Enhancing the National Credit Code

The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 was enacted as the Consumer Credit Legislation Amendment (Enhancements) Act 2012 (Cth) (Enhancements Act) on 17 September 2012.

Taking effect from 1 March 2013, the Enhancements Act amends the National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) to introduce a range of key reforms including:

• Changes to procedures for hardship applications under the National Credit Code.

• Product specific obligations for reverse mortgages – such as the requirement to provide consumers with projections of the debtor’s equity in the property under a reverse mortgage and improved disclosure by an information statement to help consumers make more informed decisions in relation to reverse mortgage products.

• The introduction of various protections for consumers of small amount credit contracts including imposing a cap on the amount that credit providers can charge and a prohibition on multiple contracts to minimise the risk of a debtor entering a debt spiral.

• The introduction of new obligations for small amount credit contracts, including:

  • Presumptions of unsuitability where a consumer is in default of an existing small amount credit contract; or in the preceding 90 days, a consumer has been a debtor under two or more other small amount credit contracts.  A “small amount credit contract” is defined in the Enhancements Act to be an unsecured  credit contract that is provided by a credit provider that is not an authorised deposit-taking institution (ADI), having a credit limit $2,000 or less, and a term of at least 16 days but less than one year.
  • Disclosure requirements for licensees’ premises and websites.
  • A“Protected Income Amount” where the borrower is Centrelink dependent.

• A ban on “short-term credit contracts”.  These are credit contracts where the credit provider is not an ADI, the credit limit of the contract is $2,000 or less and the credit contract is for a term of 15 days or less. 

• New disclosure requirements on consumer leases to provide regulatory consistency between leases and other functionally similar forms of arrangements.

• The introduction of disclosure requirements in relation to the use of employer payment authorisations.

• Restrictions on the use of certain words, including “independent” and “financial counselling, and representations that a consumer is eligible for credit before an unsuitability assessment has been conducted”.

• Remedies for unfair or dishonest conduct by credit service providers.

Lavan Legal comment

The reforms have a wide impact on the business processes of consumer credit providers.  Many of Lavan Legal’s clients have been proactive in reviewing key documentation and their business processes in anticipation of the reforms coming into effect.  Undoubtedly, the work to ensure and monitor compliance with the new measures is an ongoing task, with an initially steep learning curve for providers of consumer credit.

A major challenge being faced by many providers includes the revision of credit contract forms and standard documents to incorporate language or entire provisions to ensure compliance with the new reforms. 

Credit providers will also need to take care that not only legal documents are promptly revised, but also marketing and product specific material in any medium.  Credit providers should ensure that there is close co-operation between their marketing and compliance teams, recognising the value that early input from compliance and external advisers bring to proposed marketing campaigns.

Training or educating staff to be aware of the new measures is vital to ensure actions undertaken on behalf of the credit provider are in compliance with their and their employer’s new obligations.  Ongoing education of all staff and representatives of a credit provider is required to minimise risks of actions and representations made by staff being inconsistent with the NCCP Act’s requirements.

Lavan Legal can help credit providers with each of these key challenges, working along side your internal teams and stakeholders to deliver practical and commercial outcomes that comply with your obligations under the new, enhanced National Credit Code.