Senate

Revised Explanatory Memorandum

(Circulated by the authority of the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

Chapter 2 - Standard home loans

Outline of chapter

2.1 The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011 (Home Loans and Credit Cards Bill) implements a requirement for the credit provider to provide consumers with a Key Facts Sheet for standard home loans.

2.2 The obligations only apply to credit providers who are licensees as defined in the NCCP Act. In this chapter, the term credit provider refers to a credit provider who is a licensee.

Context of amendments

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

2.4 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.

2.5 A standard home loan is defined in section 133AA of the Bill as a loan used to finance the purchase of residential property (or refinance such a loan). This is a significant asset from a social perspective. A standard home loan is in many cases the largest loan that a person will take out and they may spend much of their lifetime repaying it. There are many home loan products on the market and innovations in product design and features mean it can be difficult and time consuming for consumers to understand and compare products, or to identify which product is cheapest or can be most quickly repaid by the borrower. The Home Loans and Credit Cards Bill assists consumers by improving disclosure requirements through the introduction of a simplified and standardised summary of the home loan product.

Summary of new law

2.6 The provisions contained within Part 3-2A introduce a requirement for lenders to provide a Key Facts Sheet for standard home loans.

2.7 The obligations only apply to credit providers who are licensees. A licensee is a person who holds an Australian credit licence. In this explanatory memorandum, the term credit provider is a reference to a licensee who is a credit provider.

Comparison of key features of new law and current law

Detailed explanation of new law

Part 3-2A Additional rules relating to standard home loans

Division 2 - Key Facts Sheets for standard home loans

2.8 The Home Loans and Credit Cards Bill inserts Part 3-2A into the NCCP Act which imposes requirements that ensure a consumer can obtain a Key Facts Sheet for standard home loans on a lender's website or on request.

2.9 A standard home loan is defined as a standard form of credit contract under which the credit provider provides credit either to purchase residential property or to refinance credit that has been provided predominantly to purchase residential property, including for investment purposes. These types of contracts will usually be regulated by the NCCP Act, although this cannot be determined until the terms of the contract and the identities of the contracting parties are known. The regulations may make provisions for determining whether a particular credit contract is a standard form of credit contract. [Part 3-2A, division 2, section 133AA]

2.10 A Key Facts Sheet for standard home loans is a document which contains the information and complies with the requirements prescribed by the regulations. It is proposed that the form of the Key Facts Sheet will be prescribed by regulations. [Schedule 1, item 5, section 133AB]

2.11 This document will summarise the key facts about a given home loan, which may include:

•

the interest rate;

•

the all-in rate, that is, the total cost including interest plus fees;

•

the total cost of the home loan;

•

particular product features;

•

fees; and

•

an explanation of how monthly repayments will be affected if interest rates increase.

2.12 The regulations may require the Key Facts Sheet to be based on information provided by the consumer as well as particular assumptions. It is anticipated that the regulations will provide for the content of the Key Facts Sheet to be specified in a way that ensures comparability between similar products. [Schedule 1, item 5, subsection 133AB(2)]

Requirement for consumer to be able to generate Key Facts Sheet on credit provider's website

2.13 If the credit provider has a website that allows the consumer to apply for, or make an inquiry about a standard home loan, the website must allow consumers to generate an up-to-date Key Facts Sheet. [Schedule 1, item 5, section 133AC]

2.14 The credit provider must ensure that the website informs the consumer that they can use the website to generate a Key Facts Sheet for the loan and what information is needed in order to generate it. They must also provide instructions on how to generate a Key Facts Sheet, and ensure that the website complies with any requirements prescribed by the regulations. [Schedule 1, item 5, section 133AC]

2.15 Breach of the requirements in section 133AC attracts a civil penalty of 2,000 penalty units and is an offence, attracting a criminal penalty of 50 penalty units. [Schedule 1, item 5, subsections 133AC(2) and (3)]

Key Facts Sheet to be provided on request

2.16 A credit provider must also provide a consumer with a Key Facts Sheet in response to a request by a consumer, and in any other circumstances that may be specified in the regulations. [Schedule 1, item 5, section 133AD]

2.17 Where a credit provider is required by section 133AD to provide a consumer with a Key Facts Sheet but needs more information from the consumer in order to do so, the credit provider must tell the consumer what information they need. The regulations may prescribe requirements relating to this. [Schedule 1, item 5, section 133AE]

2.18 Breach of the requirements in section 133AD or 133AE attracts a civil penalty of 2,000 penalty units and is an offence, attracting a criminal penalty of 50 penalty units. [Schedule 1, item 5, subsections 133AC(2) and (3) and 133AE(2) and (3)]

2.19 If the credit provider has, in accordance with section 133AE, told the consumer what information they need and the consumer has not provided that information, the credit provider has a defence to liability for which they bear the evidential burden. [Schedule 1, item 5, subsection 133AE(4)]

2.20 The provision casts the onus of proof on the credit provider as it will be in a better position to address this issue, through the adoption of appropriate compliance systems.

2.21 Other circumstances where a credit provider is not required to provide a Key Facts Sheet are where:

•

the credit provider has already provided the consumer with a Key Facts Sheet for a particular standard home loan in accordance with section 133AD, and the new Key Facts Sheet would be the same (except for its date);

•

the credit provider reasonably believes that another person has already provided the consumer with a Key Facts Sheet, and the new Key Facts Sheet would be the same (except for its date);

•

the credit provider reasonably believes that the consumer would not be eligible for the standard home loan (in which case provision of the Key Facts Sheet would not be necessary); and

•

any other circumstances prescribed by the regulations. [Schedule 1, item 5, section 133AF]

2.22 The credit provider bears the evidentiary burden in relation to these defences, as these are matters that are within their knowledge or control. [Schedule 1, item 5, section 133AF]