Revised Explanatory Memorandum
(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)Chapter 1 - Introduction
Outline of chapter
1.1 Chapter 1 of this explanatory memorandum outlines the arrangements for the commencement of the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 (Home Loans and Credit Cards Bill), definitions which are to be inserted into section 5 of the National Consumer Credit Protection Act 2009 (NCCP Act), and other key terms used throughout this explanatory memorandum.
Context of amendments
1.1 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.
1.2 The NCCP Act implemented phase one of the implementation plan by introducing a Commonwealth statutory framework for the regulation of lenders and brokers. The Home Loans and Credit Cards Bill supplements regulation in respect of two of the most common types of credit, credit cards and standard home loans. This is part of phase two of the COAG implementation plan.
Summary of new law
1.3 The Home Loans and Credit Cards Bill introduces major changes to the relationship between credit providers and consumers in respect of credit cards and home loans, as it:
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- introduces a requirement for home loan lenders to display on their website, and make available on request, a Key Facts Sheet about the products they offer. The Key Facts Sheet sets out, in a standardised format, pricing and other information about their products (so that consumers can readily compare different home loans, especially in respect of their cost);
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- makes it mandatory for credit providers to include, in credit card application forms, key information about the annual percentage rate and other terms which would apply to any resulting contract;
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- prohibits credit providers from making unsolicited invitations that encourage consumers to increase their credit limits (except where the consumer has consented to receive such offers);
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- requires credit providers to notify a consumer if a credit card is used in excess of its credit limit, and restricts the charging of fees or other amounts where a credit card is used to obtain credit in excess of the credit limit for the credit card contract; and
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- requires credit providers to allocate repayments by the borrower to that part of the balance of their credit card on which they are charged the highest interest rate (subject to the consumer specifically electing to have a different payment arrangement).
1.4 Contravention of various provisions of this Bill attract civil and criminal penalties. Some offences attract strict liability penalties.
1.5 The Bill allows for the detail of various obligations to be specified in the regulations, including in relation to:
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- the form and content of Key Facts Sheets;
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- a credit provider's record keeping requirements;
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- circumstances in which liability will not attach to the credit provider; and
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- notifying the consumer of various issues, including when a credit card is used in excess of its credit limit.
Detailed explanation of new law
Commencement
1.6 Sections 1 to 3 and any other provisions that do not have a specified commencement date come into effect on the day the Bill receives the Royal Assent.
1.7 Schedule 1, part 1 applies from 1 January 2012. This part introduces the requirement for credit providers to provide a Key Facts Sheet for home loans.
1.8 Schedule 1, part 2 applies from 1 July 2012. This part contains the amendments relating to credit cards.
1.9 Schedule 2 applies from 1 July 2012. This schedule applies transitional arrangements to Divisions 4, 5 and 6.
Definitions
1.10 The Home Loans and Credit Cards Bill inserts into subsection 5(1) of the NCCP Act a number of new definitions, or varies existing definitions.
1.11 The phrase annual percentage rate is defined to have the same meaning as in section 27 of the National Credit Code.
1.12 A credit card is one or more of the following:
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- a card of a kind commonly known as a credit card; or
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- a card of a kind that persons carrying on business commonly issue to their customers, or prospective customers, for use in obtaining goods or services from those persons on credit; or
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- anything else that may be used as a card referred to above. [Schedule 1, item 19, subsection 133BA(2)]
1.13 The reference to 'a card of a kind that persons carrying on business commonly issue to their customers for use in obtaining goods or services on credit from that business' will include credit cards that may only be used with the issuer.
1.14 For the purposes of the Home Loans and Credit Cards Bill, 'credit card' includes anything else that may be used as a card such as 'near-field communications' devices. 'Near-field communication' is a short range wireless communication technology emitted by devices such as mobile phones to allow consumers to access their account in place of a credit card.
1.15 Articles that can be used both as credit cards and in other ways, for example as a debit card, are considered to be a credit card but the provisions of this Act do not apply to the article in so far as it can be used in those other ways. [Schedule 1, item 19, subsection 133BA(5)]
1.16 A credit card contract is a continuing credit contract (a credit contract under which multiple advances of credit are contemplated and where the amount of credit available ordinarily increases as the amount of credit is reduced) under which credit is ordinarily obtained only by the use of a credit card. [Schedule 1, item 19, subsection 133BA(1)]
1.17 A contract will only be subject to the requirements contained in this Bill where credit regulated by the NCCP Act is provided under the contract. For example, the requirements would not apply to a contract under which a consumer can use a charge card to only access credit that is not regulated by the NCCP Act, or to a debit card where the consumer may be able to obtain both their own savings and amounts that are credit (but again that is not regulated by the NCCP Act).
1.18 Residential property has the same meaning as in section 204 of the National Credit Code. [Schedule 1, item 2, subsection 5(1)]
1.19 The Bill also introduces a number of other definitions that are only relevant to particular provisions. These definitions are discussed in the context of those specific requirements and obligations.
1.20 The Bill makes a consequential amendment to the note under subsection 6(2) of the NCCP Act, to change the current wording to 'credit card contracts', to ensure internal consistency. [Schedule 1, item 18, subsection 6(2)]