Senate

Revised Explanatory Memorandum

Circulated by the authority of the Minister for Financial Services and Superannuation, the Hon Bill Shorten MP

Chapter 2 - Enhancements

Outline of chapter

2.1 The Consumer Credit Legislation Amendment (Enhancements) Bill 2012 (Enhancements Bill) introduces a number of changes to enhance the operation of the NCCP Act. The key elements of the reforms in Schedule 1 are that they:

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enhance the capacity of debtors who are in financial hardship to seek a variation of their credit contract;

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introduce a remedy for unfair or dishonest conduct by credit service providers;

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restrict the use of particular words or phrases;

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enhance the range of remedies available to consumers; and

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increase the circumstances in which ASIC has standing to apply to the court for an order.

Context of amendments

2.2 At its meetings on 3 July and 2 October 2008, the Council of Australian Governments (COAG) agreed to implement a two-phase implementation plan to transfer credit regulation to the Commonwealth and introduce new Commonwealth regulation to enhance consumer protection.

2.3 The NCCP Act implemented Phase One of the Implementation Plan by introducing a Commonwealth statutory framework for the regulation of persons who engage in credit activities, including the requirement to hold an Australian credit licence.

2.4 COAG agreed that in Phase Two the Commonwealth would examine issues that had been identified in relation to the operation of the Uniform Consumer Credit Codes in force in the States and Territories, but that had not been resolved prior to the transfer to the Commonwealth of responsibility for the regulation of credit.

2.5 The Enhancements Bill addresses the following issues:

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the current statutory procedures inhibit the capacity of debtors to apply for a variation to their credit contract;

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there is no counterpart to the remedy for unjust conduct in the Code in relation to the conduct of credit service providers (even though their conduct can result in debtors incurring significant liabilities to credit providers under credit contracts);

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a credit provider is able to commence enforcement action even while the consumer is waiting for a reply to their hardship variation request, and without their underlying hardship being addressed;

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certain high impact words and phrases are being used in ways which can mislead consumers; and

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some restrictions prevent both ASIC and consumers from seeking comprehensive remedies for contraventions of the Code.

Summary of new law

2.6 The Enhancements Bill amends the NCCP Act, to give greater protections to consumers and provide greater certainty for licensees. Key elements of these reforms are that they:

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make it easier for debtors to apply for hardship variations, by making the procedures more flexible;

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require credit providers to respond to an outstanding application for a hardship variation before commencing enforcement proceedings;

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introduce a remedy for unfair or dishonest conduct by credit service providers;

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restrict the use of particular words or phrases which have an emotional or high impact resonance with consumers, so that these words and phrases will only be able to be used where they strictly describe or relate to particular types of conduct or arrangements;

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enhance the range of remedies available to consumers, so that consumers can seek restitution or compensation for an offence, in addition to the remedy available under the civil effect of that offence; and

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improve ASIC's enforcement capacity by giving it standing to apply to the court for an order under section 124 of the Code, irrespective of whether or not a specific civil effect is prescribed for a contravention of the Code.

Comparison of key features of new law and current law

Detailed explanation of new law

Part 1 - Protection of debtor in cases of hardship

2.7 Part 1 amends the Code in relation to hardship applications made by debtors. Where a debtor cannot meet their obligations under a credit contract, they may give the credit provider notice of this (a hardship notice). This notice may be given orally or in writing. [Schedule 1, item 1, section 72(1)]

2.8 Within 21 days of receiving a hardship notice, the credit provider may give the debtor a notice requiring the debtor to give the credit provider within 21 days information relevant to deciding whether and how to change the credit contract to address the debtor's inability to meet the debtor's obligations under the contract. [Schedule 1, item 1, subsection 72(2)]

2.9 The debtor must comply with the requirement to provide more information. The reforms do not introduce any criteria a credit provider must consider in deciding whether or not to vary a contract, but only establish a process for resulting in consideration of this question. For example, the credit provider could reject the request if they do not believe that there is a reasonable cause for the consumer being unable to meet the repayments, or if they believe that the debtor would not be reasonably able to meet their obligations under the credit contract, even if it were changed. [Schedule 1, item 1, subsection 72(3)]

2.10 If the credit provider and the debtor agree to change the credit contract, the credit provider must give the debtor notice of this. This notice must be in the form prescribed by the regulations (if any are made), and must record the fact that the credit provider and the debtor have agreed to change the credit contract. [Schedule 1, item 1, subsection 72(4)(a)]

2.11 If the credit provider does not agree to change the credit contract, the credit provider must give the debtor a notice. This notice must be in the form prescribed by the regulations (again, only if any are made), and record:

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the fact that the credit provider and the debtor have not agreed to change the credit contract;

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the reasons why they have not agreed;

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the name and contact details of the approved external dispute resolution scheme of which the credit provider is a member; and

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the debtor's rights under that scheme.

[Schedule 1, item 1, subsection 72(4)(b)]

2.12 A breach of this section will attract a civil penalty of 2000 penalty units. [Schedule 1, item 1, subsection 72(4)]

2.13 The credit provider must give a notice as described in paragraphs 2.10 or 2.11 by a specified deadline, as follows:

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if the credit provider did not require further information from the debtor, this notice must be given 21 days after receiving the hardship notice from the debtor;

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if the credit provider required further information from the debtor but did not receive any information in compliance with the requirement, this notice must be given 28 days after the day of making the requirement; and

if the credit provider required further information from the debtor and received information in compliance with the requirement, this notice must be given 21 days after receiving the information. [Schedule 1, item 1, subsection 72(5)]

2.14 A regulation-making power is introduced to allow the regulations to prescribe a smaller amount of days than is proposed in the amendments for various actions to be completed. This is to allow, pending further consultation, shorter time periods to be specified for different classes of contracts (particularly small amount credit contracts). [Schedule 1, item 1, subsection 72(6)]

2.15 If, as a result of negotiations, the credit provider agrees to a change to the terms of the credit contract, they must comply with the existing requirements in section 73 of the Code. [Schedule 1, item 2, section 73]

2.16 Where a credit provider does not agree to change the terms of the credit contract, a debtor still has the option to apply to a court for a change in the terms pursuant to section 74 of the Code. The court is restricted from making any order that reduces the total amount ultimately payable by the debtor under the credit contract, and is therefore confined to orders affecting the amount and timing of individual payments made under the credit contract. [Schedule 1, item 3, section 74]

2.17 The requirements in section 88 of the Code, requiring credit providers to give a default notice before they can commence enforcement proceedings against a debtor continue to operate. However, the cross-references to sections 72 and 94 in subparagraphs 88(3)(f)(i) and (ii) are changed, so that their wording is consistent with the changes to those provisions. [Schedule 1, item 5, subparagraphs 88(3)(f)(i) and (ii)]

2.18 A new section 89A is introduced to restrict the capacity of credit providers from commencing enforcement action until they have responded to any hardship notice under section 72. [Schedule 1, item 6, section 89A]

2.19 A credit provider will be prohibited from commencing enforcement action where the following conditions apply:

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they are required to serve a default notice under section 88;

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the debtor has given a current hardship notice under section 72; and

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the debtor has not previously given a hardship notice or had given one not materially different from the current hardship notice in the four month period before the current hardship notice was given.

[Schedule 1, item 6, subsection 89A(1)]

2.20 The credit provider cannot begin enforcement proceedings until they have given the debtor notice stating that the credit provider and debtor have not agreed to change the credit contract and 14 days have passed from the day on which this notice was given. [Schedule 1, item 6, subsection 89A(2)]

2.21 Under the current section 88, the credit provider must allow the debtor at least 30 days from the date of the default notice to remedy the default. The 14 day period from the day the lessor gave the hardship notice may therefore occur before, during, or after the 30 day period.

2.22 A breach of this section will attract a criminal penalty of 50 penalty units and is an offence of strict liability [Schedule 1, item 6, subsection (2) and (4)].

2.23 The imposition of a strict liability offence is appropriate since:

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it is important that debtors have certainty regarding whether or not their credit provider will negotiate or intends to commence enforcement proceedings;

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the requirement to give the debtor notice is procedural, so that the credit provider should be able to comply with it in all circumstances; and.

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it significantly enhances ASIC's ability to enforce this requirement.

2.24 However, the credit provider may take possession of any mortgaged goods if the credit provider believes on reasonable grounds that:

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the debtor has, without the credit provider's permission, removed or disposed of the mortgaged goods, or intends to do so; or

urgent action is necessary to protect the goods. [Schedule 1, item 6, subsection 89A(3)]

2.25 The burden rests on the credit provider to show that they held this belief on reasonable grounds. Repossession of mortgaged goods has a serious consequence for the debtor, mortgagor or guarantor. Credit providers should therefore only be able to rely on these exceptions where they reasonably believe circumstances to be in existence which establish the requisite belief. [Schedule 1, item 6, subsections 89A(2) and (3)]

2.26 A debtor who has been given a default notice can make a postponement request regarding postponement of enforcement proceedings or of any acceleration clauses. There have been minor changes to the wording of this provision so that it operates more clearly. [Schedule 1, item 7, subsection 94(1)]

2.27 If a debtor gives the postponement request the credit provider must not begin enforcement proceedings unless they have responded to the postponement request and 14 days has elapsed from when they gave that response. [Schedule 1, item 9, subsection 94(3)]

2.28 A breach of this section will attract a criminal penalty of 50 penalty units and is an offence of strict liability. The imposition of a strict liability offence is appropriate since:

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it is important that debtors have certainty regarding whether or not their credit provider will negotiate or intends to commence enforcement proceedings;

•

this requirement is strictly procedural, requiring no fault element; and

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it significantly enhances ASIC's ability to enforce this requirement (which seeks to give the debtor an opportunity to assess their options following receipt of the notice).

[Schedule 1, item 9, subsections 94(3) and (5)]

Part 2 - Remedies for unfairness or dishonesty by providers of credit services

2.29 Item 10 inserts section 180A into the NCCP Act. This provision introduces a remedy for unfairness or dishonesty by providers of credit services, and sets out matters relevant to a court determining whether conduct has been unfair or dishonest. [Schedule 1, item 10, section 180A]

2.30 The court will have power to make orders where it is satisfied that:

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a person (the defendant) provided a credit service to a consumer (the plaintiff);

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the defendant engaged in conduct that was connected with the provision of the service and that was unfair or dishonest; and

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the conduct had one or more of the following results:

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the consumer entered into a credit contract, consumer lease, mortgage or guarantee that they would not have entered into had the conduct not occurred;

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the consumer entered into a credit contract, consumer lease, mortgage or guarantee with different terms to one that they would have entered into apart from the conduct; or

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the consumer became liable to pay fees or costs to the defendant or a third party.

[Schedule 1, item 10, section 180A]

2.31 The conduct may precede or follow the provision of the credit service, provided that it is connected with the provision of those services.

2.32 The requirement that the unfair or dishonest conduct had a result as listed in paragraph 180A(1)(c) is to be determined objectively. For example, if the defendant engaged in unfair conduct in relation to the supply of goods, and subsequently arranged a credit contract to finance the purchase of those goods, it could be reasonably concluded that their unfair conduct had the result the consumer entered into that contract as a result of the unfair conduct.

2.33 The term engage in conduct is defined as meaning the doing of an act or omitting to perform an act, and would therefore encompass conduct such as failing, unfairly or dishonestly, to disclose information to the consumer. [Schedule 2, item 6, subsection 204(1)]

2.34 If the defendant engaged in unfair or dishonest conduct a court can make orders:

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that the defendant take, or refrain from taking specified action;

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that the defendant pay the plaintiff a specified amount;

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that a specified sum is not due or owing by the plaintiff to the defendant; and

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orders that the court thinks are appropriate to redress the unfairness or dishonesty, or to prevent the defendant from profiting from the plaintiff in connection with the unfairness or dishonesty.

[Schedule 1, item 10, subsection 180A(2)]

2.35 The power of the court to make orders to prevent the provider of credit services from profiting from their unfairness or dishonesty recognises that the provider of credit services may not be remunerated directly by the consumer, but may receive, and be motivated by, financial benefits such as commissions from third parties. The purpose of giving the court the power to require them to disgorge these payments ensures these persons should not be able to profit from unfair or dishonest conduct in situations where the consumer was not charged a fee. [Schedule 1, item 10, paragraph 180A(2)(d)]

2.36 The court may not, however, make an order that affects a credit contract, consumer lease, mortgage or guarantee to which the conduct related. Consumers have other remedies available to them in the NCCP Act in relation to credit providers and lessors, including where the transaction was unjust.

Determining whether conduct was unfair or dishonest

2.37 Section 180A sets out elements that the court must consider in determining whether conduct was unfair or dishonest, but does not limit the matters to which the court may have regard. A person providing credit services may therefore still have engaged in conduct that was unfair or dishonest even where none of the factors listed in subsection 180A(4) are present.

2.38 The effect of subsection 180A(3) is that the existence of factors listed in subsection 180A(4) will in all cases be relevant to a court considering whether conduct was unfair or dishonest.

2.39 However, these factors are not prerequisites or necessary to a finding that conduct was unfair or dishonest. For example, it would not be necessary to find a consumer was under a special disadvantage (as discussed in paragraph 180A(4)(a)) in order for conduct by the provider of credit services to be unfair or dishonest.

2.40 The first element is whether the consumer was at a special disadvantage in dealing with the person in relation to the transaction [Schedule 1, item 10, paragraph 180A(4)(a)]. The concept of special disadvantage refers to the consumer being in a position where they are unable to protect their own interests, as discussed in Commercial Bank of Australia v Amadio (1983) 151 CLR 447.

2.41 The special disadvantage may exist in relation to:

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the provision of the credit service;

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a credit contract, consumer lease, mortgage or guarantee to which the conduct related; and

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any other contract requiring the consumer to make payments, for the purposes of which it is reasonable to expect that the consumer would or did enter into such a credit contract, consumer lease, mortgage or guarantee.

2.42 The special disadvantage may exist in relation to all of these three categories or only a single one.

2.43 The court must consider whether the consumer was a member of a class whose members were more likely than others to be at such a disadvantage. [Schedule 1, item 10, paragraph 180A(4)(b)]

2.44 Where the plaintiff was a member of such a class, the court must determine whether a reasonable person would consider that the defendant's conduct was directed at that class [Schedule 1, item 10, paragraph 180A(4)(c)]. The purpose of this provision is to address practices where a credit service provider will target a class of persons (for example, elderly or commercially unsophisticated persons) on the basis the perceived characteristics of the class mean that individuals within it are more likely to succumb to unfair or dishonest conduct (irrespective of whether the credit service provider is aware that any particular individual under the class was under a special disability).

2.45 Another element is whether the plaintiff was unable or considered themselves unable to be able to enter into a credit contract, consumer lease, mortgage or guarantee other than with the credit provider, lessor, mortgagee or beneficiary to whom the conduct related [Schedule 1, item 10, paragraph 180A(4)(d)]. Where a plaintiff either had, or considered themselves to have, no other choices they are at greater risk of entering into transactions that exploit this vulnerability.

2.46 A credit service provider may have contributed to this belief by, for example, representing that they can arrange credit or a consumer lease irrespective of the circumstances of the consumer, in order to attract potential clients who would then be prepared to accept whatever terms are offered, irrespective of the cost.

2.47 Another element is whether the conduct involved a technique that in good conscience should not have been used, or that manipulated the plaintiff [Schedule 1, item 10, paragraph 180A(4)(e)]. These terms may largely overlap in practice, and are primarily intended to address coercive or manipulative marketing techniques.

2.48 Some providers of credit services use sophisticated marketing techniques designed to persuade consumers to enter into a contract. This process can be incremental rather than overt through, for example, a series of questions, where the consumer is directed or guided, through those techniques, to a position where it becomes increasingly difficult for the consumer to refuse to enter into the transaction (but where the conduct may not meet the higher threshold required by remedies such as unconscionability or duress).

2.49 The court must also consider whether the defendant could determine or significantly influence either the terms of a credit contract, consumer lease, mortgage or guarantee to which the conduct related or any other contract where it is reasonable to expect the consumer entered into the credit contract or consumer lease to finance their liability under that other contract. [Schedule 1, item 10, paragraph 180A(4)(f)]

2.50 The term 'determine or significantly influence' is used to describe situations where the provider of credit services has the capacity to actively influence the terms of a transaction beyond ordinary negotiations. It would clearly apply in situations where the provider of credit services may have an agreement with a third party in which they can fix the price or cost within limits specified in the agreement, or subject to a right of veto by the third party.

Example 2.1

A broker attracts potential customers through running wealth creation seminars. Attendees are encouraged to purchase investment properties, and to have finance arranged by the broker. However, the broker has an arrangement with the developer selling the properties that it will receive as commission 50 per cent of the amount of the purchase price in excess of a base price. The broker does not tell the consumer about this arrangement and it can be presumed that they were unlikely to have agreed to purchase the units, either at all or for the price for which they purchased it, had this been the case. This conduct would therefore be unfair or dishonest.

2.51 The final element the court must consider is whether the terms of the transaction were less favourable to the consumer than the terms of a comparable transaction [Schedule 1, item 10, paragraph 180A(4)(g)]. This factor recognises the role of providers of credit services where they both arrange credit or a consumer lease and simultaneously arranging other transactions (for example, for the purchase or supply of goods or services). If the consumer could have entered into a comparable transaction with more favourable terms, this would be relevant to consideration of whether the conduct of the provider of credit services in arranging a contract on less favourable contract constituted unfair or dishonest conduct.

2.52 Applications for orders can only be made within six years after the defendant first started engaging in the conduct. The court can only make an order under this section where either a plaintiff or ASIC specifically applies for such an order. [Schedule 1, item 10, subsection 180A(5)]

2.53 ASIC may make an application on behalf of a plaintiff where the plaintiff has given their consent in writing, before the application is made [Schedule 1, item 10, subsection 180A(6)]. ASIC can apply on behalf of more than one plaintiff provided they all consent (for example, where they are members of a class as described in paragraph 180A(4)(b)).

2.54 Where a provider of credit services engages in unfair or dishonest conduct, and it has a successful outcome, they can be expected to repeat that conduct. Section 180A is therefore intended to address both individual and systemic conduct that is unfair or dishonest, and to enable ASIC to take action where a provider of credit services has engaged in similar unfair or dishonest conduct towards different consumers.

2.55 Where the court orders that the defendant pay an amount to the plaintiff, the plaintiff may recover this amount as a debt due to them. [Schedule 1, item 10, subsection 180A(7)]

2.56 This section does not apply to credit assistance by a person who is, or becomes, a credit provider under the contract to which the assistance relates. The section also does not apply to lessors under a consumer lease to which the assistance relates, mortgagees under a mortgage connected to the credit contract to which the assistance relates, or beneficiaries of a guarantee connected to the credit contract to which the assistance relates. [Schedule 1, item 10, subsection 180A(8)]

2.57 This provision is necessary as the definition of providing credit assistance in section 8 of the NCCP Act can include credit providers or lessors (where they engage in conduct as described in that section in relation to credit contracts or consumer leases where they will be the provider). Consumers are provided with remedies in the Code and in other legislation against credit providers and lessors.

Part 3 - Representations about eligibility to enter credit contracts, consumer leases etc without assessing unsuitability

2.58 Part 3 of Schedule 1 of the Enhancements Bill introduces a prohibition on licensees, unless they have completed a suitability assessment, from unconditionally representing to a consumer that they are eligible to enter into a credit contract or consumer lease with the licensee, or that the credit limit of an existing credit contract will be able to be increased.

2.59 Licensees can make representations as to the possibility that a future contract or credit limit increase may be provided, so long as such statements are appropriately qualified or have caveats (for example, by a credit provider using a term such as 'pre-approved' provided they also indicate the steps to be taken before approval of the loan will be finalised). [Schedule 1, items 15, 16 and 19, sections 128 and 151],

2.60 Sections 125 and 128 of the NCCP Act are amended so that a credit provider is prohibited from representing to the consumer that they are eligible to enter into a credit contract, or to have the credit limit of an existing contract increased unless the credit provider has made an assessment that the contract or the increase will be suitable in accordance with the requirements of section 129. [Schedule 1, items 12 to 16, sections 125 and 128],

2.61 The effect of these amendments is to prohibit credit providers from making representations to consumers that they are eligible to enter into a contract, or have their credit limit increased irrespective of, for example, their personal circumstances or credit history. These types of representations can encourage a consumer to apply for credit because of the certainty their application will be accepted, but where the resulting terms on which the credit is provided may be more onerous than those offered by other credit providers.

2.62 As a result of the amendments the credit provider can represent to the consumer they are eligible to enter into the contract (or have the credit limit increased) once an assessment has been made. This representation can only be made for the same period of time following an assessment that the credit provider is able to rely on the assessment in order to enter into the credit contract or increase its limit (that is, for a period of 90 days or such other period as may be prescribed in the regulations).

2.63 Item 19 replaces the existing section 151 of the NCCP Act with a replacement section. The new section implements the same restrictions in respect of representations to a consumer that they are eligible to enter into a consumer lease. [Schedule 1, item 19, section 151]

2.64 There are consequential changes to section 148 of the NCCP Act and to the heading to Division 3 of Part 3-4. [Schedule 1, items 17 and 18, section 148 and heading to Division 3]

2.65 A breach of the requirements in section 151 attracts a civil penalty of 2,000 penalty units. [Schedule 1, item 19, section 151]

2.66 These provisions will also prevent credit providers or lessors from using advertisements which represent that a consumer is eligible to enter into a contract, even where they have poor credit. Advertisements of this type will need to be suitably qualified.

Part 4 - Prohibitions on certain representations and other matters

2.67 A new Part 3-6A will be inserted into the NCCP Act, and will include a number of miscellaneous prohibitions that apply to persons who engage in credit activities.

2.68 As a result section 33, which prohibits a person from giving misleading information when they are engaging in credit activities, is more appropriately located in Part3-6A, and has been repealed. [Schedule 1, item 24, section 33]

2.69 The repeal of section 33 results in a number of consequential amendments to the Guide to Part 2-1 in section 27, and to the heading to Division 3 of Part 2-1. [Schedule 1, items 22 and 23, section 27 and the heading to Division 3 of Part 2-1]

2.70 The Enhancements Bill introduces a new Part 3-6A and a Guide to the Part in section 160A. [Schedule 1, item 25, Part 3-6A and section 160A]

2.71 Section 160B will prohibit a licensee, when providing credit services, from using the following terms (either alone or in combination with other words or letters) in a representation to the consumer about the licensee, the service, or the licensee's actions in providing the assistance:

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'independent';

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'impartial';

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'unbiased'; and

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any other term (in English or any other language) of similar meaning to those words.

[Schedule 1, item 25, section 160B]

2.72 However, a licensee may use those terms if they satisfy all of the following requirements:

•

the licensee does not receive any commissions (apart from commissions that are rebated in full to the person's clients) or any other gifts or benefits from a credit provider or lessor that may reasonably be expected to influence the licensee;

•

the licensee's employer (if any) or any other person (or class of person) that may be identified in the regulations does not receive any of the commissions, gifts or benefits described above;

•

in providing a credit service, the licensee does not operate under any direct or indirect restrictions, other than restrictions imposed by the NCCP Act or by an Australian credit licence (so that this would cover, for example, directions from a credit provider that restrict the capacity of the provider of credit services to arrange credit contracts with other credit providers); and

•

in providing a credit service, the licensee does not operate under any conflicts of interest that might arise from the person's associations or relationships with credit providers and lessors, that may reasonably be expected to influence the person in providing the services.

[Schedule 1, item 25, subsection 160B(2)]

2.73 The prohibition applies to any representation or means of communication, whether written, oral or otherwise.

2.74 The reference to commissions does not include amounts paid to the licensee by consumers who use their services.

2.75 Contravention of this prohibition attracts a civil penalty of 2,000 penalty units. [Schedule 1, item 25, subsection 160B(1)]

2.76 The licensee bears the evidentiary burden in relation to this defence. This is appropriate as the circumstances which give rise to the defences are matters which are particularly within the knowledge or control of the licensee, as they relate to their commercial arrangements with third parties.

2.77 Section 160B will prohibit a licensee, when providing credit services, from using the following terms (either alone or in combination with other words or letters) in a representation to the consumer about the licensee, the service, or the licensee's actions in providing the assistance:

•

'financial counsellor';

•

'financial counselling'; and

•

any other term prescribed by the regulations that is of similar import to these phrases (whether in English or any other language).

[Schedule 1, item 25, subsection 160C(1)]

2.78 The power to provide for additional terms to be prescribed by regulations recognises that these terms may evolve or change over time.

2.79 However, a licensee may use those terms if :

•

they are providing, or offering to provide, the credit service on behalf of another person (the principal);

•

they are a representative (as defined in section 5 of the NCCP Act) of the principal;

•

regulations exempt the principal from this prohibition in relation to a credit activity because the principal engages in the activity as part of a financial counselling service; and

•

the person's actions in providing or offering to provide the credit service are within the authority of the principal.

[Schedule 1, item 25, subsection 160C(3)]

2.80 The section applies to any representation or means of communication, whether written, oral or otherwise.

2.81 Contravention of this prohibition attracts a civil penalty of 2,000 penalty units. [Schedule 1, item 25, subsection 160C(1)]

2.82 The effect of the defence is to allow these terms to only be used by Government funded or not for profit financial counsellors (who currently meet the exemption from the need to hold an Australian credit licence in subregulation 20(5) of the National Consumer Credit Protection Regulations 2010). These organisations are exempted as they provide free services to consumers, including financial education and advice, and assisting consumers to communicate and negotiate with creditors and other organisations.

2.83 A licensee may also use those terms in the negative, for example, to represent that licensee is not a financial counsellor. [Schedule 1, item 25, subsection 160C(4)]

2.84 The person providing or offering to a credit service bears the evidentiary burden in relation to both defences, as the defences relate to matters which are largely or particularly within their knowledge or control (and in the case of financial counsellors where they have already identified that they do not need to be a licensee).

2.85 There is a consequential amendment to the NCCP Act, so that section 33, which prohibits a person from giving misleading information when they are engaging in credit activities, is moved into Part3-6A, and renumbered as section 160D. [Schedule 1, item 25, section 160D]

2.86 The use of these authorities was identified as an area of concern in the course of the review of the Enhancements Bill by the Senate Economics Committee and the Joint Parliamentary Committee on Corporations and Financial Services.

2.87 The use of these authorisations is generally straightforward where they are relied upon from the outset of the contract. However, some credit providers or lessees may require the consumer to sign an employer payment authorisation when they enter into the contract, and then only seek to rely on it to obtain payments directly from the employer when the consumer is in default.

2.88 There is no current requirement for employer payment authorisation to specify a particular amount to be deducted. The absence of any nominated dollar amount can permit the credit provider or lessor to subsequently seeking payment from the employer of an amount higher than the repayments under the contract (following default by the consumer).

2.89 The use of employer payment authorisations may therefore exacerbate the consumer's financial difficulties (by at least temporarily limiting them from paying their debts according to the priority they give them so that, for example, the consumer could be left with insufficient funds to pay their rent after the unforeseen use of an employer payment authorisation results in a deduction being made from their salary).

2.90 A new Division 4 in Part 3-6A of the Enhancements Bill in inserted relating to giving authorisation for deduction by employers of debtors or lessees. [Schedule 1, item 25, sections 160E]

2.91 This Division contains provisions that enable notices to be prescribed in relation to the use of employer payment authorisations as follows:

•

a credit provider or lessor must give an employer a statement with the employer payment authorisation if the credit contract or contract or lease is of a kind prescribed by the regulations; and

•

a credit provider or lessor must give a debtor or lessee at least seven days' notice, in a form prescribed by the regulations (if any), of the intention of the credit provider or lessor to give the employer payment authorisation to the employer.

2.92 The amendments will allow for regulations to be made to introduce notice requirements to address these risks, noting that it is expected further consultations would be undertaken to ensure the effective operation of such requirements, and that the design and content of any forms maximises their effectiveness.

2.93 In each case, should the requirement apply as a result of regulations being made, then if the credit provider or lessor does not comply the civil penalty is 2,000 units.

2.94 Any requirements that may be prescribed in relation to employer payment authorisations will not extend to credit contracts provided to purchase goods or services as part of a consumer's remuneration package. The exemption will apply to salary packaging arrangements which can include payments from a consumer's pre- and post-tax salary. The potential application of a form in such circumstances would be confusing and unnecessary.

Part 5 - Civil remedies for contravention of the National Credit Code

2.95 Subsection 124(1) of the Credit Code will be amended to remove the words 'other than one for which a civil effect is specifically provided by Division 1 or by any other provision of this Code'. [Schedule 1, item 27, subsection 124(1)]

2.96 This amendment results in two changes:

•

consumers will be able to seek orders both for a specific civil effect (where this is provided for in the Code), and for compensation or restitution resulting from the contravention; and

•

ASIC will have comprehensive standing under the Code, in relation to contraventions where a specific civil effect is provided for in the Code, and all other contraventions.

2.97 The following entities can make an application to the court under this section:

•

ASIC on its own behalf;

•

ASIC on behalf of a person affected by the contravention, if that person has consented in writing to ASIC making the application; and

•

a person affected by the contravention.

[Schedule 1, item 28, subsection 124(4)]

2.98 The amendment does not create new offences for past conduct that did not previously give rise to a penalty or a liability to a consumer. The amendment will mean that where the remedy available to a consumer for a past contravention was limited to the civil effect, they will now be able to obtain a more comprehensive remedy where they have suffered additional loss or damage.

2.99 There is no retrospectivity in regards to what constitutes a contravention, so entities would always have been operating with full knowledge about the legality of their conduct. The amendment to section 124 therefore does not introduce new or retrospective obligations on persons who engage in credit activities.

Part 6 - Miscellaneous amendments

2.100 Part 6 contain consequential amendments to the Code to resolve ambiguities, clarify the operation of certain provisions and ensure internal consistency throughout the Code with the new amendments.

2.101 In relation to alterations of documents, subsection 19(1) is amended to refer to a new contract document, instead of a contract document. [Schedule 1, item 29, subsection 19(1)]

2.102 Section 32 of the National Credit Code is repealed and replaced with a new section 32. The amendment changes the language of section 32 to mirror the language of the proposed new section 176D under this Enhancements Bill. [Schedule 1, item 30, section 32]

2.103 In relation to statements of amounts owing under credit contracts, amendments are made to the operation of paragraphs 36(1)(c) and 36(1)(d) to clarify that any overdue amounts must be accompanied by the date they became due, and amounts currently payable must be accompanied by the date they become due. [Schedule 1, items 31 and 32, paragraphs 36(1)(c) and (d)]

2.104 Section 40 of the Code outlines when certain transactions are not to be treated as contracts in relation to credit contracts. This section is amended to clarify its operation and ensure consistency with the new section 175J which applies to consumer leases. [Schedule 1, item 38, section 40]

2.105 Subsection 71(1) of the Code which refers to changes by agreement of parties is amended to clarify that it applies to changes made under existing credit contracts. [Schedule 1, item 39, subsection 71(1)]

2.106 Section 83 has two overlapping criminal offences. The section is amended to remove the offence in subsection 83(1). [Schedule 1, items 40, 41 and 42, section 83]

2.107 Section 87 is amended to omit references to a direct debit default notice, and instead, refer to a notice complying with the section. [Schedule 1, items 43 and 44, section 87]

2.108 Paragraphs 88(5)(a) and (d), subsection 88(6), and paragraphs 93(1)(c), (2)(a) and (2)(d) are amended to change the phrase 'believes on reasonable grounds' to 'reasonably believes'. The Code currently uses both expressions to refer to the same concept and it is preferable to use one expression only. [Schedule 1, items 45, 46, 47 and 48, paragraphs 88(5)(a) and (d), subsection 88(6), and paragraphs 93(1)(c), (2)(a) and (2)(d)]

2.109 Subsection 95(1) is amended to omit references to a default notice or demand for payment, and clarify its operation by referring to a default notice under section 88 or a demand for payment under section 90. [Schedule 1, item 49, subsection 95(1)]

2.110 Section 206 currently specifies that the way in which headings, notes and punctuations are to be used for the purposes of interpreting the Code. This approach was inherited from the State and Territory predecessor to the Code, the Uniform Consumer Credit Code. The provision is being repealed so that the interpretation of headings, punctuation and notes will be in accordance with the Acts Interpretation Act 1901, and therefore consistent with Commonwealth legislation generally. [Schedule 1, item 51, section 206]

Part 7 - Technical corrections

2.111 Part 7 contains a series of technical amendments. The NCCP Act is amended:

•

to amend incorrect cross- references in section 128 and subsection 130(1) [Schedule 1, items 52 and 53, section 128 and subsection 130(1)]; and

•

to correct the omission of the word 'section' in paragraph 181(b) [Schedule 1, item 54, paragraph 181(b)].

2.112 Part 7 amends the Code by:

•

correcting a reference to 'or' instead of 'and' in subparagraph 88(3)(g)(i) [Schedule 1, item 55, subparagraph 88(3)(g)(i)];

•

correcting the reference to a tied continuing credit contract in subsection 127(2) [Schedule 1, item 56, subsection 127(2)];

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changing a number of headings and sections in Division 3 of Part 7 that contain references to a provision, section 73 of the Trade Practices Act 1974, that has now been repealed [Schedule 1, items 57, 58, 59, 60 and 61, headings to sections 129, 130, 131, 132 and 133]; and

•

correcting a grammatical error in the definition of approved external dispute resolution scheme in subsection 204(1). [Schedule 1, item 51,subsection 204(1)]