If you are in the business of providing credit to consumers, you may have to comply with the laws and regulations as set out in the National Consumer Credit Protection Act 2009 (Cth) (NCCPA), which include the National Credit Code (Code) (together, 'Australian credit laws').
Traditional loans, sale by instalment, or lease of goods with an option to purchase are examples of consumer credit that may be covered by the Australian credit laws.
In order to determine what Australian credit laws a lender must comply with, the lender must ask one crucial question – is the lender providing credit to consumers under a 'credit contract' as that term is defined in the Australian credit laws? If the answer is yes, then the lender must comply with a variety of obligations set out in the Australian credit laws, including the requirement to hold an Australian credit licence and engage in 'responsible lending conduct'. For an overview of applicable responsible lending conduct, see our article 'A warning to the credit industry: lend responsibly!'
When do the Australian credit laws apply?
The Australian credit laws apply to the provision of credit if when a 'credit contract' is entered into or proposed to be entered into:
- the debtor is a natural person or a strata corporation; and
- the credit is provided or intended to be provided wholly or predominantly:
- for personal, domestic or household purposes; or
- to purchase, renovate or improve residential property for investment purposes; or
- to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes; and
- a charge is or may be made by the lender for providing the credit; and
- the lender provides the credit in the course of or incidental to a business of providing credit that it carries on in this jurisdiction.
Satisfying the test is simply a matter of considering the real life circumstances under which the credit is provided, the contract and the terms. If the above characteristics apply to a supply of credit, then a credit contract has been formed and consumer credit has been extended. In these cases, the lender must comply with the Australian credit laws, unless the arrangement satisfies one of the exemptions.
Obligations pursuant to Australian credit laws
Lenders of consumer credit, where the arrangement is not exempted by the Code, must comply with the obligations set out in the Australian credit laws. These obligations may include:
- licensing requirements;
- general conduct requirements (such as competence and training, financial requirements, dispute resolution, compensation and insurance and trust accounts);
- responsible lending requirements; and
- specific consumer lease and credit contract disclosure requirements.
There is continuing priority for the vulnerable and disadvantaged, particularly the elderly and those who have recently arrived in Australia.
Penalties for non-compliance
ASIC can issue infringement notices with penalties for contraventions of Australian credit laws. Unlicensed trading or failure to comply with your credit obligations could mean individual fines of up to $220,000 or $1.1 million for a business. Criminal penalties of up to two years' imprisonment may also apply.
- Nimble Australia Pty Ltd was ordered by ASIC to refund consumers more than $1.5 million after failing to meet its responsible lending obligations, including for failing to properly assess the financial circumstances of consumers before providing them with loans.
- Make it Mine Finance Pty Ltd was stung with a $1.25 million fine after it failed to disclose important information to its customers, breached various responsible lending obligations and operated for a period whilst unlicensed.
- Capital Finance Australian Pty Ltd was hit with a fine of nearly half a million dollars' penalty for breaching the Code when it failed to provide consumers with default notices prior to commencing enforcement proceedings and failed to provide consumers with the information regarding their rights within required timeframes after repossessing their motor vehicles.
- BMW Australia Finance Ltd was issued with 22 infringement notices to the sum of $391,000 and a condition was placed on its Australian credit licence for breaches of responsible lending obligations, including a failure to make reasonable inquiries and verify information given as to consumer's living expenses, income, and cash savings where discrepancies existed.
- Fair Go Finance Pty Ltd was handed a $34,000 fine by ASIC and ordered to return $34,500 to affected customers for overcharging interest and establishment fees on payday loans.
- Rescue Credit Pty Ltd had to repay over $35,000 to consumers after it was found to have imposed fees and charges in excess of those allowed under Australian credit laws.
If you provide credit for home loans, personal loans, credit cards, consumer leases, lease of goods with option to purchase/sale by instalments, overdrafts, line of credit accounts or for other purposes that are captured by the Australian credit laws, it is imperative that you are not only aware of your obligations as a lender of consumer credit, but strictly comply with them.
In our experience, we have found that it is always better for individuals and businesses that are unsure of their legal obligations to err on the side of caution and seek legal advice to avoid ASIC coming after them for non-compliance.
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.