The Law Handbook 2024

Chapter 5.7: Understanding credit and finance 421 What is a credit contract? Introduction The NCCP Act and NCC apply to credit contracts as defined in the NCC. For the purposes of the NCC, credit is provided if, under a contract: • payment of a debt owed by the borrower to the credit provider is deferred; or • the borrower incurs a deferred debt to the credit provider (s 3(1) NCC). For example, credit includes a person being lent money by a business (a debt) and being required to pay it back at a later date (deferral). The amount of credit is the amount of the debt actually deferred but does not include any interest, fees or charges (s 3(2) NCC). What credit contracts are regulated by the NCC? Aside from the exceptions discussed below, the NCC applies to a credit contract: • if the credit contract was entered into before 1 July 2010, the credit is provided for personal, domestic or household purposes; or • if the credit contract was entered into on or after 1 July 2010, the credit is provided for personal, domestic or household purposes, to invest in residential property, or to refinance credit already obtained for one of these purposes; and • the person obtaining the credit is a natural person (i.e. not a company or strata corporation); and • the credit provider charges a fee for providing the credit to the person; and • the credit provider provided the credit in the course of conducting its business. Credit contracts that meet each of the above tests (set out in section 5 of the NCC and section 6 of the Old Code) will be covered by the NCC (item 3 sch 1 National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth) (‘ Transitional Act ’)). Each of these tests is considered in more detail below. Importantly, if a party claims in legal proceedings that the NCC applies to a credit contract, a court will presume that the NCC does apply unless the contrary is established (s 13(1) NCC). In other words, it is up to the party that says the NCC does not apply to prove that the NCC does not apply. However, this presumption may be displaced if the borrower has signed a declaration that the loan is for a purpose that is not regulated by the NCC, such as a business purpose (s 13(2) NCC) ( see ‘Preliminary requirements for the NCC to apply’, below). Contracts entered into before 1 July 2010 Because the old state-based laws, such as the Old Code, were repealed to make way for the new Commonwealth credit laws, complex transitional arrangements were adopted in the Transitional Act. Generally, the NCC will apply to a consumer credit contract if the contract was entered into and still on foot on 1 July 2010 and the Old Code applied to that contract. However, to stop the new law being unfairly retrospective some provisions of the new NCC will not apply to such a contract. Where this is the case, the equivalent provisions of the Old Code apply (item 3 sch 1 Transitional Act). Given that credit contracts may run for years, this chapter endeavours to note where the treatment of contracts entered into before 1 July 2010 is different to those contracts entered into after this date. Preliminary requirements for the NCC to apply Natural person or strata corporation The NCC does not apply to a credit contract unless the person who obtains the credit is a flesh and blood person or an owners corporation ( see Chapter 6.5: Owners corporations). Credit obtained by a corporation or trust is not covered by the NCC. The purpose of the credit The NCC does not apply to a credit contract unless the credit has been provided wholly or predominantly for a ‘Code purpose’. A Code purpose is where credit is provided for personal, domestic or household purposes. If the credit contract was entered into on or after 1 July 2010, the Code purpose includes credit obtained to purchase, renovate or improve residential property for investment purposes, or to refinance credit provided for such a purpose. The regulation of credit provided for residential property investment is one of the significant changes in the new regime.