Australia: Consumer Credit changes start in June 2023

Changes to Small Amount Credit Contracts (SACCs) and Consumer Leases will take effect on 12 June 2023.

Summary of the changes to SACCs and Consumer Leases

The Financial Sector Reform Act 2022 (Act) details the changes made to SACCs and Consumer Leases.

SACCs:

SACCs are special types of credit contracts that have a term of 16 days or more, (but no longer than 12 months) and offer a credit limit of no more than $2000.

Changes to SACCs includes the following:

• Fees: Credit licensees cannot charge monthly fees for the residual term of the SACC where the consumer repays the full amount of the loan early;
• Repayments: SACCs must have equal repayments and repayment intervals over the life of the loan (subject to limited exceptions);
• Anti-hawking: SACC providers are prohibited from making unsolicited offers to consumers and referrals in certain circumstances;
• Assessment: SACC providers must now conduct an assessment as to whether the SACC is not unsuitable for the consumer, based on the SACC provider's inquiries and verifications. SACC providers must document their assessment in writing that the credit contract is not unsuitable for the consumer;
• Warning: SACC providers must display and give information to consumers about SACCs. The warning content will be prescribed by ASIC; and
• Protected Earnings Amount: Previously the restricted earnings amount applied to consumers in certain classes. The amendments enable the regulations to apply a protected earnings amount to all consumers, rather than only those in a certain class.

Consumer Leases:

A consumer lease is a contract for the hire of goods by a person who does not have a right or obligation to purchase the goods.

Changes to Consumer Leases includes the following:

• New regulation: Leases for an indefinite period of time are now regulated. Leases for less than 4 months continue to be exemption from regulation.
• Warning: Lessors must display and give information to consumers about consumer leases. The warning content will be prescribed by ASIC; and
• Assessment: Lessors must conduct an assessment as to whether the consumer lease is not unsuitable for the consumer, based on the lessor's inquiries and verifications, including obtaining the consumer's account information for the preceding 90 days. Lessors must document their assessment in writing that the consumer lease is not unsuitable for the consumer;
• Protected Earnings Amount: the amendments enable the regulations to apply a protected earnings amount in the same was as for SACCs.
• Disclosure: Lessors will be required to disclose the base price of the goods being leased and the difference between the base price and the total amount payable under the consumer lease.
• Anti-hawking: SACC providers are prohibited from making unsolicited offers to consumers and referrals in certain circumstances;
• Overall cap for all consumer leases: Lessors must not enter into or vary a consumer lease where the total amount payable by the lessee (including any applicable taxes and add on fees) is more than the permitted cap for the lease;
• Permitted Cap for a consumer lease: This is the sum of:
  • the base price of the goods hired under the consumer lease;
  • the amount worked out by multiplying the base price of the goods hired under the consumer lease by:
    • 0.04 x number of whole months of the consumer lease (up to a maximum of 48 months) for consumer leases with a fixed term; OR
    • 1.92 x number of whole months of the consumer lease (up to a maximum of 48 months) for a consumer lease with an indefinite period;
  • Permitted delivery fee (if any) for the consumer lease;
  • Permitted installation fees (if any) for the consumer lease; and
  • Permitted add-on fees (if any) for the consumer lease.

The permitted cap will need to be calculated for each consumer lease type.

• Monthly cap for consumer lease for an indefinite period: Lessors must not enter into or vary a consumer lease where the total amount payable by the lessee (including any applicable taxes and add on fees) in any month is more than 1/48 of the permitted cap for the lease in any month.

What do licensees need to do?

If you provide SACCs or consumer leases to consumers, then you will need to consider and update your:

• Responsible lending procedures;
• Loan/lease documentation;
• Warning statements and disclosures;
• Procedures for determining fees; and
• Procedures to prevent anti-hawking.

Sophie Grace can assist you with updating this documentation. Please contact us.

Background

The Financial Sector Reform Act 2002 (Act) was passed in December 2022. The Act amends the National Consumer Credit Protection Act 2009 (Cth).