Senate

Revised Explanatory Memorandum

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

Chapter 6 - Consumer Leases

Outline of chapter

6.1 The Consumer Credit Legislation Amendment (Enhancements) Bill 2012 (the Enhancements Bill) introduces new requirements for persons who engage in credit activities in relation to consumer leases. The key amendments relate to:

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the form of consumer lease documents;

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obligations on the lessor to provide statements of account - both ongoing and at the end of the lease;

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changes to obligations under a consumer lease;

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changes on the grounds of hardship and on the grounds the consumer lease was unjust;

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the rights of the lessor in regards to repossessing goods under a consumer lease;

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terminating a consumer lease;

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enforcement procedures and expenses;

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the liability of lessors for misrepresentations by suppliers of the leased goods; and

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offences for false or misleading representations and for harassment in relation to consumer leases.

Context of amendments

6.2 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.

6.3 In phase one, the National Consumer Credit Protection Act 2009 (the NCCP Act) introduced a Commonwealth statutory framework for the regulation of lenders and brokers. Under phase two, COAG agreed the Commonwealth would consider reforms to the regulation of consumer leases under the National Credit Code (the Code).

6.4 Leases that contain a right or option to purchase are functionally the same as a credit contract and are therefore deemed to be credit contracts by the Code in section 9.

6.5 Part 11 regulates consumer leases where there is no right or obligation to purchase the leased goods. However, the different regulatory treatment of consumer leases and credit contracts has led to the provision of finance through consumer leases because of the preference of the provider to be subject to a more limited range of obligations that can be inconsistent with the requirements of the consumer.

6.6 The difference in regulation of consumer lease arrangements and other consumer credit contracts stems from the different nature of the products. However, in respect of the majority of the obligations under the Code, there is little rationale for varying treatment.

6.7 Some of the main regulatory differences between the two products include:

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the form of consumer leases;

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the obligation to provide an information statement or statement of account;

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the content of the disclosure requirements;

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liability for conduct such as false and misleading representations; and

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the rights of lessees and lessors in respect of enforcement proceedings.

6.8 There is a systemic risk that consumers will enter into leases where they mistakenly believe that they have an ability to buy the goods under the consumer lease when this is not the case, or where they are under an obligation to make continuing payments in order to have continued use of the goods even where they may already have paid more than their cash value.

6.9 Regulatory arbitrage has also led to adverse competitive impacts on suppliers of credit contracts relative to suppliers of consumer leases, where their products may be cheaper than a consumer lease but this would not be readily apparent to or discoverable by the consumer.

Summary of new law

6.10 Schedule 5 of the Enhancements Bill addresses the current risks arising from the regulatory arbitrage arising from the lower level of obligations applying to lessors. It extends, as appropriate, the consumer protection measures that currently apply to credit contracts to consumer leases. A comparison table of the provisions of the Code which are being applied to consumer leases is included at paragraph 6.81.

6.11 Schedule 5 of the Enhancements Bill introduces the following amendments in respect of the following matters:

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amendments to Division 2: form of and information to be included in consumer leases;

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introduction of a new Division 4: fees and charges under a consumer lease;

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introduction of a new Division 5: the lessor's obligation to account including the provision of ongoing statements of account, and end of lease statements;

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introduction of a new Division 6: certain transactions not to be treated as consumer leases;

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introduction of a new Division 7: changes to obligations under consumer lease arrangements including changes by agreement, as well as changes on the grounds of hardship and unjust transactions;

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introduction of a new Division 8: repossession of goods, termination of a consumer lease and enforcement procedures;

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introduction of a new Division 9: introducing the concept of linked lessors and the liability of the lessor for a suppliers' misrepresentation;

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introduction of a new Division 10: regulate specific conduct relating to consumer leases - namely, false or misleading representations and harassment;

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introduction of a new Division 11: relocating the deeming provision which extends Part 12 relating to miscellaneous matters to consumer leases

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amendments to Part 13 of the Code: introduce new defined terms to reflect the new obligations imposed by the Amendment Bill; and

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minor technical amendments to the Code.

6.12 The Enhancements Bill will also introduce consequential and technical changes to the provisions applying to credit contracts.

Comparison of key features of new law and current law

Detailed explanation of new law

Part 11 - Consumer leases

6.13 Items 1 to 9 make minor consequential amendments to the NCCP Act. These are outlined below at paragraphs 6.84 to 6.87.

Amendments to Division 2 - Form of and information to be included in consumer leases

Form of consumer lease

6.14 The Enhancements Bill makes a number of amendments to Division 2 of Part 11 of the Code. This Division currently regulates both the form and content of consumer leases.

6.15 Lessors will be required to ensure that a consumer lease is in the form of a written document and that it is signed by both the lessor and the lessee. [Schedule 5, item 14, subsection 173(1)].

6.16 The amendments also allow a lessor to have a consumer lease that is made up of multiple documents [Schedule 5, item 14, subsection 173(1A)]. In these instances, the lease will be regarded as signed in accordance with subsection 173(1) if one of the documents is signed, and the other documents are referred to in that document [Schedule 5, item 15, subsection 173(2A)].

6.17 The amendments will allow for regulations to be made which authorise consumer leases to be formed other than by a party signing a contract, such as by specified conduct [Schedule 5, item 16, section 173A]. Under the Code, credit contracts can be formed by conduct and this approach is being extended to consumer leases. This will allow flexibility in relation to the way in which consumer lease contracts can be formed to reflect changes in practice (for example, by potentially allowing contracts to be formed by the consumer accepting delivery of the leased goods).

6.18 Finally, there are restrictions on consumer lease documents being altered that operate in a similar manner to the way credit contracts are regulated under the Code. A lessor will be prohibited from making unilateral changes to a lease document (other than alterations that reduce the liabilities of the lessee) unless the lessee agrees to the change in writing. [Schedule 5, item 17, section 174A]

Division 4 - Fees and charges

6.19 A new Division 4 is introduced which reflects the provisions of the Code in respect of fees and charges that currently apply to credit contracts. The Code will allow for specific types of consumer lease fees and charges to be prohibited by regulation. The introduction of a regulation-making power mirrors the power provided in relation to credit contracts in section 31 of the Code, and will allow for a consistent approach across both classes of contracts where appropriate. [Schedule 5, item 18, section 175A]

Division 5 - Lessor's obligation to account

Subdivision A - Statements of account

6.20 A new Division 5 is introduced into the Code to impose obligations on the lessor to provide statements which provide information in relation to the history of the lessee's account. Credit providers are obliged under the Code to provide statements of account, and the Enhancements Bill extends similar requirements to lessors. The underlying policy considerations for requiring a statement of account for credit contracts equally extends to lessees under a consumer lease, primarily in that it provides an opportunity for the consumer to review their account and identify any discrepancies between the actual and the stated payments.

6.21 The Enhancements Bill will introduce obligations on the lessor to provide statements of account both every 12 months and in response to a request by the lessee [Schedule 5, item 18, section 175C and 175E]. The information that must be included in the statements of account will be prescribed in the regulations [Schedule 5, item 18, section 175D]. It is anticipated that regulations will be made requiring the lessee to provide information such as a record of ongoing payments over a specified period of time, and the remaining term of the lease.

6.22 Failure to provide a statement of account annually, or upon the request of the lessee, will be an offence of strict liability [Schedule 5, item 18, subsection 175C(4)]. Strict liability is necessary to ensure the effectiveness of the enforcement regime for these offences. The offence also attracts a criminal penalty of 100 penalty units. The rationale for this penalty is historic as the penalty provision for the offence under section 33 which applies to credit contracts was carried over from state legislation. As this new provision is intended to mirror the current provisions that apply to credit contracts, to maintain consistency, the same penalty is also applied to lessors.

6.23 If the lessor does not provide a statement of account within the timeframes specified, the lessee can apply to a court to order provision of the statement or itself determine the amounts under the statement. [Schedule 5, item 18, section 175F]

6.24 A lessor will also be able to seek a written explanation from the lessor, as the trigger for a mechanism to resolve disputes. A lessor is required to give a lessee a written explanation where a lessee disputes a particular liability, provided they do so within 30 days of receiving the statement of account. A lessor 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 lessor's explanation, the lessor 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. Strict liability is necessary to ensure the effectiveness of the enforcement regime for this offence. [Schedule 5, item 18, section 175G]

Subdivision B - End of lease statement

6.25 Section 175H makes it an offence of strict liability if a lessor fails to provide a statement to the lessee at least 90 days before the end of the term of the consumer lease. The information that must be included in the statement will be prescribed by the regulations [Schedule 5, item 18, section 175H]. It is anticipated this will include information in relation to the lessee's options about whether or not they can negotiate to purchase the goods at the end of the lease. The regulations will also outline circumstances where the requirement would not apply (which could cover, for example, situations where the notice is unnecessary). [Schedule 5, item 18, subsection 175H(2)]

6.26 Failure to provide an end of lease statement within the prescribed time frame will be an offence of strict liability and attract a criminal penalty of 100 penalty units. The provision imposes 100 penalty units to maintain consistency with other offence provisions in the Code in respect of statements of accounts. The penalty is necessary because of the importance of the lessee being given information before the lease ends, that will maximise the opportunity for the lessee to begin negotiations in relation to the leased goods prior to the termination of the lease.

Division 6 - Certain transactions not to be treated as new consumer leases

6.27 Section 175J provides that certain types of changes to a consumer lease will not be regarded as creating a new consumer lease.

6.28 These changes are:

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the provision of further goods;

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the deferral or waiver of an amount owing under an existing consumer leases; and

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a postponement relating to an existing consumer lease.

6.29 The effect of section 175J is that the requirements in relation to making new consumer leases will not apply in those three situations. [Schedule 5, item 18, section 175J]

Division 7 - Changes to obligations under consumer leases

Subdivision A - Changes by agreement of parties

6.30 The Enhancements Bill will set out notice requirements where a lease is changed as a result of an agreement between the contracting parties. Notice of any such change to the lease must be given to the lessee not later than 30 days after the agreement. It will be a strict liability offence not to comply with the appropriate procedure and noncompliance attracts a maximum penalty of 100 penalty units. [Schedule 5, item 18, subsection 177A(1)]

6.31 The notice requirements in subsection 177A do not apply where the change defers or reduces the obligations of the lessee for a period of not more than 90 days. [Schedule 5, item 18, subsection 177A(2)]

6.32 A breach of this provision will be a strict liability offence, in order to ensure the effectiveness of the enforcement regime. The offence also attracts a criminal penalty of 100 penalty units. The rationale for this penalty is historic as the penalty provision for the offence under section 71 which applies to credit contracts was carried over from state legislation. As this new provision is intended to mirror the current provisions that apply to credit contracts, to maintain consistency, the same penalty is also applied to lessors.

6.33 It is anticipated that regulations will be made which replicate those that currently apply to credit contracts in the same context, requiring the following information to be contained in the written notice provided in relation to the changes:

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the date of the changes to the consumer lease;

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current and future payment details; and

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

6.34 These notice provisions do not apply to changes made on the grounds of hardship or where the change was the result of the transaction giving rise to the consumer lease being found to be unjust. [Schedule 5, item 18, subsection 177A(3)]

Subdivision B - Changes on grounds of hardship and unjust transactions

6.35 The Enhancements Bill introduces provisions which specifically apply the hardship variation and unjust transactions provisions to consumer leases. The Enhancements Bill has repealed the former paragraph 177(1)(a) which extended these provisions to consumer leases in a shorthand way by way of a series of cross-references [Schedule 5, item 21]. The Code now sets out in detail the way in which these provisions apply to consumer leases.

6.36 The operation of the hardship provisions has been changed, consistent with the changes made to the equivalent provisions in respect of credit contracts to make it simpler for lessees to seek a variation of the terms of their contract.

6.37 The procedures for making and resolving hardship applications operate in the same way as the provisions in relation to debtors under credit contracts, discussed in paragraphs 2.7 to 2.25. [Schedule 5, item 18, section 177B]

6.38 If a lessor refuses to change the lease, the lessee may apply to a court for changes to the terms of the lease. The court may make orders to change the terms of the lease after giving the lessee and lessor 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 lessor is also entitled to apply to the court to vary the original order. [Schedule 5, item 18, sections 177D and 177E]

6.39 Sections 177F to 177K cover a court's power to reopen unjust transactions. A court can reopen transactions giving rise to a lease (or a variation of a lease) if it is satisfied that the circumstances in which the lease was entered into or changed were unjust. [Schedule 5, item 18, subsection 177F(1)]

6.40 Unjust is defined in subsection 204(1) to include unconscionable, harsh or oppressive. The following principles apply to the interpretation of the term 'unjust' and the phrase 'unconscionable, harsh' and 'oppressive':

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

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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 harsh or the contract is oppressive, but it is not unconscionable);

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the phrase is inclusive so that a consumer lease can still be unjust even if it is not unconscionable, harsh or oppressive; and

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

6.41 Section 177F also sets out criteria which assist the court in determining whether or not the lease or a change to the lease was unjust [Schedule 5, item 18, subsection 177F(2)].

6.42 The application of the unjust contract provisions requires a two stage 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 5, item 18, subsection 177F(5)]

6.43 Different considerations may apply in relation to each stage, so that, for example, the conduct and knowledge of the lessee may not prevent the consumer lease being found to be unjust, but may result in a lesser remedy, or no remedy, being provided to the lessee.

6.44 Where a transaction is reopened as unjust, the court is given power to make a range of orders that allow it flexibility in reshaping the contract. [Schedule 5, item 18, section 177G]

Division 8 - Repossession, termination and enforcement of consumer leases

Subdivision A - Repossession of goods under consumer lease

6.45 Item 20 will make a technical amendment to the heading of Division 8 to refer to the repossession, termination and enforcement of consumer leases. [Schedule 5, item 20]

6.46 The existing requirement in section 178 of the Code, for lessors to give notice before repossessing goods subject to the lease, is retained. Section 178 requires the lessor to give 30 days written notice of an intention to repossess goods which are the subject of a consumer lease. Failure to do so is a strict liability offence with a maximum penalty of 50 penalty units. Strict liability is necessary to ensure the effectiveness of the enforcement regime for this offence. The intention is to gives the lessee sufficient opportunity to rectify a default where this is possible (as it will be in the interests of both parties to resolve any default prior to enforcement action).

6.47 The existing exceptions to this requirement are also retained, so that notice is not required where:

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

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

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

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the lessee becomes insolvent after entering into a consumer lease; or

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the court authorises repossession.

Subdivision B - Termination of consumer lease by lessee

6.48 Section 178A will introduce a right for the lessee to terminate a lease by written notice if the leased goods have not yet been provided. The lessor is still entitled to demand payment of fees or charges which were incurred before the lease was terminated (but not, for example, amounts in relation to rental payments). This complements the lessor's existing right to terminate a lease under section 179. [Schedule 5, item 22, section 178A]

6.49 Section 179 currently enables lessors to end a consumer lease at any time by returning the goods hired under the lease. However, the heading to this section has been changed to clarify the distinction between this provision, and the right to terminate in section 178A. [Schedule 5, item 23, section 179 (heading)]

6.50 Section 179A imposes an obligation on the lessor to provide a statement summarising the amounts payable by the lessee on termination. The lessee may make a request for such a statement at any time. Failure to provide a statement of the amounts payable upon termination of the lease is an offence of strict liability that attracts a criminal penalty of 50 penalty units. [Schedule 5, item 24, section 179A] The rationale for the penalty being strict liability is that lessees should be promptly informed about the amount necessary to be paid to end a lease, rather than incurring additional liabilities as a result of a delay by a lessee in responding.

6.51 In the event the lessor does not provide a payout figure, a lessee has a right to apply to a court to determine the amount payable. [Schedule 5, item 24, section 179B]

6.52 The Enhancements Bill will also impose an additional obligation on the lessor to notify lessees about direct debit defaults. Lessees commonly arrange to meet their repayments under a lease by authorising the lessor to deduct amounts by a direct debit from an account held by the lessee. Direct debits generally occur automatically at pre-arranged intervals (for example, monthly). If a lessee has insufficient funds in their account at the time the direct debit request occurs, they may not become aware that they are in default for some time. This may result in the lessee accruing charges and fees to third parties before they become aware of the default.

6.53 Section 179C addresses this issue by requiring the lessor to give the lessee a notice within 14 days of the first direct debit payment failing in relation to a direct debit instruction. Failure to do so is an offence of strict liability which gives rise to a criminal penalty of 50 penalty units. Strict liability is necessary to ensure the effectiveness of the enforcement regime for these offences. [Schedule 5, item 24, section 179C]

Subdivision C - Enforcement of consumer leases

6.54 The Code sets out notice procedures a lessor must follow before they can begin enforcement proceedings against a defaulting lessee. Before commencing enforcement proceedings, the lessor must give a default notice which provides the lessee with a period of 30 days from the date of the notice to remedy the default. Failure to do so amounts to a strict liability offence with a maximum penalty of 50 penalty units. Strict liability is necessary to ensure the effectiveness of the enforcement regime in seeking to have disputes resolved without the need for court action. The default notice must contain a number of matters under subsection 179D(2) including information prescribed by the regulations; this information is expected to ensure the person in default has relevant information relating to the default itself, the date after which enforcement action may begin, and their rights at law. [Schedule 5, item 24, section 179D]

6.55 The provisions also specify circumstances where a default notice is not required, such as where the lessor has made reasonable attempts to locate the lessee without success or the court has authorised the start of enforcement proceedings. [Schedule 5, item 24, subsection 179D(3)]

6.56 A lessee will have the right to remedy the stated default within the period specified in the default notice. This ensures that the lessee has the opportunity, where they are able to do so, of avoiding enforcement action, and then continuing to comply with their obligations under the consumer lease. [Schedule 5, item 24, section 179E];

6.57 Section 179F limits the capacity of a lessor to begin enforcement proceedings against a lessee where the lessee gives a hardship notice under section 179D. [Schedule 5, item 24, subsection 179F(1)]

6.58 The effect of section 179F is that a lessor cannot commence enforcement proceedings against a lessee until 14 days from when they have sent a notice under paragraph 177(4)(b), that is, a notice stating that the lease will not be changed. [Schedule 5, item 24, subsection 179F(2)]

6.59 However, there is an exception to this restriction where a lessor had previously received a hardship notice from the lessee in the last four months and the lessee reasonably believes the basis for the most recent notice is not materially different from any earlier notices. Failure by the lessor to comply with subsection 179F(2) is a strict liability offence which incurs a penalty of 50 penalty units. Strict liability is necessary to ensure the effectiveness of the enforcement regime for these offences, because of the effect enforcement proceedings can have on the lessee's rights.

6.60 However, provision is also made to allow the lessor to take possession of the goods where it is necessary to protect their interests (for example, if the lessor believes the lessee may be intending to remove or dispose of the goods). [Schedule 5, item 24, subsection 179F(3)]

6.61 Some consumer lease contracts may contain acceleration clauses that enable the lessor to require the lessee to pay a lump sum to terminate the lease. Subsection 204(1) defines an acceleration clause as a clause that allows the lessor, either on default, or at the lessor's discretion, to require repayment, therefore requiring the lessee to pay the outstanding balance under the lease immediately. [Schedule 5, item 25, subsection 204(1)]

6.62 Where a lessor has included an acceleration clause in their contract (enabling the lessor to require the lessee to pay the outstanding balance as a lump sum), the Code restricts the operation of such clauses so that the lessor cannot demand an acceleration in payments until a default notice is provided. The Code specifies circumstances where this restriction does not apply (for example, where the lessor is unable to locate the lessee). [Schedule 5, item 24, section 179G]

Subdivision D - Postponement of enforcement proceedings

6.63 The lessee has the right to request the lessor to postpone enforcement proceedings where the lessee has been provided with a default notice. The lessor must respond to the request within 21 days, and if they do not agree to the request, they must give reasons for their decision to the consumer. This is an offence of strict liability and failure to comply attracts a penalty of 30 penalty units [Schedule 5, item 24, section 179H]. Strict liability is necessary to ensure the effectiveness of the enforcement regime for this offence. The section will also outline the procedures that must be satisfied before a lessor is entitled to begin enforcement proceedings against the lessee following a postponement request. However, provision is also made to allow the lessor to take possession of the goods in a situation where it is necessary to protect their interests (for example, if the lessor believes the lessee may be intending to remove or dispose of the goods). [Schedule 5, item 24, subsection 179H(4)]

6.64 Section 179J sets out the consequences where a postponement is negotiated. The default notice is taken to not have been given if the lessee complies with the conditions of postponement. A lessor must give written notice of the agreed conditions no later than 30 days after the agreement is reached. This is also an offence of strict liability and failure to comply attracts a penalty of 100 penalty units. Strict liability is necessary to ensure the effectiveness of the enforcement regime for this offence and give the parties certainty as to their varied obligations. [Schedule 5, item 24, section 179J]

6.65 A lessee may also apply to a court for a postponement if they are unable to negotiate a postponement with the lessor [Schedule 5, item 24, section 179K]. The lessor may also subsequently apply to the court for a variation to a court order made under this Subdivision. [Schedule 5, item 24, section 179L]

Subdivision E - Enforcement procedures for goods hired under a consumer lease

6.66 The provisions regarding enforcement procedures for goods hired under a consumer lease are intended to provide similar procedures to those which apply in relation to mortgaged goods under a credit contract. These provisions previously applied to consumer leases by virtue of paragraph 177(1)(b) of the Code . The Enhancements Bill repeals that provision and now sets out in detail the obligations that apply in relation to consumer leases.

6.67 The provisions:

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require the lessee to inform the lessor of the location of the goods hired under the consumer lease. If the goods are no longer in their possession, the lessee must give any information that would assist the lessor in tracing the goods. This is a strict liability offence, and non-compliance attracts a penalty of 50 penalty units (because of the importance of the lessee being able to establish the location of their property) [Schedule 5, item 24, section 179M];

•

restrict lessees from entering residential premises to seize the goods, unless the occupier has given written consent to enter or the Court has authorised entry. The regulations may also prescribe procedures for obtaining and giving consent (with it anticipated the regulations will provide for similar requirements to those that apply to credit providers in regulation 87 of the National Consumer Credit Protection Regulations 2010). This is a strict liability offence, and non-compliance attracts a penalty of 50 penalty units. Strict liability is necessary to ensure the effectiveness of the enforcement regime for this offence, given the importance of the lessee's rights over their property not being infringed illegally [Schedule 5, item 24, section 179N];

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allow a court to order entry to residential premises to allow the lessor to take possession of the goods hired under a consumer lease [Schedule 5, item 24, section 179P]; and

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allow a court to order a person to deliver the goods hired under the consumer lease to a lessor at a specified time or place or within a specified period [Schedule 5, item 24, section 179Q].

Subdivision F - Enforcement expenses

6.68 Section 179R prohibits a lessor from recovering any amount greater than reasonable enforcement expenses from a lessee. A penalty is imposed if the lessor does not comply. The court may determine a dispute about the amount of enforcement expenses that may be recovered by the lessor. [Schedule 5, item 24, section 179R]

Division 9 - Linked lessors and tied leases

Subdivision A - Interpretation and application

6.69 A new Division 9 is introduced into the Code which regulates the relationships between linked lessors and suppliers of goods. These provisions address the situation where a consumer's primary or exclusive contact in relation to a consumer lease will be with the supplier of goods, but where that supplier has no contractual relationship with the consumer. The goods are ultimately supplied to the consumer by a third party, the lessor with the supplier arranging for title to pass to the lessor following negotiations between the supplier and the consumer.

6.70 Section 179T will provide the consumer with a remedy for specified conduct where the lessor is linked to the supplier. This approach, which already applies in relation to linked credit contracts, recognises that the lessor may be in a commercial relationship with the supplier where they largely regulate or supervise their conduct, but where common law principles of agency may not necessarily provide the consumer with a remedy against the lessor for the conduct of the supplier.

6.71 The Enhancements Bill introduces definitions for the terms 'a linked lessor' and 'a tied consumer lease'. A linked lessor means a lessor:

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with whom the supplier has a contract, arrangement or understanding relating to the goods;

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to whom the supplier regularly refers persons for the purpose of providing a consumer lease;

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whose contracts and application forms are made available to potential lessees by the supplier (by arrangement with the lessor); or

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

[Schedule 5, item 24, subsection 179S(1)]

6.72 A tied consumer lease is defined as a consumer lease which is entered into where the goods hired under the consumer lease are supplied by a supplier to the lessor, and the lessor is a linked lessor of that supplier [Schedule 5, item 24, section 179S(2)].

Subdivision B - Liability of lessors for suppliers' misrepresentations

6.73 Under section 179T, a linked lessor will be held liable for a supplier's misrepresentations about the leased goods, the lease itself or services, supplied or arranged by the lessor, that are incidental to the hire of goods under the lease. A lessor is liable for any representations, warranties or statements made by the supplier of the goods to the lessee in relation to the tied consumer lease.

Example 6.1

The lessor is a linked lessor with a supplier of computers and software. Consumers sign leases at the premises of the supplier and have no direct contact with the lessor. The supplier misrepresents both the quality of the software and the terms of the service warranty provided with the lease. The consumer would have a remedy against the lessor as a linked lessor.

6.74 The lessor is entitled to be indemnified by the person who made the representation, warranty or statement and any person on whose behalf it was made. Because of their ongoing commercial relationships it is usually anticipated that there would be a contract between the lessor and the supplier which would specifically address the liability of the supplier to indemnify the lessor in these circumstances, and assist enforcement of this right by the lessor. [Schedule 5, item 24, section 179T]

Division 10 - Conduct relating to consumer leases

6.75 The Enhancements Bill also creates two new offences in relation to consumer lease arrangements. These offences are:

•

making false or misleading representations [Schedule 5, item 24, section 179U]; and

•

harassing a person into entering a consumer lease arrangement. [Schedule 5, item 24, section 179V]

6.76 Section 179U creates an offence for making false or misleading representations. The offence applies to any person who makes representations about matters material to entry into a consumer lease or a related transaction, or attempts to induce a person to enter such a consumer lease or transaction. It therefore applies to lessees and persons providing credit services, and also to third parties. A maximum fine of 50 penalty units applies. [Schedule 5, item 24, section 179U]

6.77 For example, if a person represented to the consumer that they had the right to purchase the goods at the end of the lease (when this would not be the case because of the definition of a consumer lease) then this would be ordinarily be a representation within both paragraphs (a) and (b) of section 179U.

6.78 Section 179V contains a prohibition on lessors or suppliers harassing a person in attempting to have them apply for, or enter, a consumer lease or related transaction. A maximum criminal penalty of 100 penalty units applies [Schedule 5, item 24, section 179V].

6.79 The criminal penalties under sections 179U and 179V are consistent with the penalties under sections154 and 155 of the Code, which in turn reflect those that previously applied under State and Territory legislation.

Division 11 - Other Code provisions applicable to consumer leases

6.80 The Enhancements Bill repeals section 177 [Schedule 5, item 21]. Previously, section 177 extended Part 4 Division 3 (except for section 78), sections 98, 99, 100 and 101 and the miscellaneous provisions in Part 12 of the Code to consumer leases. The Enhancements Bill now has provisions in respect of the matters covered by these sections that specifically apply to consumer leases. It is therefore no longer necessary to deem these provisions to apply to consumer leases. Section 179W provides that both Part 12 of the Code, and the definition of 'associated' in subsection 204(2), extend to consumer leases. [Schedule 5, Item 24, section 179W]

Comparison table

6.81 The table below summarises the provisions that currently apply to credit contracts which are to apply, in similar terms, to consumer leases.

Table 6.1

Part 13 - Principal definitions

General definitions

6.82 Section 204 contains definitions of words and expressions used in the Code. In some cases, the definition expands the usual meaning of the word. The Enhancements Bill will introduce new terms, as well as repeal and substitute existing terms, into the general definitions. These are:

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Acceleration clause (item 13 removes the definition from section 92 of the Code, and the definition is reproduced in the general definitions) [Schedule 5, items 13 and 25, subsection 204(1)];

•

Bulk electronic clearing system (item 12 removes the definition from subsection 87(6) of the Code, and the definition is reproduced in the general definitions) [Schedule 5, items 12 and 26, subsection 204(1)];

•

Consumer lease fees or charges (inserts a new definition into the general definitions) [Schedule 5, item 27, subsection 204(1)];

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Default notice (inserts a new definition into the general definitions) [Schedule 5, item 28, subsection 204(1)];

•

Direct debit (item 12 removes the definition from subsection 87(6) of the Code, and it is reproduced in the general definitions) [Schedule 5, item 29, subsection 204(1)];

•

Enforcement proceedings (the definition is clarified to take into account consumer leases) [Schedule 5, item 30, subsection 204(1)];

•

Hardship notice (inserts a new definition into the general definitions) [Schedule 5, item 31, subsection 204(1)];

•

Lessee (the definition is removed from the section 5 dictionary in the NCCP Act and reproduced in the general definitions) [Schedule 5, item 32, subsection 204(1)];

•

Lessor (the definition is removed from the section 5 dictionary in the NCCP Act and reproduced in the general definitions) [Schedule 5, item 33, subsection 204(1)];

•

Linked lessor (as discussed above in paragraph 6.72) [Schedule 5, item 34, subsection 204(1)];

•

On demand facility (the definition is removed from section 92 and reproduced in the general definitions) [Schedule 5, item 35, subsection 204(1)];

•

Postponement request (inserts a new definition into the general definitions) [Schedule 5, item 36, subsection 204(1)];

•

Tied consumer lease (as discussed above in paragraph 5.72) [Schedule 5, item 37, subsection 204(1)]; and

•

Unjust (as discussed above in paragraph 5.41) [Schedule 5, item 38, section 204]. The definition of unjust in subsection 76(8) is also repealed [Schedule 5, item 11, subsection 76(8)].

6.83 These definitions are necessary to reflect the amendments that have been made to the NCCP Act and the Code under this Enhancements Bill.

Consequential amendments

6.84 Under items 1 to 10, minor technical amendments are made to the NCCP Act under these amendments. This is to ensure consistency between the provisions of the NCCP Act and the amendments to the Code. item 1 amends the definition of lessor in the NCCP and replaces it with a reference to section 204 in the Code [Schedule 5, item 1, subsection 5(1)]. The Enhancements Bill will amend the text for the definition of value of a credit contract, mortgage, guarantee or consumer lease in subsection 5(1) to ensure consistency in the Code [Schedule 5, items 2 and 3, subsection 5(1)]. Subsection 199(3) will similarly be amended so that the text refers to a credit contract, mortgage, guarantee or consumer lease [Schedule 5, item 9, subsection 199(3)].

6.85 The Enhancements Bill will also amend subsection 147(7) which outlines a defence for suggesting an unsuitable consumer lease. Paragraph 147(7)(b) is amended to refer to the new sections 177B and 179H which outline the procedures for consumers in hardship, instead of sections 72 and 94 of the Code [Schedule 5, item 4, subsection 147(7)]. Amendments are also made to repeal Note 2 as the reference to sections 72 and 94 is no longer relevant. [Schedule 5, items 5 and 6, subsection 147(7)]

6.86 Items 7 and 8 will make amendments to the table in subsection 199(2) to reflect the new sections introduced into the Code in relation to consumer leases [Schedule 5, items 7 and 8, subsection 199(2)]. Similarly, Item 10 amends paragraph 200(1)(b) to include references to sections 177D and 179K [Schedule 5, item 10, paragraph 200(1)(b)].

6.87 Item 19 will repeal section 176 which relates to further goods and deferrals or waivers under consumer leases [Schedule 5, item 19].