The Law Handbook 2024

Chapter 5.7: Understanding credit and finance 423 the remedial provisions of the Code are not easily avoided by carefully structured credit arrangements. BHF Solutions Pty Ltd worked with Cigno Pty Ltd to operate a lending model that provided small loans to a large number of consumers and charged substantial fees. The credit provider must provide credit in the course of a business The NCC only applies if the credit provider provides credit in the course of a business of providing credit or as part of, or incidental to, any other business. The courts have held that the concept of carrying on a business implies a repetition of acts, the sum of which constitutes the business (see Kirkwood v Gadd [1910] AC 422) and that the word ‘business’ imports ideas about system, repetition and continuity. The approach taken by the courts has been that the question of whether a loan was made in the course of business is a question of fact in each case. A one-off loan by a person to a friend would not be covered by the NCC, whether or not interest was charged on that loan. However, where credit is provided incidentally to the operation of another business, there appears to be no requirement that the business routinely provide credit of that kind. For example, if a retailer allows a customer to pay for goods by instalments, it is only necessary that the credit is provided incidentally to the retail business. Therefore, even if the retailer provides credit on only one occasion, the transaction will probably be covered by the NCC, provided the other requirements for the NCC to apply are met. Sale of goods or land by instalments For contracts entered into after 22 May 2009, the Old Code and NCC apply to: • executory contracts for the sale of land by instal- ments, known as ‘vendor terms contracts’ or ‘terms contracts’ (s 10 NCC); and • certain contracts for the sale of goods by instalments – often called ‘rent to buy contracts’ (ss 11–12 NCC). These types of contracts have commonly been used to provide high-cost credit to low-income and disadvantaged consumers on onerous terms and have not previously been covered by consumer credit protection laws. Excluded contracts Section 6 of the NCC exempts from regulation certain categories of contracts that would otherwise be covered by the NCC. Short-term credit Generally, the NCC will not apply to a credit contract that limits the period for which credit will be prov- ided to 62 days or less (s 6(1)(a) NCC). However, the NCC will apply to a loan of less than 62 days if fees and charges exceed 5 per cent of the amount of the loan or if the interest rate exceeds 24 per cent p.a. (s 6(1)(b)–(c) NCC). For contracts entered into on or after 1 July 2011, fees and charges for the purposes of this exemption include: • a fee or charge payable by the debtor to any per- son for an introduction to the credit provider; • a fee or charge payable by the debtor to any person for any service if the person has been introduced to the debtor by the credit provider; and • a fee or charge payable by the debtor to the credit provider for any other service related to the provision of credit (s 6(2) NCC). These provisions seek to ensure that credit provided by short-term, high-cost lenders such as payday lenders will be covered by the NCC. Credit without prior arrangement The NCC does not apply to credit that is provided without prior agreement between the credit provider and the debtor (s 6(4) NCC). For example, the NCC does not apply when a cheque account becomes overdrawn but there is no agreed overdraft facility, or when a savings account falls into debit. Credit contracts where only an account charge is payable Continuing credit contracts – such as credit cards and overdraft facilities – are excluded from the NCC if the only charge that is made for providing the credit is a periodic or other fixed charge (s 6(5) NCC). However, such a contract will be covered by the NCC if the charge is more than $200 for the first 12 months and more than $125 for each 12-month