additional costs of these expenses being financed.

ASIC says (at paras 32-33) that reasonable inquiries about a consumer’s financial situation will generally include: (a) the consumer’s current amount and source of income or benefits; (b) the extent of the consumer’s fixed expenses (such as rent, repayment of existing debts, child support and recurring expenses such as insurance); and (c)  the consumer’s variable living expenses (such as food and utilities) and drivers of variable expenses, such as dependants and any particular or unusual circumstances. Depending on the circumstances of the particular consumer, and the kind of credit contract or consumer lease they may acquire, reasonable inquiries could also include: (a) the consumer’s other expenditure that may be discretionary (such as entertainment, take-away food, alcohol, tobacco and gambling); (b) the extent to which any existing debts are to be repaid from the credit advanced; (c) the consumer’s credit history (including the number of small amount credit contracts the consumer has been a debtor under within the previous 90-day period, and whether the consumer has defaulted on payments under those contracts); (d) the consumer’s circumstances, including their age (particularly where they may be a minor) and the number of dependants; (e) the consumer’s assets, including their nature (such as whether they produce income) and value; (f) any significant changes to the consumer’s financial circumstances that are reasonably foreseeable (such as a change in repayments for an existing home loan due to the ending of a ‘honeymoon’ interest rate period or other foreseeable interest rate changes, or changes to the consumer’s employment arrangements such as seasonal employment or impending retirement and plans to fund retirement—for example, from superannuation or income-producing assets); (g) geographical factors, such as remoteness, which may require consideration of specific issues (such as potentially higher living costs compared to urban areas); and (h) indirect income sources (such as income from a spouse) where that income is reasonably available to the consumer, taking into account the history of the relationship and the expressed willingness of the earning person to meet repayment obligations.

As to reasonable steps to verify a consumer's financial position, ASIC suggests (at Table 4) that for employees, this could include confirming their employment with their employer and obtaining recent payroll receipts or payslips; for self-employed consumers, obtaining a recent tax return or Business Activity Statement or a statement from their accountant; and for consumers generally, obtaining a credit report and examining their bank account or credit card records.

Finally, ASIC notes that a credit provider's inquiries and verifications may include information received from a credit assistance provider (eg a mortgage or finance broker) as part of its preliminary assessment of unsuitability under NCCPA s115 (see below). However, it also notes that credit providers have an independent obligation to make reasonable inquiries and verifications, as well as the general obligation to act efficiently, honestly and fairly, and warns (at para 55) that: "We expect that reasonable and prudent credit providers and lessors will have processes in place to ensure the reliability of any information collected by third parties, including information contained in a preliminary assessment."

In 2016, Westpac agreed with ASIC to improve its practices around providing credit card limit increases to customers, to institute a remediation program to review previous credit limit increases which was assured by an independent external expert, and to make a contribution of $1 million over four years to support financial counselling and literacy. ASIC was concerned that Westpac was using automated processes for credit card limit increases that failed to make reasonable inquiries about some consumers' income and employment status before increasing their credit card limit. See ASIC Media Release 16-009MR.

NCCPA s131(1) and (2) - When Credit Contract Must be Assessed as Unsuitable
The licensee must assess that the credit contract will be unsuitable for the consumer if, at the time of the assessment, it is likely that:
(a)   the consumer will be unable to comply with the consumer's financial obligations under the contract, or could only comply with substantial hardship, if the contract is entered or the credit limit is increased in the period covered by the assessment;
(b)   the contract will not meet the consumer’s requirements or objectives if the contract is entered or the credit limit is increased in the period covered by the assessment; or
(c)   if the regulations prescribe circumstances in which a credit contract is unsuitable - those circumstances will apply to the contract if the contract is entered or the credit limit is increased in the period covered by the assessment.

Breach of s131(1) attracts a civil penalty of 2,000 penalty units.

NCCPA s154 imposes similar obligations on licensees entering into consumer leases.

The note to s131(1) points out that even if the contract will not be unsuitable for the consumer under (a)-(c) above, the licensee may still assess that the contract will be unsuitable for other reasons.

NCCPA s131(3) provides that for the purposes of para (a) in the slide above, it is presumed that, if the consumer could only comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is proved.

NCCPA s131(3A) provides that if the contract is a "small amount credit contract" and: (a) at the time of the assessment, the consumer is a debtor in default under another small amount credit contract; or (b) in the 90‑day period before the time of the assessment, the consumer has been a debtor under 2 or more other small amount credit contracts then, for the purposes of para (a) in the slide above, it is presumed that the consumer could only comply with the consumer’s financial obligations under the relevant contract with substantial hardship, unless the contrary is proved.

NCCPA s131(4) provides that for the purposes of determining whether the contract will be unsuitable, only information that satisfies both of the following is to be taken into account: (a) the information is about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations under s130(1)(d) or (e); and (b) at the time of the assessment, the licensee had reason to believe that the information was true or would have had reason to believe that the information was true if it had made the inquiries or verification under s130.

NCCPA s133(1) and (2) - Prohibition Against Providing Unsuitable Credit
A licensee must not:
(a)   enter a credit contract with a consumer who will be the debtor under the contract; or
(b)   increase the credit limit of a credit contract with a consumer who is the debtor under the contract;
if the contract is unsuitable for the consumer, that is to say, if, at the time it is entered or the credit limit is increased:
(c)   it is likely that the consumer will be unable to comply with the consumer’s financial obligations under the contract, or could only comply with substantial hardship;
(d)   the contract does not meet the consumer’s requirements or objectives; or
(e)   if the regulations prescribe circumstances in which a credit contract is unsuitable - those circumstances apply to the contract.

Breach of s133(1) attracts a civil penalty of 2,000 penalty units. Failure to comply is also a criminal offence punishable by a fine of up to 100 penalty units and/or 2 years jail for individuals, and a fine of up to 500 penalty units for a body corporate (s133(6)).

NCCPA s156 imposes similar prohibitions on licensees providing unsuitable consumer leases.

Again, NCCPA s133(3) provides that for the purposes of para (c) in the slide above, it is presumed that, if the consumer could only comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is proved.

NCCPA s133(3A) provides that if a contract is a small amount credit contract and either: (a) at the time it is entered or the credit limit is increased the consumer is a debtor under another small amount credit contract and the consumer is in default in payment of an amount under that other contract; or (b) in the 90‑day period before the time it is entered or the credit limit is increased, the consumer has been a debtor under 2 or more other small amount credit contracts; then, for the purposes of para (c) in the slide above, it is presumed that the consumer could only comply with the consumer’s financial obligations under the relevant contract with substantial hardship, unless the contrary is proved.

NCCPA s133(4) provides that for the purposes of determining whether the contract will be unsuitable, only information that satisfies both of the following is to be taken into account: (a) the information is about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations under s130(1)(d) or (e); and (b) at the time of the assessment, the licensee had reason to believe that the information was true or would have had reason to believe that the information was true if it had made the inquiries or verification under s130.

The regulations may prescribe particular situations in which a credit contact is taken, despite s133(2), not to be unsuitable for a retail client (s133(5)).

In 2016, CBA agreed to pay $180,000 in penalties and to write off $2.5 million in loan balances when an internal review identified a programming error in the automated serviceability calculator used to assess certain applications for personal overdrafts. As a result of the error, CBA failed to take into consideration the declared housing and living expenses of some consumers. Instead, CBA's serviceability calculator substituted $0 housing expenses and living expenses based on a benchmark which in some instances was substantially less than the living expenses declared by the consumer. This led to an over-estimation of the consumer's capacity to service the overdraft facility. As a result, between July 2011 and September 2015, CBA approved 9,577 consumers for overdrafts which would have otherwise been declined and 1,152 consumers for higher overdraft limits than would have otherwise been provided. Some consumers were approved for a personal overdraft, or an increased limit on their personal overdraft, even though their declared expenses were greater than their declared income. See ASIC Media Release 16-308MR.

NCCPA s115 - Obligations Licensees Must Satisfy Before Providing Credit Assistance
(1)   A licensee must not provide credit assistance to a consumer on a day (the assistance day) by:
  (a)   suggesting that the consumer apply, or assisting the consumer to apply, for a particular credit contract with a particular credit provider;
  (b)   suggesting that the consumer apply, or assisting the consumer to apply, for an increase to the credit limit of a particular credit contract with a particular credit provider;
  unless the licensee has, within 90 days (or other period prescribed by the regulations) before the assistance day:
  (c)   made a preliminary assessment that is in accordance with s116(1) and covers the period proposed for the entering of the contract or the increase of the credit limit; and
  (d)   made the inquiries and verification in accordance with s117.
(2)   A licensee must not provide credit assistance to a consumer on a day (the assistance day) by suggesting that the consumer remain in a particular credit contract with a particular credit provider unless the licensee has, within 90 days (or other period prescribed by the regulations) before the assistance day:
  (a)   made a preliminary assessment that is in accordance with s116(2) and covers a period in which the assistance day occurs; and
  (b)   made the inquiries and verification in accordance with s117.

Breach of s115 attracts a civil penalty of 2,000 penalty units.

NCCPA s138 imposes similar obligations on licensees providing credit assistance in relation to consumer leases.

NCCPA s116 - Preliminary Assessment of Unsuitability
For the purposes of s115(1)(c)/115(2)(a), the licensee must make a preliminary assessment that:
(a)   specifies the period the assessment covers; and
(b)   assesses whether the credit contract will be unsuitable for the consumer if the contract is entered into or the credit limit is increased in that period/the consumer remains in the contract in that period.

The note to s116 states that the licensee is not required to make the preliminary assessment if the credit assistance is not provided.

NCCPA s120 entitles clients to request the licensee to provide them with a written copy of their preliminary assessment of unsuitability up to 7 years after the date of the credit assistance quote  under s114 (see below). If the request is made within 2 years of the quote, the copy must be provided within 7 business days. If the request is made between 2 and 7 years after the quote, the copy must be provided within 21 business days. The copy of the assessment must be given to the client without charge.

The credit guide issued by a credit assistance provider must mention the consumer's entitlement to request a copy of the credit assistance provider's preliminary assessment of unsuitability (s113(2)(i)).

NCCPA ss139 and 143 impose similar obligations on licensees providing credit assistance in relation to consumer leases.

NCCPA s117(1) - Reasonable Inquiries to be Made
For the purposes of s115(1)(d) or (2)(b), the licensee must, before making the preliminary assessment:
(a)   make reasonable inquiries about the consumer’s requirements and objectives in relation to the credit contract;
(b)   make reasonable inquiries about the consumer's financial situation;
(c)   take reasonable steps to verify the consumer’s financial situation;
(d)   make any inquiries prescribed by the regulations about any matter prescribed by the regulations; and
(e)   take any steps prescribed by the regulations to verify any matter prescribed by the regulations.

Breach of s117(1) attracts a civil penalty of 2,000 penalty units.

NCCPA s140 imposes similar obligations on licensees providing credit assistance in relation to consumer leases.

NCCPA s117(1A) provides that if the credit contract is a "small amount credit contract" and the consumer holds (whether alone or jointly with another person) an account with an ADI into which income payable to the consumer is credited, the licensee must, in verifying the consumer’s financial situation for the purposes of s115(1)(d), obtain and consider account statements that cover at least the immediately preceding period of 90 days.

NCCPR r28HA requires a licensee, if the credit to be provided under the credit contract will be used to secure a reverse mortgage over a dwelling or land, to make reasonable inquiries about the consumer’s requirements and objectives in meeting possible future needs, including a possible need for aged care accommodation and whether the consumer prefers to leave equity in the dwelling or land to the consumer’s estate.

NCCPA s118(1) and (2) - When New or Increased Credit Contract Must be Assessed as Unsuitable
For a preliminary assessment under s116(1) about entering a credit contract or increasing a credit limit of a credit contract, the licensee must assess that the credit contract will be unsuitable for the consumer if, at the time of the preliminary assessment, it is likely that:
(a)   the consumer will be unable to comply with the consumer's financial obligations under the contract, or could only comply with substantial hardship;
(b)   the contract will not meet the consumer’s requirements or objectives; or
(c)   if the regulations prescribe circumstances in which a credit contract is unsuitable - those circumstances will apply to the contract;
if the contract is entered in the period proposed for it to be entered or the credit limit is increased in the period proposed for it to be increased.

Breach of s118(1) attracts a civil penalty of 2,000 penalty units.

NCCPA s141 imposes similar obligations on licensees providing credit assistance in relation to consumer leases.

The note to s118(1) points out that even if the contract will not be unsuitable for the consumer under (a)-(c) above, the licensee may still assess that the contract will be unsuitable for other reasons.

NCCPA s118(3) provides that for the purposes of para (a) in the slide above, it is presumed that, if the consumer could only comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is proved.

NCCPA s118(3A) provides that if the contract is a "small amount credit contract" and: (a) at the time of the preliminary assessment the consumer is a debtor in default under another small amount credit contract; or (b) in the 90‑day period before the time of the preliminary assessment, the consumer has been a debtor under 2 or more other small amount credit contracts; then, for the purposes of para (a) in the slide above, it is presumed that the consumer could only comply with the consumer’s financial obligations under the relevant contract with substantial hardship, unless the contrary is proved.

NCCPA s118(4) provides that for the purposes of determining whether the contract will be unsuitable, only information that satisfies both of the following is to be taken into account: (a) the information is about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations under s117(1)(d) or (e); and (b) at the time of the preliminary assessment, the licensee had reason to believe that the information was true or would have had reason to believe that the information was true if it had made the inquiries or verification under s117.

NCCPA s119(1) and (2) - When Remaining in Credit Contract Must be Assessed as Unsuitable
For a preliminary assessment under s116(2) about remaining in a credit contract, the licensee must assess that the credit contract will be unsuitable for the consumer if, at the time of the preliminary assessment, it is likely that:
(a)   the consumer will be unable to comply with the consumer's financial obligations under the contract, or could only comply with substantial hardship, if the consumer remains in the contract in the period covered by the preliminary assessment;
(b)   the contract will not meet the consumer’s requirements or objectives if the consumer remains in the contract in the period covered by the preliminary assessment; or
(c)   if the regulations prescribe circumstances in which a credit contract is unsuitable - those circumstances will apply to the contract if the consumer remains in the contract in the period covered by the preliminary assessment.

Breach of s119(1) attracts a civil penalty of 2,000 penalty units.

NCCPA s142 imposes similar obligations on licensees providing credit assistance in relation to consumer leases.

The note to s119(1) points out that even if the contract will not be unsuitable for the consumer under (a)-(c) above, the licensee may still assess that the contract will be unsuitable for other reasons.

NCCPA s119(3) provides that for the purposes of para (a) in the slide above, it is presumed that, if the consumer could only comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is proved.

NCCPA s119(4) provides that for the purposes of determining whether the contract will be unsuitable, only information that satisfies both of the following is to be taken into account: (a) the information is about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations under s117(1)(d) or (e); and (b) at the time of the preliminary assessment, the licensee had reason to believe that the information was true or would have had reason to believe that the information was true if it had made the inquiries or verification under s117.

NCCPA s123(1) and (2) - Prohibition Against Advising or Assisting Consumers to Obtain New or Increased Credit that is Unsuitable
A licensee must not provide credit assistance to a consumer by:
(a)   suggesting that the consumer apply, or assisting the consumer to apply, for a particular credit contract with a particular credit provider;
(b)   suggesting that the consumer apply, or assisting the consumer to apply, for an increase to the credit limit of a particular credit contract with a particular credit provider;
if the contract will be unsuitable for the consumer, that is to say, if, at the time the licensee provides the credit assistance, it is likely that:
(c)   the consumer will be unable to comply with the consumer’s financial obligations under the contract, or could only comply with substantial hardship;
(d)   the contract will not meet the consumer’s requirements or objectives; or
(e)   if the regulations prescribe circumstances in which a credit contract is unsuitable - those circumstances will apply to the contract;
if the contract is entered in the period proposed for it to be entered or the credit limit is increased in the period proposed for it to be increased.

Breach of s123(1) attracts a civil penalty of 2,000 penalty units. Failure to comply is also a criminal offence punishable by a fine of up to 100 penalty units and/or 2 years jail for individuals, and a fine of up to 500 penalty units for a body corporate (s123(6)).

NCCPA s146 imposes similar obligations on licensees providing credit assistance in relation to consumer leases.

Again, NCCPA s123(3) provides that for the purposes of para (c) in the slide above, it is presumed that, if the consumer could only comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is proved.

NCCPA s123(3A) provides that if a contract is a small amount credit contract and either: (a) at the time the licensee provides the credit assistance the consumer is a debtor under another small amount credit contract and the consumer is in default in payment of an amount under that other contract; or (b) in the 90‑day period before the time the licensee provides the credit assistance, the consumer has been a debtor under 2 or more other small amount credit contracts; then, for the purposes of para (c) in the slide above, it is presumed that the consumer could only comply with the consumer’s financial obligations under the relevant contract with substantial hardship, unless the contrary is proved.

NCCPA s123(4) provides that for the purposes of determining whether the contract will be unsuitable, only information that satisfies both of the following is to be taken into account: (a) the information is about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations under s117(1)(d) or (e); and (b) at the time the licensee provides the credit assistance, the licensee had reason to believe that the information was true or would have had reason to believe that the information was true if it had made the inquiries or verification under s117.

The regulations may prescribe particular situations in which a credit contact is taken, despite s123(2), not to be unsuitable for a consumer (s123(5)).

NCCPA s124(1) and (2) - Prohibition Against Advising Consumers to Remain in Unsuitable Credit Contract
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, that is to say, if, at the time the licensee provides the credit assistance:
(a)   the consumer is, or is likely to be, unable to comply with the consumer’s financial obligations under the contract, or only able to comply with substantial hardship;
(b)   the contract does not meet the consumer’s requirements or objectives; or
(c)   if the regulations prescribe circumstances in which a credit contract is unsuitable - those circumstances apply to the contract.

Breach of s124(1) attracts a civil penalty of 2,000 penalty units. Failure to comply is also a criminal offence punishable by a fine of up to 100 penalty units and/or 2 years jail for individuals, and a fine of up to 500 penalty units for a body corporate (s124(6)).

NCCPA s147 imposes similar obligations on licensees providing credit assistance in relation to consumer leases.

For the purposes of ss124(1) and (6), it is a defence if: (a) 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 (b) the licensee informed the consumer that there is a procedure under NCC ss72 and 94 for consumers in hardship (s124(7)).

Again, NCCPA s124(3) provides that for the purposes of para (a) above, it is presumed that, if the consumer could only comply with the consumer’s financial obligations under the contract by selling the consumer’s principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is proved.

NCCPA s124(4) provides that for the purposes of determining whether the contract is unsuitable, only information that satisfies both of the following is to be taken into account: (a) the information is about the consumer’s financial situation, requirements or objectives, or any other matter prescribed by the regulations under s117(1)(d) or (e); and (b) at the time the licensee provides the credit assistance, the licensee had reason to believe that the information was true or would have had reason to believe that the information was true if it had made the inquiries or verification under s117.

The regulations may prescribe particular situations in which a credit contact is taken, despite s124(2), not to be unsuitable for a consumer (s124(5)).

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Fees and Charges for Credit Assistance

NCCPA s114 - Quote for Providing Credit Assistance
(1)   A licensee must not provide credit assistance to a consumer by:
  (a)   suggesting that the consumer apply, or assisting the consumer to apply, for a particular credit contract with a particular credit provider;
  (b)   suggesting that the consumer apply, or assisting the consumer to apply, for an increase to the credit limit of a particular credit contract with a particular credit provider;
  (c)   suggesting that the consumer remain in a particular credit contract with a particular credit provider;
  unless:
  (d)   the licensee has given the consumer a quote in accordance with s114(2);
  (e)   the consumer has signed and dated that quote or otherwise indicated the consumer’s acceptance of it (and the day that happens) in the manner (if any) prescribed by the regulations; and
  (f)   the licensee has given the consumer a copy of the accepted quote.
(2)   The quote must:
  (a)   be in writing;
  (b)   give information about the credit assistance and other services that the quote covers;
  (c)   specify the maximum amount that will be payable by the consumer to the licensee in relation to the licensee’s credit assistance and other services;
  (d)   give information about what that amount relates to, including:
    (i)   the maximum amount of the licensee’s fee for providing the credit assistance and other services;
    (ii)   the maximum amount of charges that will be incurred by the licensee for matters associated with providing the credit assistance and other services; and
    (iii)   the maximum amount of fees or charges that will be payable by the licensee to another person on the consumer’s behalf;
  (e)   state whether the maximum amount or any other amount will be payable by the consumer to the licensee if a credit contract is not entered or a credit limit is not increased; and
  (f)   comply with any other requirements prescribed by the regulations.

Breach of s114(1) attracts a civil penalty of 2,000 penalty units.

The licensee must not request or demand payment of an amount that exceeds the maximum amount set out in the quote (s114(4)), request or demand payment of an amount for the licensee’s credit assistance before the licensee provides the assistance (s114(5)) or lodge, or threaten to lodge, a caveat in relation to land to induce the consumer to pay an amount to the licensee for the licensee’s credit assistance or other services (s114(6)).

NCCPA s137 imposes similar obligations on licensees providing credit assistance in relation to consumer leases.

NCCPR r28L(9) allows a person to combine a quote mentioned in NCCPA s114 or 137 with other credit disclosure documents (eg a credit guide, a credit proposal under s121 or a lease proposal under s144) or the credit provider's contract document, provided in doing so the person conforms with the requirements in the NCCPA as to the content or provision of the documents.

NCCPR r28C removes the requirement to provide a quote where: (a) the licensee’s credit guide includes a statement that the licensee does not impose fees or charges on consumers for providing credit assistance and other services; or (b) the licensee decides, before providing credit assistance, that they will not charge the borrower a fee and includes a statement to this effect in the credit proposal document.

NCCPR r28D specifies how the information about fees and charges included in the quote must be described.

NCCPA s121 - Fees, Charges and Commissions for Credit Assistance to be Disclosed in Credit Proposal
(1)   A licensee must, at the same time as providing credit assistance to a consumer by:
  (a)   suggesting that the consumer apply, or assisting the consumer to apply, for a particular credit contract with a particular credit provider;
  (b)   suggesting that the consumer apply, or assisting the consumer to apply, for an increase to the credit limit of a particular credit contract with a particular credit provider;
  (c)   suggesting that the consumer remain in a particular credit contract with a particular credit provider;
  give the consumer a credit proposal disclosure document in accordance with s121(2).
(2)   The credit proposal disclosure document must contain the following:
  (a)   the total amount of any fees or charges that the consumer is liable to pay to the licensee in relation to the credit contract and the method used for working out that amount;
  (b)   a reasonable estimate of the total amount of any commissions that the licensee, or an employee, director or credit representative of the licensee, is likely to receive in relation to the credit contract and the method used for working out that amount;
  (c)   a reasonable estimate of the total amount of any fees or charges that the consumer is likely to be liable to pay to the credit provider in relation to applying for the credit contract;
  (d)   a reasonable estimate of the total amount of any fees or charges that the consumer is likely to be liable to pay to any other person in relation to applying for the credit contract;
  (e)   if the credit is to be applied to pay any of the amounts in the above paragraphs - a reasonable estimate of the likely amount of credit that will be available to the consumer after payments under paragraphs (a), (c) and (d) are made.

Breach of s121(1) attracts a civil penalty of 2,000 penalty units.

NCCPA s144 imposes similar obligations on licensees providing credit assistance in relation to consumer leases.

Again, NCCPR r28L(9) allows a person to combine a credit proposal under s121 or a lease proposal under s144 with other credit disclosure documents (eg a credit guide or a quote mentioned in NCCPA s114 or 137) or the credit provider's contract document, provided in doing so the person conforms with requirements in the NCCPA as to the content or provision of the documents.

NCCPR r28E specifies how the information about fees and charges, and r28G specifies how the information about commissions, included in the credit proposal must be described. There are also exemptions in rr28F and 28H from the requirement to disclose certain information about fees, charges and commissions in a credit proposal in certain circumstances.

NCCPA s122(1) - No Profiting From Fees Paid to Third Parties
If, in the course of providing credit assistance to a consumer in relation to a credit contract, a licensee pays an amount (the third party amount) to another person on behalf of the consumer, the licensee must not request or demand payment of an amount, as reimbursement for the third party amount, that exceeds the third party amount.

Breach of s122(1) attracts a civil penalty of 2,000 penalty units. Failure to comply is also a criminal offence punishable by a fine of up to 25 penalty units and/or 6 months jail for individuals, and a fine of up to 125 penalty units for a body corporate.

NCCPA s145 imposes similar obligations on licensees providing credit assistance in relation to consumer leases.

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National Credit Code Obligations

NCC - Core Obligations
•     Any credit contract must be in the form of (a) a written contract document signed by the debtor and the credit provider or (b) a written contract document signed by the credit provider and constituting an offer to the debtor that is accepted by the debtor in accordance with the terms of the offer (s14) and satisfy the form and content requirements of the Code (ss17 and 18).
•     Before the contract is entered into or the debtor makes an offer to enter into the contract, whichever first occurs, the debtor must be provided with a pre-contractual statement disclosing mandatory details about fees and charges, and an information statement in the prescribed form explaining the debtor's statutory rights and obligations (s16).
•     Once the contract is signed, the credit provider must provide a copy of the signed contract to the debtor within 14 days (s20).
•     Regular account statements must be provided and satisfy the form and content requirements of the Code (ss33-35).
•     In cases of hardship, a debtor can request the credit provider or apply to the court for changes to their contract so that they can still meet their credit obligations (ss72-74). The court may reopen unjust transactions (ss76-77) and review unconscionable interest and other charges (s78).
•     Notice obligations must be complied with before the credit provider can make unilateral changes to a credit contract (ss63-70). Notice must also be given of any agreed changes to a credit contract (s71).
•     A debtor or guarantor is entitled to pay out the credit contract at any time, subject to any applicable early termination charges provided for in the contract (s82). The creditor must supply a written pay out figure if requested in writing by a debtor or guarantor (s83).
•     Notice obligations also must be complied with before the credit provider can take enforcement action (ss88-93A). A debtor can request the credit provider or apply to the court to seek a postponement of enforcement action (ss94-97).
•     Failure to comply with the Code can lead to criminal charges, civil penalties of up to $500,000, civil damages awards and non-recoverability of fees and interest.

The pre-contractual statement may be the proposed contract document or be a separate document or documents (s16(5)).

Again, NCCPR r28L(9) allows a credit provider to combine their contract document mentioned in NCC s18 with other credit disclosure documents (eg a credit guide, a credit proposal under s121 or a lease proposal under s144, or a quote mentioned in NCCPA s114 or 137), provided in doing so the person conforms with requirements in the NCCPA as to the content or provision of the documents.

Mortgages that secure amounts owing under a credit contract or a related guarantee must also be in writing (s42) and a copy provided to the mortgagor within 14 days (s43). Certain types of mortgages are prohibited (s44-50).

Guarantees that secure amounts owing under a credit contract likewise must be in writing (s 55) and a copy provided to the guarantor within 14 days (s57). In addition, before a guarantee is signed by the guarantor, the credit provider must give to the prospective guarantor: (a) a copy of the credit contract or proposed credit contract; and (b) a document in the prescribed form explaining the rights and obligations of a guarantor (s56). Certain types of provisions in guarantees are prohibited or rendered void in certain circumstances (ss59-60).

Similarly, consumer leases must be in the form of a written lease document signed by the lessee (s173) and satisfy the content requirements of the Code (s174). Again, once the lease is signed, the lessor must provide a copy of the signed lease to the lessee within 14 days (s175).

There are also provisions making credit providers who fund the purchase of goods or supply of services under tied credit contracts liable for misrepresentations by the supplier of the goods or services (s125-139) and regulating related insurance contracts (ss142-149), advertising (ss150-151)), harassment (s155), door to door selling of credit (s156) and the use of comparison rates (ss157- 168).

A more detailed examination of the NCC is beyond the scope of this course.

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Other NCCPA Requirements

Key Fact Sheets for Home Loans and Credit Cards
•    

Licensees that are credit providers under standard home loans must:

  •     if they have a website that allows a consumer to apply for, or make an inquiry about, a standard home loan, ensure that the website also allows consumers to generate an up‑to‑date Key Facts Sheet (s133AC); and
  •     provide a Key Facts Sheet to a consumer upon request or if required by the regulations (s133AD).
•    

Licensees that are credit providers under credit card contracts must:

  •     ensure that an application form for a credit card contract includes an up‑to‑date Key Facts Sheet (s133BC); and
  •     not enter into a credit card contract unless a Key Facts Sheet has been provided (s133BD).

A "standard home loan" is a standard form of credit contract under which the licensee provides credit to purchase residential property or to refinance credit that has been provided wholly or predominantly to purchase residential property (s133A(1)).

For these purposes, a standard form of credit contract is a contract for a home loan that is a variable rate home loan (ie the interest rate on the entire loan balance may vary at the lender’s discretion) or a fixed rate home loan (ie the interest rate on the entire loan balance is fixed for the whole or part of the loan) and that obliges the consumer to make repayments that repay principal and interest for the full term of the home loan (NCCPA s133A(2) and NCCPR r28LA).

The requirements for a Key Fact Sheet for a standard home loan are set out in NCCPR r28LB and Schedule 5. It essentially sets out, in a standardised format, pricing and other information about a standard home loan product so that consumers can readily compare different home loans, especially in respect of their cost.

A "credit card contract" is a continuing credit contract under which credit is ordinarily obtained only by the use of a credit card (s133BA(1)).

The requirements for a Key Fact Sheet for a credit card are set out in NCCPR r28LFA and Schedule 6. It includes key information about the annual percentage interest rate, minimum repayments and other terms.

Other Constraints on Credit Card Providers
•    

NCCPA Part 3‑2B Div 4 imposes restrictions on a licensee from making unsolicited invitations to increase the credit limit of a credit card.

•    

NCCPA Part 3‑2B Div 5 imposes restrictions on a licensee approving the use of a credit card in excess of its credit limit. It also restricts the charging of fees under those circumstances.

•     NCCPA Part 3‑2B Div 6 imposes requirements relating to the order of application of payments made under credit card contracts. Generally, a payment must be applied against that part of the customer's outstanding balance on which they are charged the higher interest rate.

 

Short Term and Small Amount Credit Contracts
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A licensee must not enter a short‑term credit contract, or increase the credit limit of a short‑term credit contract, with a consumer (s133CA).

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A licensee must not provide credit assistance to a consumer by suggesting that the consumer apply, or assisting the consumer to apply, for a short‑term credit contract or an increase to the credit limit of a particular short‑term credit contract with a particular credit provider (s124A).

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A licensee who represents that it enters into, or is able to enter into, small amount credit contracts with consumers or that it provides, or is able to provide, credit assistance to consumers in relation to small amount credit contracts must display information in accordance with the regulations at a place prescribed by the regulations and ensure that any website of the licensee complies with the requirements prescribed by the regulations (ss133CB and 124B).

•     A licensee must not enter into, or offer to enter into, a small amount credit contract with a consumer if the consumer receives at least half of their gross income under the Social Security Act 1991 and their repayments would exceed 20% of their gross income (s133CC and r28S).

A "short‑term credit contract" is a credit contract where: (a) the contract is not a continuing credit contract; (b) the credit provider under the contract is not an ADI; (c) the credit limit of the contract is $2,000 (or such other amount as is prescribed by the regulations) or less; (d) the term of the contract is 15 days or less; and (e) the contract meets any other requirements prescribed by the regulations (NCCPA s5(1)).

The definition of "small amount credit contract" is set out above.

For ss133CB and 124B, NCCPR r28XXA requires a licensee to publish a warning on its premises in the form of schedule 7 and NCCPR r28XXB requires a licensee to publish a hyperlink on its website in the form of schedule 8 that opens a warning in the form of schedule 9. In each case, the warning is to the effect that it can be expensive to borrow small amounts of money and borrowing may not solve your money problems.

If a licensee represents that it enters into, or is able to enter into, small amount credit contracts with consumers or that it provides, or is able to provide, credit assistance to consumers in relation to small amount credit contracts, a consumer communicates with the licensee by telephone in relation to the credit assistance and the licensee reasonably believes that the consumer has not, in the previous 30 days, sighted the warning referred to in either r28XXA or 28XXB as a result of visiting premises from which the licensee engages in credit activities or as a result of using a website of the licensee, the licensee must give information in accordance with the regulations as part of dealing with the consumer and comply with any other requirements prescribed in the regulations (ss133CBA and 124BA, as introduced by rr28XXD and 28XXC respectively).

Reverse Mortgages
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Before giving a preliminary assessment or a final assessment in connection with a reverse mortgage, a credit provider or credit assistance provider must:

  •     show the consumer projections that relate to the value of the dwelling or land that may become reverse mortgaged property, and the consumer’s indebtedness, over time, if the consumer were to enter into a reverse mortgage, and give them a printed copy of the projections; and
  •     give the consumer a reverse mortgage information statement (s133DB).
•     If the credit provider or credit assistance provider has a website that provides information about reverse mortgages, they must make a reverse mortgage information statement available through the website (s133DC).
•     If a consumer otherwise asks for a reverse mortgage information statement, the credit provider or credit assistance provider must give them this document (s133DD).
•     Licensees must not inaccurately use terms like “reverse mortgage” in making representations about credit contracts and mortgages (s133DE).

A "reverse mortgage" is an arrangement involving a credit contract (not being a bridging finance contract) and a mortgage over a dwelling or land securing a debtor’s obligations under the contract where: (a) the debtor’s total liability under the credit contract or mortgage may exceed (to a limited or unlimited extent) the maximum amount of credit that may be provided under the contract without the debtor being obliged to reduce that liability to or below that maximum amount; and (b) if the regulations prescribe any prerequisites for the arrangement to be a reverse mortgage, those prerequisites are met (NCCPA s5(1) and NCC s13A). ASIC can also declare an arrangement to be a reverse mortgage for the purposes of the Act (NCC s13A(4)).

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