Does your business issue goods leases, such as leasing out
equipment or hire purchase agreements, to individuals? If so, then
you need to know whether or not the National Consumer Credit
Protection Act 2009 (the "Act") may be impacting on
Since the introduction of the Act, we have found that many
businesses that fall within the application of the Act - because
they rent out equipment or issue hire agreements to individuals -
are actually unaware of their obligations and lack compliance.
Unfortunately, these businesses find out about their obligations
when it's too late.
The Act regulates the form and disclosure obligations of
businesses when issuing credit contracts to individuals. Further
amendments to the Act are proposed to commence on 1 July 2012 that
specifically relate to consumer leases and credit contracts.
This article highlights the key differences between a consumer
lease and a credit contract, as applicable to goods leases. It will
tell you why this identification is important and summarise the
proposed amendments to the Act that are applicable to these types
Does your business issue Consumer Leases and/or Credit
The table below outlines the differences between consumer leases
and credit contracts as defined by the Act:
For the purposes of this article, these definitions are not
intended to be exhaustive and you are encouraged to seek legal
advice to determine whether or not your documents fall within the
scope of either of these two scenarios.
All businesses that issue either a consumer lease or a credit
contract as defined by the Act must ensure that their documents
comply with the requirements set by the Act, which include:
the form of the written contract;
specific matters that must be included in each type of contract
including pre-contractual and post-contractual disclosure
requirements, all of which are different depending on whether the
contract is a consumer lease or a credit contract.
In addition to these requirements, all credit contracts must
comply with the maximum percentage of interest that the credit
provider may charge the customer pursuant to the Act.
Proposed amendments to credit contracts and consumer
A summary of the key changes that are likely to commence on 1
July 2012 from the Consumer Credit and Corporations Legislation
Amendment (Enhancements) Bill 2011 (Cth) are as follows:
additional disclosure requirements are proposed to consumer
leases so that they will be regulated more like credit contracts.
This means more paperwork and administration for businesses!
a new regulatory regime is proposed, which relates to small
amount credit contracts of $2,000 or less. It is proposed that this
new regime will include specific requirements of a maximum
establishment fee and a maximum monthly charge that may be imposed
on contracts that fall within the definition of a small amount
credit contract. This means that new rules will apply to all of
your daily contracts issued to individuals from the commencement
date of the new amendments;
there will be a need to expressly specify in credit contracts
that the maximum 'cost rate' including interest and charges
and fees to third parties (such as brokers) is 48% per annum. With
this proposed change and without much clarity or assistance from
authorities as to how the cost rate formula is actually calculated
in practice means this area remains complex and unclear. Many
businesses affected by this will need guidance on how to deal with
new hardship provisions for hirers giving your customers more
consideration for their financial position and hardships;
the time for giving direct debit default notices is extended
from 10 business days to 14 business days; and
whereas before your business could take enforcement action
after 14 days of default by the customer, now there are new
provisions that postpone the businesses ability to take such
Penalties for non-compliance
The following penalties apply to businesses that fail to comply
with their obligations under the Act:
As a responsible business owner, what should you do?
Consider whether or not your goods lease is a consumer lease or
a credit contract as defined by the Act.
If the goods lease is a consumer lease or a credit contract, we
strongly recommend that you have your leasing and credit documents
reviewed for compliance with:
your current obligations specified by the Act; and
any applicable proposed amendments to the Act.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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