House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Minister for Human Services Minister for Financial Services, Superannuation and Corporate Law the Hon Chris Bowen MP)

Chapter 8 - National Credit Code

Outline of chapter

8.1 Chapter 8 of this explanatory memorandum relates to the National Credit Code (Code), which is Schedule 1 to the National Consumer Credit Protection Bill 2009 (Credit Bill).

8.2 The National Credit Code provides a consumer protection framework for consumer credit and related transactions. It largely replicates the Uniform Consumer Credit Code (UCCC), enacted in the Consumer Credit (Queensland) Act 1994 (Qld) and applied in States and Territories since 1996. The Code also includes amendments to enable the UCCC to operate effectively in Commonwealth context.

8.3 As the Code largely replicates the UCCC, the objectives of the regime remain the same as those when the UCCC was first enacted. Namely, to ensure strong consumer protection through 'truth in lending', while recognising that competition and product innovation must be enhanced and encouraged by the development of non prescriptive flexible laws.

8.4 The Code regulates many aspects of the provision of certain types of credit, including upfront and ongoing disclosure obligations, changes to the credit contract, advertising and marketing requirements, termination of the credit contract and penalties and remedies. The Code also regulates consumer leases.

Context of amendments

8.5 The UCCC previously formed part of a legislative scheme that was based on the Uniform Credit Laws Agreement 1993 of the States and Territories. Under this Agreement, the States and Territories agreed to adopt uniform consumer credit laws throughout Australia based on template legislation to be enacted by the Queensland Parliament. In 1994, Queensland enacted the Consumer Credit (Queensland) Act 1994 (Qld), with the UCCC set out as an appendix to this legislation. All States and Territories then passed enabling legislation which adopted the template legislation and applied it in the State or Territory as 'in force from time to time'. Any amendments to the UCCC were only required to be made to the template legislation and applied automatically in other States without amendment to those States' enabling Acts. Slightly different arrangements existed in Tasmania and Western Australia although the outcomes were the same.

8.6 The approach of the Code is for it to be as similar to the UCCC as is practicable, except where the Commonwealth has specifically decided to amend or extend its operation. To achieve this, the Code is contained in a schedule to the Credit Bill and, where possible, the same interpretative provisions that applied to the UCCC now apply to the Code.

8.7 Amendments to the Code can be generally grouped into three categories:

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amendments reflecting new Commonwealth policy regarding the regulation of consumer credit (for example, increasing the threshold for access to hardship variations and stays of enforcements, extending the Code to credit for the purchase, renovation, improvement or refinancing of residential investment property and changes to the debtor's residency requirement);

•

amendments to reform mandatory comparison rates, default notices and address several fringe lending practices previously agreed to, but not legislated, by the States; and

•

amendments required to replicate UCCC as Commonwealth legislation (for example, changes to ensure consistency with the Commonwealth drafting style, changes to comply with Commonwealth policy, and removal of State references).

Summary of new law

8.8 The provisions in the Code broadly cover the following areas:

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scope and application of the Code - including credit to which the Code applies and does not apply, deemed credit contracts and when the Code is presumed to apply;

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entering into a credit contract - including contractual and pre-contractual form and disclosure requirements as well as restrictions on interest, fees and charges;

•

the life of the credit contract - including provisions for unilateral and agreed changes to obligations as well as changes on account of hardship experienced by the debtor or harsh or unconscionable conduct by the credit provider;

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continuous disclosure - including obligations for credit providers to give statements of account which includes specific information, copies of documents and other notices, and payout figures;

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terminating a credit contract - including when a debtor may end a credit contract, a credit provider's enforcement rights and obligations, and enforcement procedures for mortgaged goods;

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related mortgages and guarantees - provisions dealing with security for regulated credit contracts, including requirements to ensure security holders' rights are not all encompassing, and prohibition on certain securities;

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breaches - including penalties and offences;

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related sale contracts - provisions creating liability for linked credit providers;

•

credit related insurance - including restrictions on financing insurance premiums, limits on commissions paid by an insurer and provisions automatically terminating an insurance contract where credit contract is terminated;

•

advertising and marketing - including interest rate and comparison rate disclosure requirements as well as restrictions on false or misleading representations, harassment and credit hawking; and

•

consumer leases - form and disclosure requirements, application of other provisions of the Code (for example, variation on hardship grounds and where a transaction is unjust) and when consumer leases can be ended.

Amendments reflecting new Commonwealth policy

Increased threshold for access to hardship variations and stays of enforcements

8.9 In transferring the consumer credit regime to the Commonwealth, the Government has increased the threshold under which a debtor can request a change to certain terms of their credit contract on the grounds of hardship to $500,000 (or higher as specified in the regulations). The increase in threshold enables more consumers to apply for changes to the terms of their credit contract when in financial hardship, for example, because of illness or unemployment. This increased threshold also applies to request stays of enforcement.

8.10 A credit provider must provide a response to a debtor's application for a change to terms of their credit contract on the grounds of hardship within 21 days of receiving the application. When a credit provider does not agree to an application for a hardship variation, they must give reasons to the consumer for refusing the request.

Extension of the Code to credit for residential investment property

8.11 The Government has also extended the Code to apply to credit provided to individuals and strata corporations to purchase, renovate, improve or refinance residential property for investment purposes.

8.12 This is achieved by amending section 6 of the UCCC, now section 5 of the Code, which relates to the provision of credit to which the Code applies.

8.13 Residential property is defined in section 204 to include:

•

land that contains or will contain a dwelling;

•

certain Crown leases or licences where the land contains or will contain a dwelling;

•

interests in a share company which owns the land (that contains or will contain a dwelling) where the individual has a right to occupy the dwelling;

•

aged care homes or dwellings in a retirement village; or

•

an equity of redemption in land that contains or will contain a dwelling.

8.14 For the Code to apply, the property must be wholly or predominately used (or intended to be used at some future time) as residential property. This will exclude, for example, farms with a farmhouse or a commercial building with a caretaker's cottage.

Replacement of debtor's residency requirement

8.15 In determining whether the Code applies, the UCCC requirement for the debtor to be a resident has not been retained. The residency requirement in the UCCC was primarily used to determine which State or Territory had jurisdiction, which is not required under Commonwealth jurisdiction.

8.16 For the purposes of applying the Code, the debtor's residency requirement has been replaced with a jurisdictional test that examines whether the credit provider carries on business in Australia.

8.17 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. This is intended to capture credit providers who do not have a physical presence in Australia but may use the internet or intermediaries to offer consumer credit products to persons in Australia. [Credit Bill, Part 1-2, Division 4, section 12]

Amendments previously agreed to by the States

National Competition Policy Review recommendations

8.18 After the Council of Australian Governments (COAG) agreements, but prior to the transfer of credit to the Commonwealth, legislation to implement key recommendations of the National Competition Policy Review of the UCCC was passed through the Queensland Parliament.

8.19 The Justice Legislation Amendment Act 2008 (Qld) ensures that consumers of 'terms sale of land contracts', 'conditional sale agreements' and 'tiny terms contracts' have the protections of the UCCC.

•

'Terms sale of land contracts' are contracts for the sale of land where the purchase price is payable to the vendor in instalments and the vendor allows the purchaser to take possession of the land but retains title until payment of the final instalment is made.

•

'Conditional sale agreements' are contracts where the purchase price is payable in instalments and the seller allows the purchaser to take possession of the goods but retains title until payment of the final instalment.

•

'Tiny terms contracts' are contracts where the cost of credit is incorporated into the cash price and the transaction is represented as a sale of goods by instalment (without any credit charges or interest).

8.20 These amendments commenced on 22 May 2009.

Amendments being progressed by the States

8.21 Prior to the COAG agreement, the Ministerial Council on Consumer Affairs (MCCA) had consulted on, and agreed to, a range of amendments in relation to fringe lending, default notices and mandatory comparison rates. However, given the proposed timing of the introduction of those amendments would have overlapped with the development of the Commonwealth regime, MCCA requested that the amendments instead be progressed as part of the transfer of regulatory responsibility to the Commonwealth.

8.22 These amendments, as contained in the draft Consumer Credit Code Amendment Bill 2008 (Qld), have been largely incorporated by the Commonwealth. The main changes cover:

•

The provision of credit to which the Code does not apply

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Subsections 6(2) and (3) have been inserted to address fee structures aimed at avoiding the fees and charges limit for exempt short-term credit by capturing fees and charges paid to parties other than the credit provider.

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The exemption for pawnbroking in subsection 6(9) is limited to persons genuinely conducting a pawnbroking business by ensuring that where a debtor is in default the pawnbroker's only recourse is against the pawned goods.

•

The presumption relating to the application of the Code

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The presumption in section 11 of the UCCC, now section 13 of the Code, has been amended to address abuses of the declaration that allowed credit providers to avoid the UCCC. Specifically, the amendment addresses the situation where credit is being provided wholly or predominantly for personal, domestic or household use, or in relation to a residential investment property, and the lender fails to enquire as to the purpose of the credit because it does not want to hear an inconvenient answer.

-

The aim of the amendment is to make the business purpose declaration presumptive rather than conclusive. Further changes have been made to those proposed by Queensland to minimise the circumstances in which declarations can be used as an avoidance mechanism. Credit providers will still be able to have the benefit of the presumption in situations where the purpose of the credit is ambiguous.

•

Prohibited securities

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Section 50, formerly section 46 of the UCCC, is amended to prohibit the taking of security over essential household goods or certain property used by the mortgagor in earning income by personal exertion.

•

Comparison rate schedules

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The operation and application of comparison rates has been amended.

•

Default notice amendments

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Section 88 has been amended to impose new default notice requirements before a credit provider can enforce a credit contract or a mortgage against a defaulting debtor or mortgagor. New requirements for default notices include:

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specifying a period for remedying the default;

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specifying the date after which enforcement proceedings may begin;

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specifying any information prescribed by regulations about the credit provider's approved external dispute resolution scheme or the debtor's rights under the scheme; and

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specifying the debtor's debt may be included in a credit reporting agency's credit information file if the debt remains overdue for 60 days or more.

•

Mortgagor's remedies

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The Code inserts new provisions (sections 108 to 110) dealing with a mortgagor's remedies. These amendments give a mortgagor additional rights against a credit provider who is seeking to recover enforcement expenses when in breach of requirements that must be met before a credit contract or mortgage can be enforced.

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The new sections will enable a mortgagor to apply to the Court to regain possession of the goods; apply to the Court for an order for possession for mortgagor; and apply to the Court for other ancillary or consequential orders.

Amendments to transition the UCCC into Commonwealth legislation

8.23 In addition to the abovementioned amendments, a number of technical amendments were required to make the UCCC operate in the Commonwealth jurisdiction. These cover two broad categories:

•

to be consistent with the Commonwealth style (first type of amendments - see paragraph 8.24);

•

to make the Code work, or work more effectively, in the Commonwealth context (second type of amendments - see paragraph 8.25).

Consistency with the Commonwealth legislative style

8.24 The first type of amendments is to ensure the Code is consistent with the Commonwealth legislative style. For example:

•

changing references to 'maximum penalty' to 'penalty';

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changing references from the higher unit of a provision to the lower unit (for example, changing 'section 62(3)' to 'subsection 62(3)');

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changing references to 'is guilty of an offence' to 'commits an offence'; and

•

changing section references to deal with differences in the Commonwealth and State numbering systems.

Work effectively in the Commonwealth context

8.25 The second type of amendments are those required to make the UCCC work in the Commonwealth context. Examples of this type are:

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changing references to 'Government Consumer Agency' to the 'Australian Securities and Investments Commission (ASIC)';

•

removal of references to 'Queensland', the 'Legislative Assembly' or 'Queensland Acts';

•

replacing transitional provisions relevant to Queensland with Commonwealth transitional provisions;

•

the classification of certain offences as strict liability in bringing the UCCC into the Commonwealth jurisdiction, so as to maintain the current operation and policy intention of these offences; and

•

changes that result from interaction between the UCCC and other Commonwealth legislation (for example, Acts Interpretation Act 1901, the Crimes Act 1914, the Criminal Code, the Electronic Transactions Act 1999, the Trade Practices Act 1974 and the Legislative Instruments Act 2003).

Comparison of key features of new law and current law

Detailed explanation of new law

Part 1 - Preliminary

8.26 Part 1 sets out the preliminary matters of the Code. Consistent with the policy objectives of the UCCC, the Code applies to all credit provided to individual debtors and strata corporations wholly or predominantly for personal, domestic or household purposes whenever any type of charge is made for the credit. There are no thresholds or ceilings such as an upper monetary limit or a minimum interest rate before the Code applies.

8.27 Unlike the UCCC, Part 1 extends application of the Code to credit provided to individuals or strata corporations for the purchase, renovation, improvement or refinancing of residential property for investment purposes.

Meaning of key words and expressions

Credit and amount of credit

8.28 Section 3 defines 'credit' and 'amount of credit' in the same way as section 4 of the UCCC. For the purposes of the Code, credit is the deferral of the payment of debt or the incurring of deferred debt, and amount of credit is the amount of debt actually deferred. [Schedule 1, Part 1, section 3]

Credit contract

8.29 Credit contract is defined in section 4 as a contract under which credit may be provided to which the Code applies. [Schedule 1, Part 1, section 4]

Other key terms

8.30 Part 13 defines other words and expressions used in the Code. This replicates (with some amendment) Schedule 1 of the UCCC. Other miscellaneous provisions relating to the interpretation of the Code are contained in Part 14. [Schedule 1, Part 1, section 2]

Credit to which the Code applies

8.31 Section 5 sets out the circumstances in which the Code will apply to the provision of credit (and to credit contracts and related matters):

•

the debtor is a natural person or a strata corporation [Schedule 1, Part 1, paragraph 5(1)(a)];

•

the credit is provided or intended to be provided wholly or predominantly for:

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personal, domestic or household purposes [Schedule 1, Part 1, subparagraph 5(1)(b)(i)]; or

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the purchase, renovate, improve or refinance of a residential investment property [Schedule 1, Part 1, subparagraphs 5(1)(b)(ii) and (iii)];

•

a charge is or may be made for the credit [Schedule 1, Part 1, paragraph 5(1)(c)]; and

•

the credit provider provides credit as part of a business carried on in Australia of providing credit or as part of or incidentally to any other business of the credit provider. A credit provider need not be a bank or financial institution [Schedule 1, Part 1, paragraph 5(1)(d)].

8.32 It is specified that investment by the debtor is not a personal, household or domestic purpose. This means that a purpose that can be characterised as being for both an investment purpose or a personal, household or domestic purpose is excluded from the application of the Code. [Schedule 1, Part 1, subsection 5(3)]

8.33 The predominant purpose for which credit is provided is specifically defined as:

•

the purpose for which more than half of the credit is intended to be used; or

•

if the credit is intended to be used to obtain goods or services, and those goods or services will be used for different purposes, the purpose for which the goods or services are intended to be most used.

[Schedule 1, Part 1, section 4]

8.34 The question of whether or not credit is provided or intended to be provided wholly or predominantly for a purpose which will result in the credit being regulated by the Code is to be determined consistently with the objectives of the Code. It would not be expected that it can be resolved simply by considering either the actual use of the credit by the borrower or by the purpose of the credit provider.

8.35 Whether or not the credit provider provides credit as part of or incidentally to any other business of the credit provider is to be determined according to the connection between the 'other business' and the provision of credit. For example, in Dale v Nichols Constructions Pty Ltd [2003] QDC 453 the connection was established because the working capital of a construction business, when available, was used as the source of funds for credit.

Credit to which the Code does not apply

8.36 Section 6 sets out the kinds of credit to which some or all of the provisions of the Code do not apply. These include short-term credit, credit without prior agreement, credit provided under bill facilities, credit provided by pawnbrokers and trustees of estates (however, sections 76 to 81 regarding reopening unjust transactions apply) and certain employee loans, as well as certain other specified kinds of credit. [Schedule 1, Part 1, section 6]

8.37 The exemptions reflect the fact that these contracts provide benefits to the debtor (that Code credit does not) and their availability is restricted so that they do not affect competition.

8.38 Credit under a continuing credit contract is also exempt under subsection 6(5) if the only charge that is, or may be made, is a periodic or other fixed charge that does not vary according to the amount provided. However, the Code does apply where the charge exceeds the prescribed maximum [Schedule 1, Part 1, subsection 6(5)]. It is intended that a regulation will be made which replicates the following prescribed maximum charges under the UCCC:

•

$200 - for the months after the credit contract is made; and

•

$125 - for any subsequent period of 12 months.

8.39 Margin loans are also excluded from the Code as they are proposed to be regulated as a financial product under Chapter 7 of the Corporations Act 2001. [Schedule 1, Part 1, subsection 6(12)]

8.40 Subsection 6(13) enables other classes of credit to be excluded by regulation from the Code, in its entirety [Schedule 1, Part 1, subsection 6(13)]. (Credit can also be partially excluded by regulation under section 203B.) It is intended that regulations will be made to replicate the exclusions of the following classes of credit under the UCCC:

•

credit under the GIO Finance Limited No Interest Loan Scheme;

•

certain heritage conservation loans;

•

credit by an authorised deposit-taking institution that does not exceed 62 days; and

•

credit provided under certain charge contracts.

8.41 ASIC is given power to exclude credit in its entirety from the application to the Code in respect of:

•

a provision of credit as specified by ASIC [Schedule 1, Part 1, subsection 6(14)]; and

•

the provision of a class of credit [Schedule 1, Part 1, subsection 6(17)].

8.42 An exemption of a provision of credit as specified by ASIC is stated not to be a legislative instrument. This statement is declaratory of the law, consistent with section 5 of the Legislative Instruments Act 2003. [Schedule 1, Part 1, subsection 6(16)]

8.43 ASIC also has power, under section 203A, to partially exclude credit, with or without conditions, from the application of the Code.

Mortgages

8.44 Section 7 applies the Code to mortgages given by natural persons or strata corporations which secure obligations under a credit contract or related guarantee, but only to the extent that they do so [Schedule 1, Part 1, section 7]. It is intended that a regulation will be made to replicate the exemptions given to the following mortgages under the UCCC:

•

a mortgage relating to perishable goods, livestock, primary produce or food stuffs;

•

a banker's right to combine accounts; and

•

a lien or charge arising by operation of any Act or law or by custom.

Guarantees

8.45 Section 8 applies the Code to guarantees given by natural persons or strata corporations which guarantee obligations under a credit contract, but only to the extent that they do so [Schedule 1, Part 1, section 8]. A regulation is intended to be made to replicate the UCCC regulation that exempts any guarantee by the supplier under a tied loan contract or tied continuing credit contract.

Deemed credit contracts

Goods leases with option to purchase

8.46 A contract for the hire of goods would not ordinarily be regarded as involving the provision of credit. However, where such a contract has a right or option to purchase the goods and the hire charge exceeds the cash price of the goods, it is functionally equivalent to a credit contract to finance the price of the goods.

•

Part 11 of the Code deals with leases for the hire of goods where the hirer has no right or option to purchase the goods.

8.47 Where the lease is a credit contract because of subsection 5(1), section 9 treats such a goods lease as a sale of goods by instalment with a mortgage over the goods [Schedule 1, Part 1, section 9]. A regulation is intended to be made to replicate the UCCC regulation that prescribes the form of the terms and conditions of the mortgage.

Contracts for the sale of land by instalments

8.48 Whether or not an executory contract for the sale of land by instalments involves the provision of credit will depend on the form of the transaction. However, where the purchaser becomes entitled to possession before transfer of title and is required to make payments (the amount of which exceeds the cash price of the land), it is functionally equivalent to a credit contract to finance the price of the land. For the purpose of contracts for the sale of land by instalments, payments do not include deposits or rent payments.

8.49 Section 10 applies the Code to sale of land by instalments contracts by treating them as credit contracts. [Schedule 1, Part 1, section 10]

8.50 The amendment clarifies the application of the Code to executory contracts for the sale of land by instalments. It was always intended that these transactions would be regulated where they involved the provision of credit (as illustrated by the decision in Director of Consumer Affairs v Geeveekay Pty Ltd [2006] VCAT 793). The amendment ensures that irrespective of the legal structure these transactions are regulated by the Code where the purchaser becomes entitled to possession before transfer of title and is required to make payments that exceed in total the cash price of the land. A transaction of this type is functionally equivalent to a credit contract to finance the price of the land, and the amendment ensures that purchasers of land in this way will be treated similarly.

Contracts for the sale of goods by instalments

8.51 Whether or not a contract for the sale of goods by instalments involves the provision of credit is not necessarily straightforward, particularly where the purchase price of the goods is payable by instalment and the total amount payable is in excess of the cash price of the goods. A transaction structured in this way is functionally equivalent to a credit contract to finance the price of the goods. This provision is not intended to regulate lay-by contracts, where the requirement to make payments is not a deferred debt within the meaning of section 4.

8.52 Section 11 applies the Code to contracts for the sale of goods by instalments by treating them as credit contracts. [Schedule 1, Part 1, section 11]

Contracts for the sale of goods by instalments under related contracts

8.53 A contract for the sale of goods by instalments under a related contract would not ordinarily be regarded as involving the provision of credit. However, where the charge exceeds the cash price of the goods under the contracts, it is functionally equivalent to a credit contract to finance the price of the goods.

8.54 A related contract is one where credit finances the sale of the goods where amounts are payable by instalments and the credit provider is the supplier of the goods (or a related body corporate).

8.55 Section 12 has the effect of applying the Code to contracts for the sale of goods by instalments under related contracts by treating them as credit contracts. [Schedule 1, Part 1, section 12]

Presumptions

8.56 Section 13 does not replicate section 11 of the UCCC. It has been amended to address abuses associated with the use of the declaration to create a conclusive presumption the credit was not regulated by the Code, notwithstanding that the credit was applied for a personal use. The avoidance of the Code in this way has often been associated with the practice of 'equity stripping' where borrowers in financial stress are refinanced into loans they can not afford, in order for a broker or intermediary to earn substantial fees. ^[3]

8.57 Section 13 sets out presumptions relating to the application of the Code to credit contracts, mortgages and guarantees. In any court proceedings it places the onus of proof on a person who seeks to claim that the Code does not apply. [Schedule 1, Part 1, subsection 13(1)]

8.58 However, it is to be presumed that the Code will not apply where the debtor, before entering into the contract, signs a declaration that the credit is not to be used for a personal, domestic or household purpose or to purchase, renovate, improve or refinance a residential property for investment purposes (a Code purpose). [Schedule 1, Part 1, subsection 13(2)]

8.59 Under the UCCC the presumption was conclusive, except in limited circumstances. The decisive effect of the presumption enabled credit providers to rely on it as an effective means of excluding the application of the UCCC; borrowers were not readily able to set side the effect of the declaration as they needed to argue that the credit was for personal use, and therefore that they had signed a false declaration.

8.60 The result was that the declaration could be largely relied upon by credit providers to prevent borrowers being able to exercise rights under the UCCC, even where the credit was used for personal, domestic or household purposes. It was for this reason that declarations were utilised in 'equity stripping' lending practices, and by other lenders seeking to avoid the Code.

8.61 In State of Queensland v Ward and Another [2002] QSC 171. Ambrose J said at paragraphs [25] and [35]:

'... it was the terms of section 11 of the Code which induced Shark [the lender] to adopt a business practice of persuading some potential borrowers to sign a declaration that the money they borrowed from Shark was intended wholly or predominately for business purposes ... some of the loans which have been canvassed were accompanied by a declaration executed by the borrower in the form to which I have referred. In many of them, neither Shark nor the borrower believed that the money lent was advanced for any business or investment purpose. The whole exercise in my view was merely a step taken to avoid impact of the Code upon money lent for non-business/investment purposes with a wink and a nod on the part of both lender and borrower the object of the lender merely being to evade its constraints'.

8.62 In order to address this situation it is now provided that the declaration will be ineffective:

•

if the credit provider or a prescribed person:

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knew or had reason to believe; or

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if they had made reasonable inquiries, would have known or had reason to believe; and

•

the credit was in fact to be applied wholly or predominantly for a Code-regulated purpose.

[Schedule 1, Part 1, subsection 13(3)]

8.63 It is proposed therefore to define a prescribed person in the regulations in such a way that a credit provider can protect itself from the risk of the declaration being set aside by obtaining the declaration itself. However, where a third party is involved in arranging or obtaining the declaration their knowledge will be relevant to the question of whether the presumption can be displaced.

8.64 This amendment will provide an effective response to the problems previously associated with the abuse of declarations as:

•

where, before the contract was entered into, the credit was to be applied for a Code purpose it would be unlikely that this would not be known or ascertainable by reasonable inquiry by the credit provider; and

•

credit providers who do not make any reasonable inquiries into the use of the credit will find it difficult to rely on a declaration where the credit was in fact applied for a Code purpose.

[Schedule 1, Part 1, subsection 13(4)]

8.65 It is specifically provided that if a declaration is ineffective under subsection 13(4), that paragraph 5(1)(b) of the Code is taken to be satisfied in respect of the contract, that is, the borrower does not still need to establish that the credit was provided for a Code purpose. The Code still may not apply to the credit contract, but only where it fails to meet some other criteria.

8.66 An offence for inducing a person to make a false or misleading business purpose declaration has been inserted as there was no penalty in the UCCC which applied in these circumstances. The penalty for this offence is 100 penalty units, two years imprisonment, or both. The strict liability attached to this penalty will significantly enhance the role of ASIC in enforcing the provision. [Schedule 1, Part 1, subsection 13(7)]

Example 8.1: Whether the lender made reasonable inquiries

The borrower obtains a loan of $250,000 from Lender A, with $200,000 used to pay out their existing home loan, and with the further $50,000 to be used for a business purpose.

Lender A makes reasonable inquiries to establish that the $50,000 is for a business purpose, but makes no inquiries into the purpose of the remainder of the funds. Lender A would not meet the criteria for making reasonable inquiries.

Example 8.2: Whether the lender made reasonable inquiries

The lender receives an application submitted by a finance broker seeking a loan of $50,000 for business purposes. The application form is signed by the borrower and states that the borrower has an Australian Business Number (ABN), acquired two days before the loan application. The date an ABN was issued can be easily checked.

The application gives no details of the business. In fact, the borrower uses the money to pay arrears on their home loan. It is unlikely that the lender would meet the criteria for making reasonable inquiries if it failed to verify the existence of any business said to be carried on by the borrower.

Part 2 - Credit contracts

8.67 In achieving the policy objective of the Code, Part 2 of the Code, which generally mirrors Part 2 of the UCCC, sets out:

•

credit providers' disclosure obligations when negotiating and making credit contracts;

•

debtors' monetary obligations;

•

credit providers' interest charging obligations;

•

specific obligations on credit providers regarding fees and charges; and

•

credit providers' obligation to account.

Negotiating and making credit contracts

8.68 Division 1 of Part 2 sets out a number of disclosure measures which are directed at ensuring the debtor understands the terms of the credit contract before it is entered into and that key aspects of the contract are documented.

8.69 A maximum penalty of 100 penalty units applies for contraventions of a requirement of this Division. In bringing the UCCC into the Commonwealth jurisdiction, this offence has been drafted as an offence of strict liability. [Schedule 1, Part 2, section 22]

8.70 Penalties also apply for contraventions of certain provisions of this Division known as 'key requirements' (see Part 6).

Credit contract to be in writing

8.71 A credit contract must be in writing, although the regulations may allow other ways of making a credit contract, which do not involve a written document. [Schedule 1, Part 2, subsection 14(1) and section 15]

8.72 The Code requires a credit contract to be in writing and sets out the offer and acceptance process. Specifically, the provision permits a contract to be accepted by the debtor (or an authorised person) by accessing or drawing down credit or by some other act that satisfies the conditions of the offer. Where a contract consists of more than one document, only one needs be signed if the other documents are referred to in the signed document. [Schedule 1, Part 2, subsections 14(1), (2) and (4)]

8.73 The credit provider (and any associate) cannot be authorised by a debtor to accept the offer. However, a debtor may authorise the credit provider to debit the debtor's account. For example, this is a common practice where the debtor is entering into a new continuing credit contract and wishes the outstanding balance under an existing contract to be paid out and debited to the debtor's account under the new contract. [Schedule 1, Part 2, subsection 14(3)]

Pre-contractual disclosure

8.74 Section 16 requires the credit provider to make pre-contractual disclosures to the proposed debtor. The disclosures must include the matters required by section 15 to be included in the contract document [Schedule 1, Part 2, subsection 16(1)]. The pre-contractual disclosure must occur before the contract is entered or the debtor offers to enter into the contract, whichever occurs first [Schedule 1, Part 2, subsection 16(2)].

8.75 Some of the financial information to be included in the pre-contractual statement must be disclosed in the format prescribed by regulation [Schedule 1, Part 2, subsection 16(4)]. It is intended that a regulation will be made to replicate the UCCC regulation that prescribes the content and form requirements for pre-contractual statements. Any changes to the pre-contractual disclosure must be notified, in writing, to the debtor before the contract is entered into or the debtor offers to enter into the contract, whichever occurs first [Schedule 1, Part 2, subsection 16(7)].

8.76 If the credit provider discloses the comparison rate in the pre-contractual disclosure, it must calculate the comparison rate on the basis prescribed by the regulations [Schedule 1, Part 2, subsection 16(3)]. It is intended that a regulation will be made that replicates the comparison rate formula in the UCCC regulations as well as the accompanying warning.

8.77 A credit provider must provide the debtor with an information statement setting out their rights and obligations [Schedule 1, Part 2, paragraph 16(1)(b)]. It is intended that a regulation will be made that replicates the UCCC information statement.

Contract document

8.78 Under section 17, the contract document must contain the following matters:

•

the credit provider's name;

•

the amount of credit, with specific disclosure requirements related to whether the amount of credit is ascertainable. Additional disclosure requirements also apply to credit provided by suppliers for a sale of land or goods by instalment;

•

the annual percentage rate under the contract;

•

calculation of interest charges and total interest charges;

•

repayment details;

•

credit fees and charges;

•

changes affecting interest and credit charges;

•

statement of accounts;

•

default rate;

•

enforcement expenses;

•

details of any mortgage or guarantee;

•

commissions;

•

insurance financed by the contract; and

•

other information prescribed by the regulations. It is intended that a regulation will be made that replicates the UCCC's prescribed warning about credit contracts.

[Schedule 1, Part 2, section 17]

8.79 Section 18 requires a credit provider any requirements in the regulations as to the form and expression of the contract document. It provides that, subject to any contrary requirement in the regulations, it may consist of one or more separate documents.

8.80 Section 19 requires that any alteration to a contract document (except alterations that reduce the debtor's liabilities) by the credit provider after it is formed be signed or initialled by the debtor. [Schedule 1, Part 2, section 19]

8.81 Section 20 provides for a copy of the contract document to be given to the debtor unless the debtor has already been given such a copy. [Schedule 1, Part 2, section 20]

Termination of contract

8.82 Section 21 enables a debtor to terminate a credit contract, by written notice, before credit is provided. The provision also clarifies that the debtor may still be charged relevant fees and charges incurred under the credit contract before termination. [Schedule 1, Part 2, section 21]

Division 2 - Debtor's monetary obligations

8.83 Credit providers are prohibited from imposing monetary liabilities on the debtor that are not consistent with the Code. In addition, credit providers are prohibited from imposing charges not authorised by the credit contract. [Schedule 1, Part 2, subsections 23(1) and (3)]

8.84 It is an offence of strict liability for a credit provider to impose such a prohibited monetary liability or to accept or demand money in respect of such a prohibited monetary liability. A maximum of 100 penalty units applies. [Schedule 1, Part 2, section 24].

8.85 A remedy is also provided (see section 111), which means any amount required to be paid in breach of subsections 23(1) and (3) may be recovered by the debtor. [Schedule 1, Part 2, subsections 23(2) and (4)]

8.86 The credit provider must make a loan in full, either in cash or money's worth, without deducting interest. A maximum penalty of 100 penalty units applies. This offence is one of strict liability. A regulation is intended to be made which, like the regulations under the UCCC, prescribes that section 25 does not apply to the deduction of the first payment of interest charges. [Schedule 1, Part 2, section 25]

8.87 Section 26 deals with the acceptance of early payments and the crediting of payments under the contract. The credit provider must credit each early payment made as soon as practicable after receipt of the payment, unless the contract prohibits the early payment and the credit provider takes action to alert the debtor of this when payment is made or refunds the payment to the debtor. A maximum penalty of 100 penalty units applies. [Schedule 1, Part 2, subsections 26(1), (2) and (4)]

8.88 The offences in section 26 are offences of strict liability. [Schedule 1, Part 2, subsection 26(3)]

8.89 Credit contracts may not prohibit a debtor or guarantor from paying out the contract at any time. [Schedule 1, Part 2, subsection 26(5) and section 82]

Division 3 - Interest charges

8.90 The following expressions used in the Code are defined in section 27:

•

'annual percentage rate';

•

'daily percentage rate';

•

'default rate';

•

'unpaid balance'; and

•

'unpaid daily balance'.

[Schedule 1, Part 2, section 27]

8.91 Section 28 limits the amount of interest charges payable under a contract to the amount derived by applying the daily percentage rate to unpaid daily balances. [Schedule 1, Part 2, section 28]

8.92 A credit provider may not, under section 29, require payment of (or debit) interest in advance. A regulation is intended to be made that replicates the UCCC regulation which exempts the first payment of interest charged. Interest can be debited on the last day of the period to which the interest charge applies provided the amount debited is not part of the unpaid daily balance for that day. [Schedule 1, Part 2, section 29]

8.93 Section 30 prohibits the credit contract from providing for a higher rate of interest on default except when the debtor is in default, in respect of the amount in default and while the default continues. [Schedule 1, Part 2, section 30]

8.94 The requirements in Divisions 2 and 3 will apply where the credit is provided for persons investing in residential properties. It is therefore specifically provided that regulations can be made to modify the application of these provisions in relation to credit provided for residential properties. Modifications may be necessary to accommodate lending and taxation arrangements commonly associated with this class of credit. [Schedule 1, Part 2, sections 26A and 30A]

Division 4 - Fees and charges

8.95 Sections 31 and 32 enable the regulations to prohibit particular credit fees or charges and deal with the situation where fees or charges are passed onto other parties. [Schedule 1, Part 2, sections 31 and 32]

Division 5 - Credit provider's obligation to account

8.96 Division 5 deals with the credit provider's obligations to provide periodic statements of account to the debtor.

8.97 The credit provider must provide the debtor with statements of account. Failure to do so is an offence of strict liability. The required frequency of these statements depends on the type of credit provided. There are also various circumstances in which a statement of account is not required, such as for a credit contract with a fixed interest rate for the entire term of the contract. [Schedule 1, Part 2, section 33]

8.98 The information to be contained in a statement of account is specified by section 34 and is:

•

the period which the statement covers;

•

opening and closing balances;

•

credit provided during the statement period;

•

identity of supplier;

•

interest charges;

•

fees and charges debited during the statement period;

•

payments to or from account;

•

amounts payable by debtor;

•

insurance payments;

•

alterations; and

•

other prescribed information.

[Schedule 1, Part 2, section 34]

8.99 Section 35 provides that the opening balance of a statement of account must not exceed the closing balance of the previous statement. [Schedule 1, Part 2, section 35]

8.100 Section 36 requires on request the credit provider to account to a debtor or guarantor statements of amounts owing and certain other matters within certain timeframes. Failure to do so is an offence of strict liability. [Schedule 1, Part 2, section 36]

8.101 A statement may be provided orally, unless the request was in writing, in which case the statement must be given in writing [Schedule 1, Part 2, subsection 36(3)]. In the case of joint debtors or guarantors, the statement only needs to be provided to the requesting party [Schedule 1, Part 2, subsection 36(4)].

8.102 If the statement is not provided within specified timeframes, the Court may order the credit provider to provide a statement required under this Division or determine the amounts in relation to which the statement was sought. [Schedule 1, Part 2, section 37]

Disputed accounts

8.103 Section 38 makes provision for a debtor to dispute accounts. A credit provider is to give a debtor a written explanation where a debtor disputes a particular liability, generally within 30 days of receiving the statement of account. A credit provider must not commence enforcement action until at least 30 days after the written explanation is provided. Where the Court has been asked to determine liability within 30 days of the credit provider's explanation, the credit provider must not commence enforcement proceedings without leave of the Court. Failure to observe this requirement is a strict liability offence with a maximum penalty of 50 penalty units. [Schedule 1, Part 2, section 38]

Dating and adjustment of debits and credits in accounts

8.104 Debits or credits made by a credit provider to a debtor's account are taken to have been made on the date assigned to the debit or credit and not the date on which it is processed. A credit provider may subsequently adjust debits or credits so as to accurately reflect the legal obligations of the debtor and credit provider. However, in certain circumstances a debit or credit cannot be assigned a date other than the date on which it is processed, or on the subsequent adjustment of a debit or a credit, or on the account balance (for example, where the assignment or adjustment is not consistent with the credit contract). [Schedule 1, Part 2, section 39]

Certain transactions not to be treated as contracts

8.105 Section 40 provides that the requirements for making new contracts do not apply to the provision of credit by authorised deferrals or waivers of money due under a contract, or by authorised changes to the contract. [Schedule 1, Part 2, section 40]

Part 3 - Related mortgages and guarantees

8.106 Part 3, which replicates Part 3 of the UCCC, regulates the rights of the parties to a security transaction, namely mortgages and guarantees. The rationale behind the provisions in Part 3 is to regulate the rights of parties between themselves according to a single set of rules, regardless of the form of the transaction. Part 5 of the Code deals with ending and enforcing mortgages and guarantees.

Division 1 - Mortgages

Meaning of mortgage

8.107 Division 1 applies to a mortgage (under which the mortgagor is a natural person or a strata corporation) that secures obligations under a credit contract or related guarantee (see section 7). Under the Code, 'mortgage' has an extended meaning (see Part 13). The definition catches all forms of possessory and non-possessory security. It also catches a seller's retention of title, terms sale of land and the conditional sale of goods. However, mortgage does not include goods leases which are separately regulated in Part 11. [Schedule 1, Part 2, section 41]

8.108 Credit providers commit an offence when contravening this Division, or entering into a mortgage that is, or contains a provision which is, void or unenforceable. The offences in section 53 are strict liability and carry a maximum penalty of 50 penalty units. [Schedule 1, Part 2, section 53]

Requirements

8.109 Section 42 requires a mortgage document to be in writing and signed by the mortgagor. The mortgage document can be included in the credit contract. If these requirements are not met, the mortgage is unenforceable and the mortgagee commits an offence. These form requirements are in addition to State and Territory laws. [Schedule 1, Part 2, section 42]

8.110 The credit provider is required to provide the mortgagor with a copy of the mortgage after it has been made, but need not do so where a copy has previously been provided to the mortgagor. [Schedule 1, Part 2, section 43]

Restrictions on mortgage

8.111 The Code contains a range of measures to ensure the mortgagor's obligations are not open-ended or all encompassing. The aim of these restrictions is to ensure that the mortgagee cannot claim, or place restrictions on, goods or property of greater value than the mortgagee has right to under the credit contract.

•

The mortgage document must disclose or identify property secured by it [Schedule 1, Part 2, subsection 44(1)].

•

The mortgage document cannot charge all the property of the mortgagee [Schedule 1, Part 2, subsection 44(2)].

•

A mortgage over property acquired after the mortgage is entered into is void except where the property is:

-

acquired with the credit provided;

-

described or identified in the mortgage;

-

goods acquired in replacement for, or as additions or accessories to, other goods subject to the mortgage [Schedule 1, Part 2, section 45].

•

A mortgage over goods supplied from time to time under a continuing credit contract is void except where the mortgage securing payment is over specified goods [Schedule 1, Part 2, section 46].

•

A mortgage that secures credit under another future credit contract or future-related guarantee is unenforceable unless the credit provider has provided a copy of the credit contract or proposed contract, and guarantee or proposed guarantee [Schedule 1, Part 2, section 47].

•

A mortgage must not secure obligations under a credit contract unless each mortgagor is a debtor or a guarantor under a related guarantee [Schedule 1, Part 2, subsection 46(1)].

•

A mortgage must not secure obligations under a guarantee unless each mortgagor is a guarantor or a debtor [Schedule 1, Part 2, subsection 48(2)].

Maximum amount that can be secured

8.112 Section 49 specifies the maximum amount that may be secured under a mortgage. A mortgage is void where it secures an amount greater than the amount of the debtor's liabilities under the credit contract, or the guarantor's liability under the guarantee, plus reasonable enforcement expenses. [Schedule 1, Part 2, section 49]

Prohibited securities

8.113 Unless the regulations provide otherwise, a mortgage must not be taken over employees' remuneration or employment benefits under a superannuation scheme. [Schedule 1, Part 2, subsection 50(1)]

8.114 An obligation under a credit contract cannot be secured by a cheque, or bill of exchange or promissory note, endorsed or issued by the debtor or guarantor. This prevents a credit provider taking a post-dated cheque from the debtor as security for future repayments, and using the potentially criminal consequences of having the cheque not be paid on presentation as a threat to induce repayment. [Schedule 1, Part 2, subsection 50(6)]

8.115 A mortgage must also not be taken over goods that are essential household goods or certain property used by the mortgagor to earn income by personal exertion. The objective of this provision is to address the situation where a credit provider takes a mortgage over essential household goods and threatens repossession of the essential household goods to obtain repayment from the borrower rather than selling the security, which in practice would have minimal resale value. [Schedule 1, Part 2, subsections 50(2) to (5)]

8.116 Essential household property is given the same meaning as in the Bankruptcy Act 1966 and include property (including recreational and sports equipment) that is reasonably necessary for the domestic use of the bankrupt's household, having regard to current social standards (for example, sufficient beds for the members of the household, the only refrigerator, washing machine or television set in the home). Antiques are excluded from the definition. [Schedule 1, Part 2, subsection 50(8)]

Assignment or disposal of mortgaged property

8.117 Section 51 prohibits the mortgagor assigning or disposing of mortgaged property without the credit provider's consent or the authority of the Court. Failure to observe this requirement is a strict liability offence with a maximum penalty of 50 penalty units applies. A creditor provider must not unreasonably withhold consent or attach unreasonable conditions to the consent. A condition requiring equivalent security is not unreasonable. [Schedule 1, Part 2, section 51]

8.118 A credit provider may impose any condition when consenting to any such assignment or disposal of mortgaged property, including:

•

requiring breaches of the credit contract to be remedied [Schedule 1, Part 2, subsection 52(2)];

•

requiring the mortgagor and the assignee to enter into an agreement that the assignee agrees to pay amounts due under the mortgage and perform all other requirements of the mortgage [Schedule 1, Part 2, subsection 52(3)]; and

•

requiring the mortgagor and assignee to pay specified reasonable costs incurred by the credit provider [Schedule 1, Part 2, subsection 52(4)].

Division 2 - Guarantees

Meaning of guarantees

8.119 Division 2 applies to a guarantee (under which the guarantor is a natural person or a strata corporation) to the extent it guarantees obligations under a credit contract or related guarantee (see section 8 which sets out guarantees to which the Code applies) [Schedule 1, Part 2, section 54]. It is intended that a regulation will be made that replicates the exclusion under the UCCC regulations for guarantees under dealer recourse arrangements.

8.120 Credit providers commit a strict liability offence when contravening this Division, or entering into a guarantee that is, or contains a provisions which is, void or unenforceable. A maximum penalty of 50 penalty units applies. [Schedule 1, Part 2, section 62]

Requirements

8.121 The Code contains a number of measures aimed at enabling guarantors to make an informed decision about guaranteeing a credit contract and making sure that they understand and agree to the nature and extent of their obligations.

8.122 Section 55 provides that a guarantee must be in writing and signed by a guarantor [Schedule 1, Part 2, section 55]. It is intended that a regulation be made that replicates the UCCC warning notice. These form requirements are in addition to State and Territory laws such as the Statute of Frauds.

8.123 Before the guarantee is signed, the credit provider must give the prospective guarantor a copy of the credit contract (containing the matters that are required to be included in the contract document by section 17). Failure to do so makes the guarantee unenforceable. The guarantor must also be given a statutory information statement explaining their rights and obligations [Schedule 1, Part 2, section 56]. It is intended that a regulation will be made that prescribes the statutory information statement under the UCCC regulations for the purposes of the Code.

8.124 Credit providers are required to provide the guarantor with a copy of the guarantee and related credit contract within 14 days of the guarantee being signed and provided to the credit provider. This does not apply if copies of the respective documents were previously provided to the guarantor. [Schedule 1, Part 2, section 57]

Guarantor's right to withdraw

8.125 Section 58 enables the guarantor to withdraw from the guarantee by giving the credit provider written notice before the credit is first provided. The guarantor can also withdraw after credit is first provided if the credit contract differs in some material respect from the one given to them before signing. [Schedule 1, Part 2, section 58]

Extension of guarantee

8.126 The Code prohibits 'all accounts or blanket guarantees'. Under the Code, a guarantee only covers liabilities under the initial debt and any additional liability that the guarantor agrees will be covered by the guarantee. An 'all accounts' guarantee is made unenforceable by section 59 except to the extent the guarantor is given a copy of the new credit contract, which is provided to be covered by the guarantee, and accepts the extension of the guarantee. [Schedule 1, Part 2, section 59]

Limitation of guarantor's liability

8.127 Section 60 imposes the following limits on the liability of a guarantor:

•

A guarantee is void to the extent that it exceeds the debtor's liability plus reasonable expense of enforcing the guarantee [Schedule 1, Part 2, subsection 60(1)].

•

A guarantor's liability is not affected by the debtor's death insolvency or incapacity (provided this is covered in the guarantee) [Schedule 1, Part 2, subsection 60(2)].

•

A guarantee for the liability of a debtor under 18 years of age may be unenforceable in certain circumstances [Schedule 1, Part 2, subsection 60(3)].

•

A guarantor may limit liabilities under a continuing credit contract [Schedule 1, Part 2, subsection 60(4)].

•

A guarantee is void to the extent it limits the guarantor's right to indemnity [Schedule 1, Part 2, subsection 60(5)].

•

A guarantor's liabilities remain unchanged where the terms of the credit contract are changed, unless the credit provider gives the guarantor a written notice of the change and obtains their acceptance to the increased liabilities. The provision does not apply in specified circumstances, such as an increase in repayments specified in the contract [Schedule 1, Part 2, section 61].

Part 4 - Changes to obligations under credit contracts, mortgages and guarantees

8.128 The Code contains measures governing changes in obligations under credit contracts, mortgages and guarantees:

•

made unilaterally by the credit provider;

•

made by mutual agreement between the parties;

•

made on account of hardship by the credit provider or by the Court.

8.129 These provisions generally replicate Part 4 of the UCCC which aim to facilitate variations to the credit contract. Part 4 is governed by the general principle that where the contract terms allow, the Code does not generally restrict the change but does require notice and a written record of the change to be given.

Division 1 - Unilateral changes by credit provider

8.130 The provisions in Division 1 regulate the process where a credit provider acts on a contractual term to unilaterally change a credit contract, mortgage or guarantee [Schedule 1, Part 4, subsection 63(1)]. The Division makes it clear that it will not apply to:

•

a change to a new annual percentage rate, which is not determined by reference to a reference rate, if both the new rate and time of effect are ascertainable from the contract;

•

an increase in repayments, if an automatic increase, as specified under the contract and both the increase and time of effect are ascertainable from the contract;

•

an increase in the term of the credit contracts, if the increase occurs only because of an increase in the annual percentage rate or rates payable under the contract; and

•

a change made under Division 3.

[Schedule 1, Part 4, subsection 63(2)]

8.131 The Code does not give the credit provider any power, additional to the contract terms, to unilaterally change a credit contract. [Schedule 1, Part 4, subsection 63(3)]

Interest rate changes

8.132 Section 64 contains procedures for notice by credit providers of changes to annual percentage rates and changes in the manner in which interest is calculated or applied under credit contracts.

8.133 The credit provider must give written notice to the debtor of changes in annual percentage rates no later than when the change concerned takes effect. It is an offence not to provide this notice, with a maximum penalty of 100 penalty units [Schedule 1, Part 4, subsection 64(1)]. This notice requirement does not apply to a rate determined by referring to a reference rate, if the change is notified in a newspaper circulating throughout each State and Territory no later than when the change takes effect [Schedule 1, Part 4, subsection 64(3)].

8.134 The notice requirement in subsection 64(1) can be met by publishing the change in a newspaper circulating throughout each State and Territory. If notice is provided in this form, the credit provider must give the debtor notice of the change before, or when the next statement of account is given, after the change takes effect. [Schedule 1, Part 4, subsection 64(2)]

8.135 Notice of changes in the manner in which interest is calculated or applied must be given at least 20 days before the change concerned takes effect. It will be an offence not to comply with the appropriate procedure (a maximum penalty of 100 penalty units applies). [Schedule 1, Part 4, subsection 64(4)]

8.136 The notice requirements in subsections 64(1) and (4) do not apply to changes that reduce the obligations of the debtor. [Schedule 1, Part 4, subsection 64(5)]

8.137 The offences in subsections 64(1), (2) and (4) are offences of strict liability. [Schedule 1, Part 4, subsection 64(6)]

Repayment changes

8.138 Section 65 sets out the notice requirements where a credit provider makes a unilateral change to the repayment obligations of the debtor under a contract. A credit provider is required to give at least 20 days notice in writing of:

•

a change in the amount or frequency or time for payments by the debtor; or

•

a change in the method of calculation of instalments or minimum repayments under a credit contract - this particularly applicable to credit cards.

[Schedule 1, Part 4, section 65(1)]

8.139 This requirement is modified in the following circumstances:

•

where the change reduces the obligations of the debtor, or results in an extension of time for payment - the credit provider can give notice in the next statement of account sent to the debtor after the change in the contract terms [Schedule 1, Part 4, section 65(2)]; and

•

where the amount or frequency or time for payments of instalments or minimum repayments is determined according to a calculation and only the calculation is included in the credit contract - the credit provider is only required to give notice of the way in which the calculation has been changed [Schedule 1, Part 4, section 65(3)].

8.140 The offences in subsections 65(1) and (2), which carry a maximum penalty of 100 penalty units, are offences of strict liability. [Schedule 1, Part 4, subsection 65(4)]

8.141 The procedures do not apply to changes that occur while no repayments are required to be made. [Schedule 1, Part 4, subsection 65(5)]

Credit fees and charges changes

8.142 Section 66 sets out procedures for notice by credit providers of changes relating to credit fees or charges under credit contracts.

8.143 A credit provider must give written notice to a debtor of any such changes relating to credit fees and charges at least 20 days before the change concerned takes effect. It is an offence not to comply with the appropriate procedure (a maximum penalty of 100 penalty units applies). [Schedule 1, Part 4, subsection 66(1)]

8.144 The notice requirement in subsection 66(1) may be met by publishing the change in a newspaper circulating throughout each State and Territory. If notice is provided in this form, the credit provider must give the debtor notice of the change before, or when the next statement of account is given, after the change takes effect (a maximum penalty of 100 penalty units applies). [Schedule 1, Part 4, subsection 66(2)]

8.145 The notice requirements in subsection 66(1) do not apply to changes that reduce the obligations of the debtor or extend the time for payment. However, the credit provider must notify the debtor of these changes before or when the next statement of account is given, after the change takes effect (a maximum penalty of 100 penalty units applies). [Schedule 1, Part 4, subsection 66(3)]

8.146 The offences in section 66 are strict liability. [Schedule 1, Part 4, subsection 66(4)]

Changes to credit limits etc. in continuing credit contracts

8.147 Section 67 deals with the decision by a credit provider not to provide any further credit under a continuing credit contract and the ability to increase credit limits.

8.148 The credit contract continues in force for any credit previously provided under the contract, noting that this provision does not prevent termination of the credit contract if permitted by the Code or contract. [Schedule 1, Part 4, subsection 67(1)]

8.149 Notice of the decision must be given by the credit provider to the debtor as soon as practicable after the decision is made, as well as after any decision to reduce the overall credit limit under the credit contract. This notice requirement does not apply if the debtor is in default. It is a strict liability offence not to comply with the appropriate procedure (a maximum penalty of 100 penalty units applies). [Schedule 1, Part 4, subsections 67(2) and (3)]

8.150 A credit provider cannot unilaterally increase a credit limit under a continuing credit contract unless it is upon the request of the debtor or with their written consent. [Schedule 1, Part 4, subsection 67(4)]

Other unilateral changes by credit provider

8.151 Section 68 prohibits a credit provider from unilaterally changing a credit contract, mortgage or guarantee without first giving the other party no less than 20 days written notice setting out particulars of the change. It is a strict liability offence with a maximum penalty of 100 penalty units. [Schedule 1, Part 4, section 68]

8.152 Section 69 allows a credit provider to comply with sections 64, 65, 66 or 68, by only giving a person notice of a matter as it has been changed, rather than particulars of the change. The credit provider can only rely on this modification of the other provisions where the notice to the person makes clear that the matter has changed, or the credit provider issues to the person a new set of terms and conditions relating to the credit contract, mortgage or guarantee. [Schedule 1, Part 4, section 69]

8.153 Unless regulations prescribe otherwise, early termination charges or prepayment charges may also not be unilaterally increased by a credit provider if the annual percentage rate under a contract is currently fixed for a specified term (including the whole term) of the contract. [Schedule 1, Part 4, section 70]

Changes by agreement of parties

8.154 Section 71 sets out notice procedures for credit providers regarding changes agreed by the parties to credit contracts, mortgagees and guarantees. Notice of any such changes must be given not later than 30 days after the agreement. It will be a strict liability offence not to comply with the appropriate procedure (a maximum penalty of 100 penalty units applies). [Schedule 1, Part 4, subsections 71(1) and (6)]

8.155 The notice requirements in subsection 71(1) do not apply where the change defers or reduces the obligations of the debtor for a period of not more than 90 days or to an agreement to increase the amount of credit. [Schedule 1, Part 4, subsection 71(2)]

8.156 A credit provider must also give the debtor a written notice containing the information required by the regulations if the parties agree to increase the credit provided under a credit contract (a strict liability offence with a maximum penalty of 100 penalty units applies). [Schedule 1, Part 4, subsections 71(3) and (6)]

8.157 It is intended that a regulation will be made, which replicates the UCCC, requiring the following information to be contained in the warning notice:

•

date of change in the contract;

•

unpaid daily balance amount of credit increase;

•

the total and to whom the amounts are payable;

•

changes to the annual percentage rate;

•

credit fees and charges payable after the change;

•

current and future repayment details;

•

any commission information under subsection 17(4); and

•

any proposed increase in the term of the contract and new expiry date for the contract.

8.158 These notice provisions do not apply to changes on the grounds of hardship and unjust transactions. [Schedule 1, Part 4, subsection 71(4)]

Changes on grounds of hardship and unjust transactions

8.159 A debtor can seek the credit provider's agreement to changes to the period of a credit contract together with postponement or reductions of repayments, or postponement of repayments under the contract, if the debtor:

•

is unable reasonably (because of illness, unemployment or other reasonable cause) to meet obligations under the contract; and

•

reasonably expects to be able to discharge its obligations if the terms of the contract were changed.

[Schedule 1, Part 4, subsections 72(1) and (2)]

8.160 A debtor's right to seek a change on the grounds of hardship is limited to credit contracts under which the maximum amount of credit does not exceed $500,000. This amount may be increased by regulation. [Schedule 1, Part 4, subsection 72(5)]

8.161 Where a debtor does seek a change on the grounds of hardship, the credit provider must, within 21 days, respond to the application including the reasons for rejecting the application. The credit provider must also provide details of the external dispute resolution scheme it is a member of, and the debtor's rights under that scheme (a strict liability offence with a maximum penalty of 30 penalty units applies). [Schedule 1, Part 4, subsections 72(3) and (4)]

8.162 Where the credit provider agrees to the debtor's application, it must provide a notice of the change to the debtor and guarantor no later than 30 days after the date of the agreement (a strict liability offence with a maximum penalty of 50 penalty units applies). [Schedule 1, Part 4, section 73)]

8.163 If the credit provider refuses an application for changes under section 72, the debtor may apply to the Court for change the terms of the credit contract. The Court may make orders to change the terms of the credit contract after giving the debtor, credit provider and any guarantor a reasonable opportunity to be heard. The Court is also empowered to stay enforcement proceedings and to make other orders until it determines the application. A credit provider is entitled to apply to the Court to vary the original order. [Schedule 1, Part 4, sections 74 and 75]

Reopening of unjust transactions

8.164 The Court can reopen transactions giving rise to a contract, mortgage or guarantee or a change to a contract, mortgage or guarantee, if satisfied that the circumstances in which it was entered into or changed were unjust, where unjust includes unconscionable, harsh or oppressive [Schedule 1, Part 4, subsections 76(1) and (7)]. However, the Court cannot reopen a transaction on the basis of it being unjust where an application may be made for the Court to review unconscionable interest or other charges under section 78 [Schedule 1, Part 4, subsection 76(6)].

8.165 The following principles apply to the interpretation of the term 'unjust' and the phrase 'unconscionable, harsh and 'oppressive':

•

they should be given a construction consistent with the beneficial policy intentions of the legislation;

•

the meanings of each concept may overlap but each word may also have an independent operation (so that a contract may be unjust because a term is oppressive or burdensome but not unconscionable); and

•

the reference to 'unconscionable' encompasses both common law and statutory unconscionability.

8.166 In determining whether or not a contract, mortgage or guarantee is unjust, the Court must have regard to the public interest. The 'public interest' is a term that can bear different interpretations and is not fixed in meaning. In the lending context it can involve competing interests such as:

•

the need for certainty in the determination of when a contract will be unjust (Dale v Nichols Constructions Pty Ltd [2003] QDC 453); or

•

the desirability of protecting consumers where their sole residence is at risk (Perpetual Trustee Company Ltd v Albert and Rose Khoshaba [2006] NSWCA 41].

8.167 The Court must also consider 'all the circumstances of the case'. This may include consideration of the following factors listed in subsection 70(2):

•

consequences of compliance and non-compliance with all of the provisions of the contract, mortgage or guarantee;

•

relative bargaining power of the parties, including whether terms were or could be negotiated at the time of the contract;

•

whether provisions of the contract were unreasonably difficult to comply with or not reasonably necessary for the protection of the legitimate interests of the parties;

•

impact of age or physical and mental condition on protecting rights of the debtor, mortgagor or guarantor;

•

the legibility of the contract;

•

whether independent legal or other expert advice was obtained;

•

whether the terms were adequately explained and understood;

•

the adequacy of the credit provider's measures to ensure the transaction was understood;

•

whether unfair pressure, undue influence or unfair tactics were exerted over the debtor, mortgagor, or guarantor;

•

whether the credit provider could have reasonably known at the time of entering or varying the contract that the debtor could not pay without substantial hardship;

-

An assessment by a licensee made under the obligations of Chapter 3 of the Credit Bill may be taken into consideration in determining whether the credit provider could have reasonably known at the time of entering or varying the contract the debtor could not have paid without substantial hardship. (See Chapter 3 of the explanatory memorandum for a detailed discussion of these assessments);

-

A contract may be found to be unjust for reasons other than it being unsuitable for the consumer. Conversely a not unsuitable contract may be found to be unjust. While there are similarities in the wording between this paragraph and the obligations in Chapter 3, it may be that a contract will be unjust even where it is not unsuitable, or that a contract may be unsuitable but will not necessarily be unjust; or

-

the provision applies to all payments due under the credit contract, including balloon payments (Zhang v Mercedes-Benz Financial Services Australia Pty Ltd [2008] VCAT 1939);

•

whether the contract terms are justified given the risk undertaken by the credit provider;

•

for a mortgage - void provisions under section 50;

•

terms of other comparable transactions; and

•

any other relevant factors.

[Schedule 1, Part 4, subsection 76(2)]

8.168 A contract, mortgage or guarantee will not necessarily be unjust because one or more of these criteria applies to the transaction. Conversely it may still be unjust even where none of these factors is made out.

8.169 The application of the unjust contract provisions requires a two step inquiry. First, the Court must determine whether the contract is unjust; and, second, where this is the case, the Court must decide what relief if any is appropriate. [Schedule 1, Part 4, subsection 76(5)]

8.170 The Court can only consider any injustice from circumstances that were reasonably foreseeable when the contract, mortgage or guarantee was entered into or changed. [Schedule 1, Part 4, subsection 76(4)]

Orders on reopening of the transaction

8.171 Where a transaction is reopened as unjust, the Court is given power to make a range of orders that allow it flexibility in refashioning the bargain (for example, a partial setting aside of the agreement or varying the repayment obligations of a borrower or guarantor). [Schedule 1, Part 4, section 77]

The Court may review unconscionable interest and other charges

8.172 The Court can annul or reduce a change to the annual percentage rate or rates under a credit contract, or annul or reduce an establishment fee or charge or a fee or charge payable on early termination of a credit contract or for prepayment of an amount under a credit contract, if satisfied that it is unconscionable. The Court may also make ancillary or consequential orders which could result in refunded interest or fees charged. [Schedule 1, Part 4, subsection 78(1)]

8.173 The only circumstances in which a change to the annual percentage rate or rates or a fee or charge payable on early termination or prepayment of an amount are unconscionable are where it appears to the Court that:

•

in relation to changes to the annual percentage rate or rates - the change is unreasonable or unjustifiably discriminates the debtor [Schedule 1, Part 4, paragraphs 78(2)(a) and (b)];

•

in relation to an establishment fee or charge - the fee or charge is not equal to the credit provider's reasonable costs, or average reasonable costs in respect of the class of credit, of determining an application for credit and the initial administrative costs of providing the credit [Schedule 1, Part 4, subsection 78(3)]; and

•

in relation to early termination fees or charges or prepayment of amounts - where the fees or charges or prepayment exceeds a reasonable estimate of the credit provider's loss [Schedule 1, Part 4, subsection 78(4)].

Representative proceedings

8.174 ASIC may make (and has standing to make) an application to the Court in relation to an unjust or unconscionable contract if it believes it is in the public interest. Such an action may only be brought within two years after the relevant contract is rescinded, discharged or otherwise comes to an end. It is not intended that an application by ASIC would oust the rights of a debtor, mortgagor or guarantor to bring an action; for example, if ASIC succeeds in obtaining a declaration that certain conduct is unjust, then individual borrowers or guarantors may be able to rely on that finding to seek individual relief according to the facts of their situation. [Schedule 1, Part 4, sections 79 and 80]

Joinder of parties

8.175 Section 81 enables the Court to join third parties to proceedings, if they have an interest in the profits of a credit contract or mortgage, or a beneficial interest in a credit contract or mortgage. The Court may make orders affecting the persons if it holds the credit contract or mortgage to be unjust. [Schedule 1, Part 4, section 81]

Part 5 - Ending and enforcing credit contracts, mortgages and guarantees

8.176 Part 5 ensures that a single set of rules applies to the termination and enforcement of credit contracts and mortgages regardless of the form of the transaction. The aim of the provisions in Part 5, which largely replicate Part 5 of the UCCC, is to ensure the credit provider is not able to make a windfall from early termination or default by the debtor. These provisions are related to Part 3 which contains measures regulating the form and content of mortgages and guarantees.

Division 1 - Ending of credit contract by debtor

Debtor's or guarantor's right to pay out contract

8.177 The consumer has a statutory right to pay out the credit contract at any time, without needing to meet any formal conditions. The Code sets out the process for calculating the pay-out figure for fixed-term contracts. The pay-out figure includes the amount of credit and interest and other charges but only up to the date of termination. Reasonable enforcement expenses can be included. The credit provider can also charge an early termination fee if the contract provides for this. These provisions link to section 78 under which the court may set aside or vary an early termination fee on the grounds that it is unconscionable. The pay-out figure is reduced by any payments made and any rebate of the premium for consumer credit insurance and mortgaged property insurance (see section 148). [Schedule 1, Part 5, section 82]

8.178 The debtor or a guarantor is entitled to a statement of the pay-out figure for fixed-term contracts on providing a written request to the credit provider. A credit provider must give the statement within seven days after the request (a maximum penalty of 50 penalty units applies). The debtor or a guarantor may apply to the Court to determine this if the credit provider does not comply. This enables the debtor to find out exactly what is owed under the credit contract. [Schedule 1, Part 5, sections 83 and 84]

8.179 Any failure to provide the statement in accordance with the requirements of the Code, within seven days of the request, will be an offence of strict liability. [Schedule 1, Part 5, subsection 83(5)]

Surrender of mortgaged goods and goods subject to sale by instalments

8.180 Sometimes the seller of goods allows the buyer time to pay. In such cases the seller remains the owner of the goods until the final payment is made. Apart from the Code, this arrangement would be treated differently from the case where the buyer becomes the outright owner of the goods and gives a mortgage to secure the purchase price, for example, the owner would retain any surplus on sale. Consistent with the policy of treating functionally similar arrangements alike, section 85 contains measures to ensure the same principles apply to mortgages and sales by instalments:

•

The buyer can return the goods to the credit provider or require the credit provider to sell the goods where they are in the credit provider's possession [Schedule 1, Part 5, subsections 85(1) and (2)].

•

Where the goods are returned or the credit provider is required to sell the goods, the credit provider must give the debtor or mortgagor a written notice containing the estimated value of the goods and other information prescribed by the regulations. It is intended that a regulation will be made that replicates the UCCC prescribed written notice. Within 21 days after this notice the debtor or mortgagor is entitled, on request, to the return of the goods provided they are not in default under the credit contract [Schedule 1, Part 5, subsections 85(3) and (4)].

•

The debtor can nominate a purchaser and the credit provider must sell the goods for the best price reasonably obtainable [Schedule 1, Part 5, subsections 85(5)].

•

The credit provider must sell the goods (if not required to return them) as soon as reasonably practicable (or at a time agreed between the credit provider and the debtor or mortgagor) for the best price reasonably obtainable [Schedule 1, Part 5, subsection 85(6)].

•

The sale proceeds (less any amounts the credit provider can deduct) must be credited to the debtor or mortgagor. The credit provider is entitled only to deduct from sale proceeds [Schedule 1, Part 5, subsections 85(7) and (8)]:

-

the amount required to discharge the contract or guarantee;

-

the amount payable to discharge any prior mortgage to which the goods were subject;

-

the amount payable in successive discharge of any subsequent mortgages to which the goods were subject and of which the credit provider had notice;

-

reasonable enforcement expenses; and

-

reasonable expenses relating to possession and sale of mortgaged goods.

8.181 It is a strict liability offence for a credit provider not to comply with section 85 (a maximum penalty of 50 penalty units applies). [Schedule 1, Part 5, subsections 85(10) and (11)]

8.182 The Court may award compensation if it is not satisfied that the credit provider sold the goods as soon as reasonably practicable for the best price reasonably obtainable. The onus of proving that the section was complied with is on the credit provider. [Schedule 1, Part 5, section 86]

One-off notice to be given the first time a direct debit default occurs

8.183 Many credit products are offered on the basis that the debtor authorises repayment under a credit contract by direct debiting amounts against an account held by the debtor. As direct debits occur automatically at pre-arranged intervals (for example, monthly), the debtor may not become aware that they are in default for some time, where there are insufficient funds in the debtor's account. This may result in the debtor accruing numerous charges before they become aware of the default.

8.184 Section 87 aims to address this issue by requiring the credit provider to give the debtor (and any guarantor) a notice within 10 business days of the first direct debit payment failing in relation to a direct debit instruction.

8.185 Failure to do so is a strict liability offence with a maximum penalty of 50 penalty units. The default notice must contain the prescribed information. It is intended that a regulation will be made that prescribes the form and information to be contained in the direct debit default notice. [Schedule 1, Part 5, section 87]

Division 2 - Enforcement of credit contracts, mortgages and guarantees

8.186 A credit provider's enforcement rights and obligations depend on the contract and security document and general law including State and Territory property laws. The Code overlays these rights and obligations so that regardless of the form of the transaction, the same outcomes occur.

8.187 The Code specifically:

•

sets out the default notice procedures to be followed by a credit provider before the credit provider can begin enforcement proceedings against a defaulting debtor or mortgagor. Before enforcement proceedings, the credit provider must give a default notice, which provides the debtor or guarantor or mortgagor a period of 30 days from the date of the notice to remedy the default. Failure to do so attracts strict liability offence with a maximum penalty of 50 penalty units. The default notice must contain a number of matters under subsection 88(3) including information prescribed by the regulations directed at ensuring the person in default has relevant information relating to the default, date after which enforcement action may begin, debtors' rights and consequences of default. It is intended that a regulation will be made prescribing the form and information to be included in the notice under the UCCC [Schedule 1, Part 5, subsections 88(1) to (4)];

•

sets out certain circumstances where a default notice is not required, such as where the credit provider has made reasonable attempts to locate the debtor or mortgagor without success or the court has authorised the start of enforcement proceedings [Schedule 1, Part 5, subsection 88(5)];

•

provides for the right of a debtor or mortgagor to remedy a default within the period specified in a default notice. This has the effect of reinstating the contract or mortgage rendering inoperative any acceleration clause [Schedule 1, Part 5, section 89];

•

sets out the procedures to be followed by a credit provider before the credit provider can enforce a judgment against a guarantor. Generally, the creditor provider must obtain a judgment against the debtor which remains unpaid for 30 days after the written demand for payment (strict liability offence with a maximum penalty of 50 penalty units applies). There are circumstances where a judgment is not required, such as where the debtor is insolvent [Schedule 1, Part 5, section 90];

•

prevents a credit provider from repossessing mortgaged goods, without the consent of the Court, if the amount owing is less than 25 per cent of the amount of credit or $10,000 (whichever is the lesser) (a maximum penalty of 100 penalty units applies) [Schedule 1, Part 5, subsection 91(1)]. This is also an offence of strict liability [Schedule 1, Part 5, subsection 91(3)]. This restriction does not apply to continuing credit contracts or where the credit provider reasonably believes:

-

the debtor has or intends to remove or dispose of the goods; or

-

that urgent action is necessary to protect the goods [Schedule 1, Part 5, subsection 91(2)];

•

restricts the operation of acceleration clauses until a default notice is provided, unless a default notice is not required under subsection 93(2). Section 92 defines an acceleration clause as a clause that allows the credit provider, either on default, or at the lender's discretion, to require repayment of the loan, therefore requiring the debtor to pay the outstanding balance of the loan immediately. An acceleration clause does not include any such term in a credit contract or mortgage that is an 'on demand facility', defined in subsection 92(2). An on demand facility is a credit contract or mortgage where the total amount outstanding is repayable on demand by the credit provider and no agreement, arrangement or understanding exists that repayment will only be demanded on the occurrence or non-occurrence of a particular event [Schedule 1, Part 5, section 93];

•

gives the debtor, mortgagor or guarantor a right to request the credit provider to postpone enforcement proceedings where the maximum amount of credit is not more than $500,000 (unless the regulations set a higher amount). The credit provider must respond to the request within 21 days, and, if they do not agree to the request, they must give reasons for this decision to the consumer. Failure to do so attracts a penalty of 30 penalty units [Schedule 1, Part 5, section 94]. This is an offence of strict liability [Schedule 1, Part 5, subsection 94(3)]. Section 95 sets out the effect of the negotiated postponement. The default notice is taken to not have been given if the debtor, mortgagor or guarantor complies with the conditions of postponement. Generally a credit provider must give written notice of the agreed conditions no later than 30 days after the agreement is reached. Failure to do so attracts a penalty of 100 penalty units [Schedule 1, Part 5, section 95]. This is an offence of strict liability [Schedule 1, Part 5, subsection 95(3)]. The debtor may apply to the Court for a postponement if unable to negotiate a postponement with the credit provider [Schedule 1, Part 5, section 96]; or

•

the credit provider may apply to the Court for a variation to a Court order made under this Division [Schedule 1, Part 5, section 97].

Enforcement procedures for goods mortgages

8.188 The Code contains a range of consumer protection measures directed at mortgages of goods, however, it does not regulate the enforcement of mortgages over land, which is left to the general law and State and Territory legislation, except where it relates to default notices.

8.189 These provisions aim to address prevalent abuses and also reflect the fact that goods depreciate rapidly in value and therefore a forced sale is likely to result in a substantial shortfall against the amount of credit outstanding. The provisions:

•

restrict entry to residential premises to seize mortgaged goods, unless the occupier has given written consent to enter or the Court has authorised entry. The regulations may prescribe procedures for obtaining and giving consent. It is intended that regulations will be prescribed which replicate the UCCC prescribed procedures. A contravention of this section is a strict liability offence with a penalty of 50 penalty units [Schedule 1, Part 5, section 99];

•

allow the Court to order entry to residential premises to allow the credit provider to take possession of the mortgaged goods [Schedule 1, Part 5, section 100]. The Court may also order a person to deliver the mortgaged goods to a credit provider at a specified time or place or within a specified period [Schedule 1, Part 5, section 101]. This is an offence of strict liability [Schedule 1, Part 5, subsection 101(4)];

•

require the mortgagor to inform the credit provider of the location of the goods or assist the credit provider in locating the goods. A mortgagor who does not comply commits a strict liability offence. A maximum penalty of 50 penalty units applies [Schedule 1, Part 5, section 98];

•

require the credit provider to give the mortgagor, within 14 days after repossession and before the sale, a notice setting out the estimated value of the goods, enforcement expenses and a statement of the mortgagor's rights and obligations in the prescribed form. It is intended that a regulation will be made that replicates the form and information requirements under the UCCC regulations for the statement of mortgagor's rights and obligations [Schedule 1, Part 5, subsection 102(1)];

•

specify that, after repossession, a credit provider must not dispose of the goods within 21 days after the date of the notice (unless the Court otherwise authorises) and enable the debtor to recover the goods by reinstating the contract by paying out the arrears and enforcement expenses or paying out the contract in full [Schedule 1, Part 5, subsections 102(2) and (4)];

•

prohibit the credit provider from disposing of the goods after the 21 days if a stay of enforcement proceedings is in force, or an application under section 70 has not been determined, and until any appeal period has elapsed [Schedule 1, Part 5, subsection 102(3)];

•

a contravention of section 94 is a strict liability offence and attracts a penalty of 50 penalty units [Schedule 1, Part 5, subsection 102(5)];

•

give the mortgagor a right to nominate a buyer at the estimated value or higher at which the credit provider must offer to sell to the nominated buyer. A contravention of subsection 103(2) is a strict liability offence with a maximum 50 penalty units [Schedule 1, Part 5, section 103];

•

specify if payment is not made 21 days after the notice under section 102 is given, the credit provider must sell the goods for the best price reasonably obtainable. The credit provider must account for the proceeds and to give the debtor a further notice after the sale, setting out the gross amount realised on the sale, the net proceeds of the sale, the amount required to pay out the credit contract or the amount due under the guarantee, any further recovery action proposed to be taken by the credit provider, and any further information prescribed by the regulation. It is intended that a regulation will be made replicating the UCCC regulation requiring an itemised account of each deduction made from the gross amount realised on sale. A contravention of section 103 is a strict liability offence and attracts a penalty of 50 penalty units [Schedule 1, Part 5, section 104]; and

•

allow a credit provider that sells mortgaged goods to only deduct specified amounts from sale proceeds, for example, the amounts required to discharge the contract and the credit provider's reasonable enforcement expenses [Schedule 1, Part 5, section 105].

8.190 The Code also provides for rights to compensation if the requirements for the sale of mortgaged goods are not met. Section 106 gives the debtor or mortgagor and a mortgagee under a previous mortgage the right to apply to the Court for an order for compensation or payment by a credit provider for any loss suffered. The Court may make an order if it is not satisfied that the credit provider complied with the procedures for the sale of mortgaged goods. The onus of proving that a sale was exercised in accordance with this Division is on the credit provider that exercised it. [Schedule 1, Part 5, section 106]

Enforcement expenses

8.191 Section 107 prohibits a credit provider from recovering any more than reasonable enforcement expenses from a debtor, mortgagor or guarantor and imposes a penalty if the credit provider does not comply. The court may determine liability to a dispute about the amount of enforcement expenses that may be recovered by the credit provider. [Schedule 1, Part 5, section 107]

Mortgagor's remedies

8.192 The Code inserts a new Division 6 dealing with a mortgagor's remedies. The new provisions give a mortgagor additional rights against a credit provider who takes possession of mortgaged goods in breach of the requirements in Division 2 (enforcement of credit contracts, mortgages and guarantees) or Division 4 (enforcement procedures for goods mortgaged).

8.193 The new sections enable a mortgagor to apply to the Court to regain possession of the goods even though the relevant default has not been remedied. A person who contravenes an order under subsection 108(1) commits a strict liability offence, which attracts a penalty of 30 penalty units. [Schedule 1, Part 5, section 108]

8.194 If an order is made under section 108, the court may order a person who has possession of the goods to deliver them to the mortgagor at a specified time or place or within a specified period. A person who contravenes an order under subsection 109(1) commits a strict liability offence, which attracts a penalty of 30 penalty units. [Schedule 1, Part 5, section 109]

8.195 The Court may make other ancillary or consequential orders the Court considers appropriate where it makes an order under this Division. [Schedule 1, Part 5, section 110]

Part 6 - Penalties for defaults of credit providers

8.196 Part 6 sets out a penalty regime which generally replicates the penalty provisions in Part 6 of the UCCC. The provisions support the 'truth in lending' objective of the Code by deterring contraventions of the Code. In addition, Part 6 provides an avenue for debtors to be compensated for loss suffered as a contravention of a provision.

Penalties for breach of key disclosure and other requirements

8.197 Under the Code a penalty may be ordered where the credit contract fails to disclose a key requirement. The key requirements are different depending whether the credit contract is or is not a continuing credit contract.

Table 8.1

[Schedule 1, Part 5, subsection 111(1)]

Table 8.2

[Schedule 1, Part 5, subsection 111(2)]

8.198 A key requirement relating to a disclosure or statement of account extends to requirements set out in Part 2 as to the manner in which the disclosure or statement is to be made. [Schedule 1, Part 5, subsection 111(3)]

Who can apply for a penalty?

8.199 The Code gives a party to a credit contract or a guarantor or ASIC the right to apply for a penalty. However, a debtor or guarantor cannot seek a penalty order where the credit provider or ASIC has applied for an order in respect of the same contravention. However, this does not prevent an application from being made for compensation under section 118. [Schedule 1, Part 5, section 112]

8.200 Where a credit provider makes an application under Part 6, it must notify ASIC [Schedule 1, Part 5, subsection 119(3)]. ASIC may then apply to be joined as a party in order to represent the public interest and the interests of debtors [Schedule 1, Part 5, section 120].

The Court's discretion regarding penalties

8.201 Where an application to the Court is made, the Court must declare whether or not the credit provider has contravened a key requirement. [Schedule 1, Part 5 subsection 113(1)]

8.202 However, where the Court decides a key requirement has been contravened, it has the discretion to impose a penalty. The purpose of this provision is to allow the credit provider, in the course of their application, to seek a declaration as to whether or not their conduct has in fact breached a key requirement; that is, a credit provider can bring an application without having to first concede that they have breached the Code. [Schedule 1, Part 5, subsection 113(2)]

Other relevant matters in penalty proceedings

General matters

8.203 The Code requires the Court to consider a number of factors when determining whether to impose a penalty and the quantum of any such penalty. The Court must take into account the following factors:

•

the conduct of the credit provider and the debtor before and after the credit contract was entered into;

•

whether the contravention was deliberate;

•

the loss, if any, suffered by the debtor because of the contravention;

•

when the credit provider first became aware, or ought reasonably to have become aware, of the contravention;

•

any systems or procedures of the credit provider to prevent or identify contraventions;

•

whether the contravention could have been prevented by the credit provider;

•

any action taken by the credit provider to remedy the contravention or compensate the debtor or to prevent further contraventions;

•

the time taken to make the application and the nature of the application; and

•

any other matter the court considers relevant.

[Schedule 1, Part 5, subsection 113(4)]

Related contraventions

8.204 Where a contravention of a key requirement occurs because of another contravention of a key requirement, the Court must consider it a contravention of the same kind. Where a key requirement contains several requirements (for example, subsection 17(5) requires the contract document to contain the method of calculation and frequency with which interest is charged), the Court must treat contraventions of more than one of those requirements as a single contravention. [Schedule 1, Part 5, subsection 113(5)]

Prudential standing

8.205 When considering whether or not to impose any penalty on the credit provider for contravening a key requirement, the Court must have regard primarily to the prudential standing of the credit provider (or any of its subsidiaries) if the credit provider takes deposits or is a borrowing corporation; and requests the Court to have regard to its prudential standing. The aim of this provision was to protect smaller credit providers who take deposits (for example, credit unions) from the impact of a penalty that may affect the viability of the entity and the investments of its depositors. [Schedule 1, Part 5, subsection 113(3)]

Suppression of publication of application

8.206 If the Court considers it appropriate, it may order that particulars of, or any matters relating to, an application for an order under this Division may not be published. [Schedule 1, Part 5, subsection 113(6)]

The amount of the penalty

8.207 The Code imposes different maximum limits on the amounts that may be ordered as a penalty depending on who makes the application.

Applications by the debtor or guarantor

8.208 Where the debtor or guarantor makes the application, the maximum penalty is generally the interest payable under the contract, or the interest payable for the relevant billing cycle if the contravention was in respect of a statement of account. The Court may impose a greater penalty that is not less than the amount of the loss suffered where it is satisfied that the debtor has suffered loss. [Schedule 1, Part 5, section 114]

8.209 The Code enables any order to pay a debtor or guarantor a penalty may be set off against any amount that is due or becomes due under the credit contract. Where there is no such amount, the amount of the penalty is a debt due by the credit provider to the debtor or guarantor. The Court may include any other directions it considers appropriate in relation to the payment of the amount owed as a result of the order. [Schedule 1, Part 5, section 115]

8.210 To make these provisions operational in the Commonwealth context, a special appropriations provision has been introduced. This is to ensure that it is compliant with Section 81 of the Australian Constitution.

Applications by the credit provider or ASIC

8.211 If the credit provider or ASIC makes the application, the Code caps the maximum penalty at $500,000 for all contraventions of the same key requirement in Australia. Payment of a penalty, where the credit provider or ASIC makes the application, is to be paid to ASIC on behalf of the Commonwealth. [Schedule 1, Part 5, sections 116 and 117]

8.212 Notwithstanding an application being made by the credit provider or ASIC, the debtor or guarantor may make a separate application for compensation for loss arising from convention of a key requirement. The amount of compensation cannot exceed the loss suffered and does not affect the amount of the penalty imposed under section 116. [Schedule 1, Part 5, section 118]

8.213 Where a credit provider or ASIC applies to the Court for an order, the application may apply to:

•

any one or more credit contracts; and

•

all or any class of credit contracts entered into during a specific period.

[Schedule 1, Part 5, subsection 119(1)]

8.214 The Court can require such applications to be published in a newspaper circulating throughout one or more States or Territories. [Schedule 1, Part 5, subsection 119(2)]

Directions pending the Court's decision

8.215 The Court may, before finalising an application by a debtor or guarantor, make interlocutory orders to protect the interest of debtors or guarantors that may be affected by the application. Such directions may include restrictions on credit providers taking enforcement action under a credit contract affected by the application. In the absence of such directions, no restrictions apply on the credit provider's ability to enforce a debtor's obligations under an affected contract, or to assert their rights over any property taken as security. Credit providers may apply to the Court for a variation of the direction. [Schedule 1, Part 5, section 121]

Time limit for applications

8.216 The Code imposes a time limit of six years (from the date of the breach) in which a person may bring an application relating to a contravention of a key requirement. The aim of this provision is to provide a suitable time period in which contravention can be uncovered while the credit provider is still liable for a penalty. [Schedule 1, Part 5, section 123]

Effect of penalty on criminal liability

8.217 An order for a credit provider to pay a penalty under the Code does not affect their criminal liability for any other offences against the Code or the regulations. [Schedule 1, Part 5, section 122]

Effect of other contraventions

8.218 Where a credit provider contravenes a requirement under the Code (other than a key requirement), the Court may make orders (on the application of ASIC or any person affected by the contravention) that the credit provider make restitution or pay compensation to any person affected by the contravention and any other consequential orders it considers appropriate. [Schedule 1, Part 5, section 124]

Part 7 - Related sale contracts

8.219 Part 7 establishes a statutory scheme of linked credit provider liability, with the aim of protecting the consumer from insolvency of a supplier by ensuring the consumer has at least one defendant (the credit provider) capable of compensating it for loss.

8.220 The related sale contract provisions in Part 7 substantially replicate Part 7 of the UCCC.

8.221 The main elements of the linked credit provider provisions are:

•

the supplier remains the party primarily liable to customers for breach of the contract of sale;

•

the customer has the additional right of claiming damages from the linked credit provider up to the amount payable by the customer under the credit contract;

•

where a customer brings an action against a linked credit provider the supplier must generally be joined in the proceedings;

•

judgments against linked credit provider are only enforceable to the extent that the judgment against the supplier is unsatisfied; and

•

the supplier is liable to indemnify the credit provider for any loss or liability incurred.

Definitions and application of Part 7

Sale contracts

8.222 Part 7 applies to sale contracts (or proposed sale contracts) for the sale of goods or supply of services financed (or proposed to be financed) by consumer credit. [Schedule 1, Part 7, sections 125 and 126]

Linked credit provider

8.223 A linked credit provider means a credit provider:

•

with whom the supplier has a contract, arrangement or understanding to supply credit to consumers in respect of goods or services it supplies;

•

to whom the supplier regularly refers persons for the purpose of obtaining credit;

•

whose credit is offered or made available (including making available contracts or application forms) to consumers by the supplier; or

•

with whom the supplier has a contract, arrangement or understanding under which contracts, applications or offers for credit from the credit provider may be signed by persons at the supplier's premises.

[Schedule 1, Part 7, subsection 127(1)]

Tied continuing credit

8.224 For the purposes of the Code, subsection 127(2) defines tied continuing credit as credit provided to a debtor for the purchase of goods or services supplied by a supplier where the credit provider is a linked credit provider. [Schedule 1, Part 7, subsection 127(2)]

Tied loan contract

8.225 Subsection 127(3) defines a tied loan contract as a credit contract (other than a continuing credit contract) between the debtor and the credit provider where the credit provider (is a linked credit provider of a supplier) and knows or ought to know that the credit is to finance goods and services supplied by the supplier. [Schedule 1, Part 7, subsection 127(3)]

Liability of credit providers for suppliers' misrepresentations

8.226 Section 128 makes a credit provider liable for representations, warranties or statements made by a supplier of goods or services to a debtor in relation to a relevant tied loan contract or tied continuing credit contract. The credit provider is entitled to be indemnified by the person who made the representation, warranty or statement and any person on whose behalf it was made. [Schedule 1, Part 7, section 128]

Liability of credit providers in relation to goods

8.227 The provisions in sections 129 to 133 are generally in the same terms as section 73 of the Trade Practices Act 1974, except that they also apply to unincorporated credit providers.

Right to damages

8.228 Section 129 establishes the joint liability of a credit provider (together with a supplier) for loss or damage suffered by a debtor as a result of misrepresentation, breach of contract or failure of consideration in relation to a credit contract for the supply of credit by a linked credit provider in respect of the supply of goods or services. [Schedule 1, Part 7, subsection 129(1)]

8.229 The provision also sets out the circumstances for credit providers' defences to proceedings about contracts that are linked:

•

Where the debtor independently approached the credit provider - this is a complete defence;

•

For a tied loan contract:

-

before it became linked, the credit provider after due inquiry, was satisfied as to the supplier's good financial standing and business conduct; and

-

after becoming linked, but before the contract was entered into, the credit provider had no reason to suspect that the debtor might be entitled to recover for loss or damage suffered as a result of the supplier's conduct, or that the supplier might be insolvent;

•

For a tied continued credit contract, because of the nature and volume of the business carried on by the linked credit provider and any other relevant matters, if the linked credit provider had no reason to suspect that a breach might occur.

[Schedule 1, Part 7, subsection 129(2)]

Limits on debtor's right of action

8.230 Section 130 contains provisions about the limits on the debtor's right of action against the linked credit provider under section 129.

8.231 The debtor may set off the credit provider's liability under that provision in proceedings [Schedule 1, Part 7, subsection 130(1)]. The rights of the debtor to bring proceedings solely against the credit provider are limited (but not in the case of an insolvent supplier that cannot be located or where a judgment would not be satisfied) as is the amount of the liability of the credit provider [Schedule 1, Part 7, subsections 130(2) to (4)]. The amount is not to exceed the sum of:

•

the amount of credit under the tied loan contract or tied continuing credit contract;

•

the interest (if any) or damages in the nature of interest allowed or awarded against the linked credit provider by the Court; and

•

the amount of costs (if any) awarded by the Court against the linked credit provider or supplier or both.

[Schedule 1, Part 7, subsection 130(4)]

8.232 Procedures for enforcement of judgments against the linked credit provider in relation to the liability are also set out. If a debtor obtains judgment against both the supplier and the linked credit provider, it may not be enforced against the credit provider unless demand has been made on the supplier and the demand remains unsatisfied for 30 days. [Schedule 1, Part 7, subsections 130(5) and (6)]

Liability of supplier

8.233 Section 131 establishes the liability of the supplier to the linked credit provider (unless otherwise agreed between the parties) for the loss suffered by the credit provider as a result of liability under section 129. Unless the Court otherwise determines, the liability of the supplier includes the linked credit provider's cost of defending the claim. [Schedule 1, Part 7, section 131]

Interest

8.234 Courts may award interest to debtors against a supplier or a linked credit provider from the time when the debtor becomes entitled to recover the amount until the date of the judgment at a rate prescribed by the regulations. It is intended that a regulation will be made that replicates the UCCC prescribed rate of interest (that is, the annual percentage rate under the relevant credit contract as at the date of the judgment or the date immediately before the contract was terminated if the contact is no longer in force). [Schedule 1, Part 7, section 132]

Subrogation of credit provider

8.235 Section 133 subrogates a linked credit provider found liable in proceedings under section 129 (to the extent that the judgment is enforced against the credit provider) to the rights that the debtor would have had against the supplier or any other person but for the judgment as a result of the cause of the liability. [Schedule 1, Part 7, section 133]

Termination of related transactions

Contract conditional on obtaining credit

8.236 A right to terminate a sale contract is conferred by section 134 on a purchaser of goods or services where the purchaser failed to obtain credit on reasonable terms and made it known to the supplier that the credit was required. This applies to contracts where the goods and services have been supplied, but does not apply to a sale contract for real property unless the supplier was aware that the purchaser intended to obtain the credit from the supplier or the linked credit provider. [Schedule 1, Part 7, subsections 134(1), (2) and (4)]

8.237 Table 8.3 sets out the rights resulting from termination.

Table 8.3

[Schedule 1, Part 7, subsection 134(3)]

Termination of tied credit contract where sale contract terminated

8.238 Section 135 entitles a debtor to terminate a tied loan contract or a tied continuing credit contract if the related sale contract is rescinded or discharged. The termination has the effect of terminating any related guarantee or mortgage. The termination provisions do not apply if the credit provided was not induced by the supplier or credit provider. [Schedule 1, Part 7, subsections 135(1), (2) and (7)]

8.239 Table 8.4 sets out the rights resulting from the termination.

Table 8.4

[Schedule 1, Part 7, subsections 135(3) to (5)]

8.240 A supplier must notify a linked credit provider that a sale contract has been rescinded or discharged. Failure to do so is an offence which carries a maximum penalty of 50 penalty units. [Schedule 1, Part 7, subsection 135(6)]

Termination of a linked maintenance services contract if a credit contract is terminated

8.241 Section 136 entitles a debtor to terminate a sale contract to supply maintenance services, and to recover a proportionate rebate of the consideration paid, if a related tied loan contract or tied continuing credit contract is rescinded or discharged before the end of the sale contract. The termination provisions do not apply if the credit provided was not induced by the supplier or credit provider.

8.242 The regulations may prescribe how and when the debtor must be informed and the manner of calculating the proportionate rebate. It is intended that a regulation will be made that replicates the time, form, content and formula used in the UCCC regulations. It is an offence for a credit provider not to notify a debtor of their rights in the prescribed manner. It is intended that a regulation will be made that replicates the form and time (that is, 21 days) prescribed under the UCCC regulations. A strict liability offence with a maximum penalty of 50 penalty units applies. [Schedule 1, Part 7, section 136]

Termination of contracts under this Part

8.243 An entitlement to terminate a sale contract or credit contract under Part 7 is to be exercised in writing [Schedule 1, Part 7, section 137]. The Court has power to make orders about the termination of a contract under Part 7 [Schedule 1, Part 7, section 138]. Part 5, relating to ending and enforcing credit contracts, mortgages and guarantees, does not apply to the termination of a contract under Part 7 [Schedule 1, Part 7, section 139].

Other provisions

8.244 A supplier is prohibited from:

•

requiring a purchaser of goods or services to apply for, or obtain, credit from a particular credit provider (the offence carries a maximum penalty of 100 penalty units) [Schedule 1, Part 7, section 140]; or

•

demanding or accepting payment for goods or services in the form of a post-dated bill of exchange or promissory note with a face value of more than the cash price of the goods or services (the offence carries a maximum penalty of 100 penalty units) [Schedule 1, Part 7, section 141].

8.245 In bringing the UCCC into the Commonwealth jurisdiction, breaches of these provisions have also been made offences of strict liability. [Schedule 1, Part 7, subsections 140(2) and 141(3)]

Part 8 - Related insurance contracts

8.246 Part 8 of the Code deals with insurance contracts that are connected with the credit being provided to the debtor. The cost of insurance is often financed under a credit contract and can add substantially to the cost of credit. Further, insurance over mortgaged property is usually required to be taken out under the terms of the mortgage document.

8.247 Part 8 of the Code complements the Insurance Contracts Act 1984 by providing targeted measures directed at credit providers, suppliers and insurers that limit the way in which insurances are packaged with credit, to address inappropriate sales. Their aim is to ensure that consumers turn their minds to the best insurance product at the point of sale.

8.248 The measures replicate Part 8 of the UCCC and include:

•

restrictions on requiring that insurance be taken out or arranged by the credit provider or supplier;

•

restrictions on financing insurance premiums under a credit contract;

•

limits on commissions paid by an insurer; and

•

automatic termination of an insurance contract where the credit contract is terminated.

Meaning of a credit-related insurance contract

8.249 Section 142 defines a credit-related insurance contract, for the purposes of the Code:

•

as insurance over mortgaged property, where the mortgaged property secures the obligations of the debtor under the credit contract;

•

consumer credit insurance (as defined in Part 13), where the insurance insures the obligations of the debtor under the credit contract; and

•

the Code does not apply to insurance over mortgaged property that is insurance for an extended period of warranty for goods.

[Schedule 1, Part 8, section 142]

8.250 Insurance is voluntary under section 143 except for compulsory insurance (as defined by Part 13), mortgage indemnity insurance and insurance over mortgaged property. The aim of this provision is to prevent 'insurance forcing' where credit is made available on condition that insurance is also taken out or taken out with a particular insurer. This means the consumer cannot be required to take out consumer credit insurance. [Schedule 1, Part 8, subsection 143(1)]

8.251 There is no requirement for the debtor or guarantor to take out insurance or pay the cost of insurance if the credit provider or supplier has already arranged insurance. Nor can the credit provider or supplier misrepresent that voluntary insurance is required. Where the credit provider or supplier can lawfully insist on insurance, the debtor or guarantor cannot be required to take out insurance with a particular insurer, or to take out insurance, where any of the terms on which the insurance is provided are unreasonable. A breach of the section is an offence of strict liability and a criminal offence, with a maximum penalty of 100 penalty units. [Schedule 1, Part 8, subsections 143(1) to (3)]. The insured is also entitled to recover the whole premium paid under the contract from the credit provider or supplier. [Schedule 1, Part 8, subsections 143(4)]

8.252 Credit providers or suppliers often offer reductions in the cost of credit as an incentive for consumers to acquire credit and insurance products together (that is, this combination of products is usually referred to as 'bundling'). Section 143 does not prohibit credit providers or suppliers offering or agreeing to reduce the cost of credit only on the condition that a prospective debtor or guarantor takes out insurance (or takes out that insurance with a particular insurer) provided that where the prospective debtor or guarantor declines to take out the insurance or to take out insurance with a particular insurer, the credit is still available (albeit without the proposed reduction in the cost of that credit). [Schedule 1, Part 8, section 143]

Financing of insurance premiums over mortgaged property

8.253 Section 144 prevents a credit provider from financing premiums for insurance over mortgaged property for more than one year at a time. Restrictions also apply on knowingly debiting the premium to the debtor's account more than 30 days before the commencement of the insurance. A maximum penalty of 100 penalty units applies for a contravention of these restrictions. The insured is also entitled to recover the premium. [Schedule 1, Part 8, section 144]

Commission for consumer credit insurance

8.254 Section 145 limits commissions payable by the insurer in respect of consumer credit insurance to 20 per cent of the premium. The key aspect of the definition of consumer credit insurance is that it insures the capacity of the debtor to make repayments under the credit contract. That is, it is insurance in respect of a risk relating to the borrower's capacity to make repayments (for example, due to a change in income or their financial circumstances (see Part 13)). [Schedule 1, Part 8, section 145]

8.255 The cap was imposed in response to the unnecessary or forced 'packing' of loan contracts with insurance premiums where high commissions are offered to encourage intermediaries to distribute their products. An increase in the percentage of commission correspondingly reduces the benefits that can be offered under the policy to the insured.

8.256 The cap applies to a credit provider, a supplier under a sale contract in relation to which there is a tied loan contract or tied continuing credit contract, or an agent of the credit provider or supplier. A contravention of this provision is a strict liability offence with a maximum penalty of 100 penalty units. The insured is also entitled to recover the commission. [Schedule 1, Part 8, section 145]

Supply of copy of credit-related insurance contract by insurer

8.257 Copies of insurance policies for credit-related insurance contracts financed by credit contracts must be given to debtors within 14 days after acceptance of the insurance proposal by the insurer. It is intended that the prescribed particulars of the credit-related insurance contract under the UCCC regulations will also be required to be given to debtors where they have a beneficial interest in such contracts of insurance. This is a strict liability offence with a maximum penalty of 100 penalty units applies. [Schedule 1, Part 8, section 146]

Rejection of debtor's proposal for insurance

8.258 Section 147 sets out procedures to be followed when an insurer rejects a proposal for credit-related insurance to be financed by a credit contract. This includes informing the debtor and credit provider and refunding or crediting in full any amount paid. This is a strict liability offence with a maximum penalty of 100 penalty units applies. [Schedule 1, Part 8, section 147]

Termination

8.259 On termination of the credit contract any relevant credit-related insurance contract financed under the credit contract is also terminated. The credit provider must pay or credit the debtor with a rebate of the premium paid under such a credit insurance contract in force immediately before the termination. The regulations may prescribe the manner of calculating the rebate. It is intended that the formula used in calculating the rebate under the UCCC regulations will be prescribed for the purposes of section 148. This does not apply to a credit-related insurance contract that provides death cover, if the credit contract is terminated on the death of a debtor. [Schedule 1, Part 8, section 148]

8.260 Section 149 entitles a debtor to terminate a relevant credit-related insurance contract over mortgaged property on the termination of a credit contract and recover from the insurer the proportionate rebate of premium paid. Credit providers must inform debtors of their rights in accordance with the regulations. The regulations may also prescribe the manner of calculating the rebate. It is intended that a regulation will be made that replicates the form of notice and the formula for calculating the premium rebate prescribed under the UCCC regulations. It is an offence for a credit provider not to notify a debtor of their rights on any such termination of a credit contract (this is a strict liability offence with a maximum penalty of 50 penalty units applies). [Schedule 1, Part 8, section 149]

Part 9 - Advertising and related conduct

8.261 Part 9 of the Code regulates the promotional activities of persons offering credit. These provisions substantially replicate Part 9 of the UCCC which are generally intended to protect consumers from misleading advertising and other undesirable conduct, such as harassment and credit hawking.

Advertising

8.262 Advertising the availability of credit is prohibited unless the advertisement complies with certain requirements in relation to the cost of the credit and any other requirements prescribed by the regulations. A maximum fine of 100 penalty units applies. [Schedule 1, Part 9, section 150]

8.263 Specifically, advertisements stating the amount of any repayment must include the annual percentage rate (expressed as a nominal percentage rate per annum) and information about credit fees and charges if they are payable. Alternatively, the advertisement can contain the comparison rate. A breach of this provision is an offence of strict liability. [Schedule 1, Part 9, subsection 153(2)]. Advertisements containing comparison rates must also comply with the disclosure requirements in Division 2 of Part 10 of the Code. It is a defence to non-compliance with this disclosure requirement if the person proves they could not, by exercising reasonable care, have prevented the non-compliance. [Schedule 1, Part 9, sections 150 and 153 and subsection 151(2)]

8.264 A presumption exists, in the absence of proof to the contrary, that a person has caused an advertisement to be published where the person has an interest in the goods and services promoted or the supply of those goods and services, and the advertisement specifies relevant details of the person. [Schedule 1, Part 9, section 151]

8.265 Section 152 contains a defence against contraventions of the advertising requirements. This defence only applies to printers, publishers or proprietors of newspapers, licensees of broadcastings or television stations, exhibitors of films or any person acting with their authority where the person did not suspect or had no reason to suspect the advertisement would constitute an offence. [Schedule 1, Part 9, section 152]

False or misleading representations

8.266 Section 154 creates an offence for making false or misleading representations. The offence applies to any persons who make representations about matters material to entry into a credit contract or a related transaction or attempts to induce a person to enter such a contract or transaction. It therefore applies to debtors or guarantors, to brokers, and to third parties (including, for example, valuers). A maximum fine of 50 penalty units applies. [Schedule 1, Part 9, section 154]

Harassment

8.267 The Code also contains a prohibition in section 155 on credit providers or suppliers harassing a person in attempting to have them apply for credit or enter into a credit contract or related transaction. A maximum fine of 100 penalty units applies. [Schedule 1, Part 9, section 155]

Credit hawking

8.268 The Code contains measures aimed at restricting door-to-door canvassing. These measures prohibit a credit provider from visiting a residence for the purpose of inducing a person to apply for, or obtain credit, except by prior arrangement with the person who normally resides there. A maximum fine of 100 penalty units applies. This restriction does not apply where the person is visiting a residence to offer goods or services for sale where credit is offered to finance the sale. [Schedule 1, Part 9, section 156]

Recovery of loss

8.269 A person may recover loss resulting from a breach of the advertising rules or as a result of false and misleading representations. [Schedule 1, Part 9, subsection 150(5) and section 154]

Part 10 - Comparison rates

8.270 In addition to the advertising requirements in Part 9, the Code requires the mandatory use of comparison rates in promotional material that advertise an interest rate. Part 10 sets out when the comparison rate is to be included, how to calculate the comparison rate and other disclosure requirements. A comparison rate reflects the total cost of credit arising from interest charges and other fees and charges. The object of the measures is to help consumers identify the true cost of credit, which allows for much easier comparison between loan products.

8.271 The comparison rate requirements are based on Part 9A of the UCCC. A review of the comparison rate disclosure requirements (enabled by an extension of the sunset provision) has resulted in Division 3 of Part 9A of the UCCC (dealing with comparison rate schedules) not being enacted as Commonwealth law.

Key definitions and application of comparison rates provisions

8.272 A comparison rate reflects the total cost of credit per annum arising from interest charges and any other prescribed credit fees and charges [Schedule 1, Part 10, subsections 157(3) and 166(2)]. It is intended that a regulation will be made that replicates the comparisons rate formula prescribed in the UCCC regulations. That formula excluded a government fee, charge or duty from the comparison rate calculation.

8.273 Under the UCCC, valuation fees were also included in the comparison rate calculation where there was no uncertainty over whether a consumer would be charged a valuation fee, even though the exact amount of the fee to be charged was not known at the time the comparison rate was disclosed. In such cases, a reasonable estimate of the likely valuation fee was included for the purposes of calculating the comparison rate. It is intended that the same approach be applied to valuation fees under the Code once the formula has been prescribed.

8.274 Also under the UCCC, where a Government agency to which a fee or charge must be paid deals with the public only through a contracted service provider, any service charges paid to this service provider were considered to be a government fee or charge for the purposes of the comparison rate formula. It is intended that the same approach be applied to government fees or charges under the Code once the formula has been prescribed.

8.275 To assist consumers to understand the true cost of credit, a comparison rate must be disclosed in advertisements for consumer credit if an interest rate is advertised. [Schedule 1, Part 10, subsection 157(2)]

8.276 Part 10 applies to consumer credit products, meaning any form of facility for the provision of credit. However, Part 10 does not apply to continuing credit contracts. [Schedule 1, Part 10, sections 159 and 158]

Comparison rate in advertisements

8.277 Where a credit advertisement contains an annual percentage rate, it must contain the comparison rate for the amounts and terms that represent the typical amount and term offered by the credit provider. The regulations may prescribe the amounts and terms for which the comparison rate is to be calculated. It is intended that the same amounts and terms as prescribed in the UCCC regulations be prescribed for the purposes of the Code. [Schedule 1, Part 10, sections 160 and 161]

8.278 For the purposes of Part 10, credit advertisement is broadly defined to include any medium that states or implies the availability of credit (but does not include a notice or document required to be provided under the Code or a publication that only lists reference rates). [Schedule 1, Part 10, section 159]

Information about comparison rate

8.279 Sections 162 to 164 set out the following disclosure requirements where credit advertisements contain comparison rates:

•

disclosing the name of the consumer credit product, the amount and term of credit to which each comparison rate applies;

•

stating if the loan is secured or unsecured if the comparison rate is calculated for a prescribed amount. It is intended that the same amounts and terms as prescribed in the UCCC regulations be prescribed for the purposes of the Code;

•

including a prescribed warning. It is intended that a warning about the accuracy of the comparison rate will be prescribed similar to warning statements under the UCCC regulations;

•

identifying the comparison rate as a comparison rate;

•

not disclosing a comparison rate less prominently than any advertised annual percentage rate or repayment amount; and

•

relating to electronic display media (including television and the internet), specific requirements apply to comparison rates and the warning where the credit advertisement is spoken or uses text.

[Schedule 1, Part 10, sections 162 to 164]

Comparison rate in other documents

8.280 Section 165 applies (with necessary changes) the comparison rate requirements in Division 2 to other documents that contain a comparison rate. [Schedule 1, Part 10, section 165]

Grace period following changes in interest or fees

8.281 If there is a change in any advertised annual percentage rate or credit fee or charge, section 167 provides a seven-day grace period before the credit advertisement contravenes this Part. [Schedule 1, Part 10, section 167]

Part 11 - Consumer leases

8.282 Part 11 of the Code sets out a separate regime to regulate consumer leases of goods where no right or obligation to purchase the leased goods exists. This is because these types of leases are ordinarily not regarded as involving the provision of credit. However, they have not been exempted completely from the Code as this would increase the level of regulatory difference between leases and other similar forms of finance, and encourage the inappropriate use of leases to avoid the Code completely.

8.283 Where a lease contains a right or option to purchase the goods the outcome is functionally the same as a credit contract. For this reason the Code deems these transactions credit contracts (see section 9).

8.284 The regulation of consumer leases under Part 11 of the Credit Bill largely replicates Part 10 of the UCCC. It contains separate disclosure requirements and applies some of the consumer protection measures that apply to consumer credit contracts. These measures are generally considered necessary because:

•

lessees can mistakenly believe that they have an ability to buy the goods when they do not;

•

the amount paid under the lease may be considerable (that is, equivalent to that paid under a credit contract) but the lessee has no right to the goods when the lease ends; and

•

a level playing field is necessary for financiers who provide consumer credit and those that finance goods through consumer leases.

Meaning of consumer lease

8.285 A consumer lease under section 169 is a contract of hire entered into by a natural person or a strata corporation where they do not have a right or option to purchase the goods. [Schedule 1, Part 10, section 169]

Consumer leases to which Part 11 applies

8.286 Section 170 restricts the application of Part 11 only to those consumer leases with the following features:

•

the goods are hired wholly or predominantly for personal, domestic or household purposes. The predominate purpose for which goods are hired is defined in subsection 170(5);

•

a charge is, or may be made, for the hiring of the goods and the charge, together with any other amount payable under the consumer lease, exceeds the cash price of the goods; and

•

the lessor hires the goods as part of a business carried on in Australia.

[Schedule 1, Part 11, section 170]

8.287 Section 171 excludes short-term or indefinite leases and employment leases. [Schedule 1, Part 11, section 171]

8.288 ASIC is given power to effect exemptions and modifications to the Code. The application of the Code in its entirety can be excluded in respect of:

•

a consumer lease specified by ASIC [Schedule 1, Part 11, subsection 171(4)]; and

•

a class of consumer leases [Schedule 1, Part 11, subsection 171(6)].

8.289 An exemption of a consumer lease as specified by ASIC is stated not to be a legislative instrument. This statement is declaratory of the law, consistent with section 5 of the Legislative Instruments Act 2003. [Schedule 1, Part 11, subsection 171(5)]

8.290 Section 172 sets out a presumption that the Part 11 regime applies to a consumer lease unless the contrary is established. Similarly, a presumption exists that goods are hired for business (rather than personal, household or domestic) purposes if the lessee makes a declaration, before hiring the goods, in the prescribed form and accompanied by the prescribed warning. [Schedule 1, Part 11, section 172]

8.291 The presumption created by the declaration has been amended consistently with the approach taken to credit contracts in section 13. [Schedule 1, Part 11, subsection 172(3)]

8.292 The amendment will provide an effective response to the problems previously associated with the abuse of declarations as:

•

where, before the contract was entered into, goods are hired for domestic purposes it would be unlikely that this would not be known or ascertainable by reasonable inquiry by the lessor; and

•

lessors who do not make any reasonable inquiries into the use of the goods will find it difficult to rely on a declaration where they were in fact used for a domestic purpose.

8.293 Section 172 also creates a defence against any Part 10 offence where the lessor has made reasonable enquiries as to the purpose of the lease and does not believe the goods were hired other than wholly or predominantly for business or investment purposes. [Schedule 1, Part 11, subsection 172(4)]

8.294 An offence for inducing a person to make a false or misleading business purpose declaration in relation to consumer leases has been inserted as there was no penalty in the UCCC which applied in these circumstances. The penalty for this offence is 100 penalty units, two years imprisonment, or both. The strict liability attached to this penalty will significantly enhance the role of ASIC in enforcing the provision. [Schedule 1, Part 11, subsection 172(6)]

Form of and information to be included in consumer leases

8.295 Section 173 prohibits lessors entering into a lease that is not in writing, signed by the lessee and discloses certain details of the transaction. This is a strict liability offence with a maximum penalty of 100 penalty units. [Schedule 1, Part 11, section 173]

8.296 Lessors also face a strict liability offence with a maximum penalty of 100 penalty units if they enter into a consumer lease that does not disclose the following matters where ascertainable:

•

a description of the goods;

•

the amount of any charges payable (including government charges);

•

the amount of each rental payment;

•

the number of payments required;

•

details as to when the payments are due; and

•

information as to when the lease may be terminated and a statement of liabilities (if any) on termination.

[Schedule 1, Part 11, section 174]

8.297 Section 175 requires the lessor to give the lessee a copy of the consumer lease, together with a statement in the prescribed form explaining the rights and obligations of the lessee. It is intended that the prescribed statement under the UCCC regulations will also be prescribed for the purposes of the Code. This is a strict liability offence with a maximum penalty of 50 penalty units. [Schedule 1, Part 11, section 175]

8.298 The provision of further goods under a consumer lease or a change made to a consumer lease (resulting from a deferral or waiver of payment) is treated by section 176 as not creating a new consumer lease or a credit contract. [Schedule 1, Part 11, section 176]

Other provisions applicable to consumer leases

8.299 Section 177 applies the following provisions (relating to credit contracts) to consumer leases:

•

changes to credit contracts on the grounds of hardship and unjust transactions (except for section 78 dealing with unconscionable interest and other charges) (see Division 3 of Part 4);

•

information as to leased goods (see section 98);

•

entry to residential premises to take possession of goods (see section 99);

•

orders by the Court for entry and repossession (see sections 100 and 101); and

•

miscellaneous matters such as tolerances and assumptions (see Part 12).

[Schedule 1, Part 11, section 177]

Notice of repossession

8.300 A restriction on taking repossession action is set out in section 178. This requires the lessor to give 30 days written notice of an intention to repossess goods which are the subject of a consumer lease. This is a strict liability offence with a maximum penalty of 50 penalty units. [Schedule 1, Part 11, subsections 178(1) and (3)]

8.301 However, notice is not required where:

•

repossession at the end of the term is a right under a fixed term lease;

•

the lessor believes on reasonable grounds that the lessee has, or intends to dispose of leased goods;

•

the lessor cannot locate the lessee, having made reasonable attempts;

•

the lessee is insolvent; or

•

the Court authorises repossession.

[Schedule 1, Part 11, subsection 178(2)]

Termination of lease

8.302 Section 179 enables a lessee to end a consumer lease at any time by returning the goods hired. The amount payable on such termination is the lesser of the amount payable under the consumer lease or as determined by regulation. [Schedule 1, Part 11, section 179]

Part 12 - Miscellaneous

Tolerances and assumptions

8.303 Division 1 of Part 12 sets out certain assumptions that may be made in relation to disclosures required by the Code. It also gives power for regulations to be made providing for further assumptions. The assumptions relate to:

•

pre-contractual statements;

•

credit contracts;

•

mortgage documents or guarantees;

•

statements of account;

•

notices; and

•

consumer leases.

[Schedule 1, Part 12, subsection 180(1)]

8.304 Information disclosed by a credit provider will be taken to be correctly disclosed if it is within the tolerances allowed by regulations and where disclosure is made at a stated date. The Credit Bill specifies assumptions for:

•

disclosures of interest charges;

•

disclosures of repayments;

•

disclosures of credit fees and charges;

•

disclosures in consumer leases;

•

when information is ascertainable; and

•

disclosures of names.

[Schedule 1, Part 12, section 180]

8.305 The regulations may vary an assumption or provide for additional assumptions. It is intended that the assumptions prescribed under the UCCC regulations will also be prescribed for the purposes of the Code. For example, permitting rounding off and permitting disclosures to be made at a stated date. [Schedule 1, Part 12, sections 181 and 182]

Documentary provisions

8.306 Specific documentary requirements are placed on the credit provider by Division 2 of Part 12. These measures require the credit provider to provide copies of certain documents at the written request of a debtor, mortgagor or guarantor and for the documents to be legible, clearly expressed and comply with any prescribed requirement. For example, the print or type must not be less that 10 point. In addition, this Division makes provision for signing documents on another person's behalf. The requirements relate to the following documents:

•

any notice required under the Code;

•

any credit contract;

•

any mortgage;

•

any guarantee; and

•

any credit-related insurance contract.

[Schedule 1, Part 12, sections 183 to 186]

8.307 If the Court is satisfied, on application by ASIC, that the documents did not conform with the legibility and language requirements of section 184, the Court may prohibit the credit provider from using a provision of the credit contract in the same or similar terms in future documents [Schedule 1, Part 12, subsection 184(2)]. It is an offence to contravene subsection 184(2), attracting a maximum penalty of 100 units [Schedule 1, Part 12, subsection 184(3)].

8.308 It is an offence of strict liability for a credit provider to fail to provide a debtor, mortgagor or guarantor with a copy of a credit contract, mortgage, guarantee, a credit-related insurance policy or a notice under the Code requiring a person to take action. [Schedule 1, Part 12, subsection 185(4)]

8.309 In addition, the Code permits any contract, mortgage or guarantee, and some documents to be made, given or provided in accordance with laws relating to electronic disclosure except where it has been prescribed that it not be so made, given or provided. Because of the importance of some transactions, documents or information and to ensure that these are received by the recipient, the regulations may prohibit certain classes of transactions, documents or information being made, given or provided by electronic communication. It is intended that the classes of transactions, documents or information prohibited under the UCCC regulations also be prohibited under the regulations made under the Electronic Transactions Act 1999. These include a guarantee to which the Code applies, copies of a guarantee, a credit contract, or a contract document given under section 57, and default notices under section 88. [Schedule 1, Part 12, section 187]

General provisions

Assignments

8.310 The Code facilitates assignments of credit providers' rights by providing that the Code applies to the assignee with no further obligation imposed on the credit provider. Debtors', mortgagors' or guarantors' rights are also unchanged. Similar provisions exist for assignments by debtors, mortgagors or guarantors. [Schedule 1, Part 12, sections 188 and 189]

Apportionment of payments

8.311 The debtor can specify in writing how the credit provider should apply a payment where there are several credit contracts, but this is subject to any prior agreement. It is a strict liability offence to contravene this section. A maximum penalty of 30 penalty units applies. [Schedule 1, Part 12, section 190]

Contracting out

8.312 To ensure that the consumer protections created by the Code are not circumvented, section 191 prohibits a provision of a contract or other instrument from avoiding or modifying the effects of the Code. Similarly, indemnities by debtors or guarantors for a creditor's loss or liability are also prohibited. Credit providers who are a party to such contracts or instruments contravene the Code (is a strict liability offence with a maximum penalty of 100 penalty units). [Schedule 1, Part 12, section 191]

Indemnities

8.313 This provision addresses some particular difficulties that arose from the application of the UCCC to certain types of mortgage securitisation programs. The difficulties were seen to arise from the possible application of a rule of law which, on the grounds of public policy, rendered void any attempt by a person to obtain or enforce an indemnity given by another person in respect of liability for an act or omission by the first person which constitutes an offence at law. Section 192 statutorily sets the common law rule aside. [Schedule 1, Part 12, section 192]

Effect of non-compliance

8.314 A credit contract, mortgage or guarantee is not illegal, void or unenforceable, merely because of a contravention of the Code, unless the Code contains an express provision to that effect. [Schedule 1, Part 12, section 193]

Giving notice or other document

8.315 The Code requires documents such as credit contracts, mortgages and guarantees to be in writing. In some cases a credit provider will be excused from their obligation to give a notice or other document to a person that they have reasonably been unable to contact. [Schedule 1, Part 12, subsections 194(1) and (2)]

8.316 The Code also contains provisions that aim to ensure that joint borrowers and guarantors have reasonable flexibility in choosing how many identical copies of notices and statements of account they require. Where there are two or more joint debtors, mortgagors or guarantors one of them can be nominated by all or any of them to receive notices or other documents (except default notices) and the notice need not be addressed to all of them. However, where they live at the same address they can jointly consent to receiving a single copy at that address which is to be addressed jointly to them. The regulations may prescribe the form of the nomination or consent. It is intended that the nomination and consent form prescribed under the UCCC regulations will also be prescribed for the purposes of the Code. [Schedule 1, Part 12, subsections 194(3) to (9)]

Manner of giving notice or other document

8.317 The Acts Interpretation Act 1901 makes provision for how a notice or other document required or permitted by the Code may be given to a person or required to be given to another person under the Code.

8.318 A written notice (or other document) may be given to individuals:

•

by delivering it to the person personally; or

•

by leaving it at or sending it by pre-paid post to, the address of the place of residence or business of the person last known to the person serving the document.

8.319 A written notice (or other document) may be given to bodies corporate by leaving it at, or sending it by pre-paid post to, the head office, a registered office or a principal office of the body corporate (section 28A of the Acts Interpretation Act 1901).

8.320 Section 195 provides for more specific provisions which allows the person who is a debtor, mortgagor or guarantor to nominate in writing an appropriate address. These provisions apply in priority over the Acts Interpretation Act 1901 provision.

8.321 The Electronic Transactions Act 1999 provides that consent is required for notices to be given electronically (section 9 of the Electronic Transactions Act 1999).

Date of notice or other document

8.322 Section 196 modifies the 'postal rule' by providing for the date on which the notice or other document will be taken to have been given. These are:

•

by personal service - the date it is received or the date that the notice or document bears (whichever is the later);

•

by post - on the date it bears or the date when it would have been delivered in the ordinary course of post (whichever is the later); and

•

by electronic communication - at the time the electronic communication enters the information system (section 14 of the Electronic Transactions Act 1999).

[Schedule 1, Part 12, section 196]

Extension of time

8.323 The Court may extend a period if authorised by the Code to do so even though the period has elapsed. [Schedule 1, Part 12, section 197]

Orders of the Court

8.324 An order of the Court in force under the Code, (including as varied) has effect according to its tenor. [Schedule 1, Part 12, section 198]

Conduct of agents and related matters

8.325 Section 199 restates the general law that the conduct of an officer, agent or employee of a credit provider acting within his or her actual or ostensible authority will be imputed to the credit provider. However, it limits this general law principle by providing that the credit provider will not be taken to know (or have reason to know) where the officer's, agent's or employee's belief was not acquired in that capacity and they were the actual person dealing with the transaction. [Schedule 1, Part 12, subsections 199(1) and (5)]

8.326 A credit provider or person associated with a credit provider is also prohibited from purporting to act as an agent of a debtor, mortgagor or guarantor in entering into a credit contract, mortgage or guarantee. For example, a debtor may not authorise a loan officer of a credit provider to sign a contract on its behalf. However, this does not prevent the common commercial practice of credit providers authorising associated persons (for example, under agencies and like arrangements) from entering into contracts with the debtor on the creditor provider's behalf. [Schedule 1, Part 12, subsection 199(2)]

Deletion of provision regarding reciprocal conferral of powers and jurisdictions

8.327 Section 177 of the UCCC, which enables regulation to be made to give effect to a cross-vesting scheme of administrative and judicial powers has not been transferred to the Code as it is not necessary under the Commonwealth regime.

Provisions relating to offences

Deleted sections of the UCCC

8.328 Sections 178 to 182 of the UCCC have been deleted as equivalent Commonwealth penalty provisions already exist.

Table 8.5

Division 4 - Offences by officers, agents or employees

8.329 Proceedings may be taken against an officer, agent, or employee of a credit provider or other person irrespective of whether proceedings have been taken against the credit provider or other person. [Schedule 1, Part 12, section 200]

Offences by corporations

8.330 If a corporation contravenes the Code or the regulations, each officer of the corporation is taken to have contravened the provision if the officer knowingly authorised or permitted the contravention. Proceedings may be brought against an officer even if proceedings are not brought against the corporation or if the corporation is not convicted. [Schedule 1, Part 12, section 201]

Limitations

8.331 A three-year limitation period exists for bringing proceedings for an offence against the Code or the regulations. The period may be extended with the consent of the Attorney-General. [Schedule 1, Part 12, section 202]

Application of section 4K of the Crimes Act 1914

8.332 To maintain the interpretative effect of the UCCC, section 4K of the Crimes Act 1914 does not apply in relation to an offence against this Code or the regulations. [Schedule 1, Part 12, section 203]

Division 5 - Exemptions from the Code

8.333 Two new provisions have been introduced into the Code, allowing for exemptions to be made by ASIC and by regulations.

Exemptions by ASIC

8.334 Subsection 203A(1) enables ASIC to exempt, from any or all of the provisions of the Code, a specific person, contract, mortgage, guarantee or consumer lease.

8.335 It is expressly stated that such an exemption is not a legislative instrument under the Legislative Instruments Act 2003. This statement is declaratory of the existing position.

8.336 Subsection 203A(3) enables ASIC to exempt, from any or all of the provisions of the Code, a class of persons, contracts, mortgages, guarantees or consumer leases.

8.337 Subsection 203A(4) enables exemptions to be made either unconditionally or subject to specified conditions. A person who is exempt subject to conditions must comply with the specified conditions, and, should they fail to do so, ASIC can apply for a court order to require compliance.

Exemptions by regulation

8.338 Section 203B enables regulations to be made to exempt, from any or all of the provisions of the Code, a person, contract, mortgage, guarantee or consumer lease, with these defined either individually or as a class.

8.339 It is intended that regulations will be made to replicate the exclusions under the UCCC, from specified provisions of the Code, of the following classes of credit:

•

credit that does not exceed $50;

•

credit under the Queensland Government Rental Purchase Plan Scheme;

•

credit by a firm to a partner of the firm;

•

student loans;

•

credit to a person's estate by the estate's administrator;

•

credit under the Aged Care Act 1997; and

•

credit provided by the Western Australian Firefighter's Benefit Fund.

Part 13 - Principal definitions

General definitions

8.340 Section 204 contains definitions of words and expressions used in the Code. In some cases, the definition expands the usual meaning of the word. For example, the definition of 'mortgage' extends the general definition to include all forms of possessory and non-possessory security. It also catches a seller's retention of title, the terms sale of land and the conditional sale of goods. [Schedule 1, Part 13, section 204]

Part 14 - Miscellaneous provisions relating to interpretation

8.341 Part 14 contains miscellaneous provisions relating to interpretation.

8.342 These were previously contained in Schedule 2 of the UCCC which contained uniform interpretation provisions of a kind that are usually contained in the Interpretation Act of a State or Territory.

8.343 Most of those provisions have not been transferred to the Code because they are covered by the Acts Interpretation Act 1901. The provisions that are not addressed by the Acts Interpretation Act 1901 and thus remain in the Code are:

•

preliminary matters including displacement of Part 14 where contrary intention appears in the Code [Schedule 1, Part 14, section 205];

•

material that is not part of the Code (for example, headings, punctuation, and notes) [Schedule 1, Part 14, section 206];

•

how Commonwealth, State and Territory Acts should be cited in the Code (for example, use of short titles) [Schedule 1, Part 14, section 207]; and

•

compliance with prescribed forms [Schedule 1, Part 14, section 208].

8.344 Division 3 contains the definitions of general interpretive terms and references used in the Code where they not already covered by the Acts Interpretation Act 1901. [Schedule 1, Part 14, sections 209 to 213]

8.345 Division 4 sets out the functions and powers conferred by the Code where they are not already covered by the Legislative Instruments Act 2003. These are:

•

the power to make instruments or decisions includes power to amend or repeal [Schedule 1, Part 14, section 214];

•

matters for which statutory instruments may make provision [Schedule 1, Part 14, section 215];

•

presumption of validity and power to make a statutory instrument [Schedule 1, Part 14, section 216]; and

•

exercise of powers under the Code between enactment and commencement [Schedule 1, Part 14, section 217].

8.346 Section 218 deals with the interpretation of provisions in the Code relating to distance, time and age. [Schedule 1, Part 14, section 218]