The Law Handbook 2024

Chapter 5.8: Mortgages, consumer leases and other finance products 439 the transaction, including all acquisition and holding costs and all repayments. The majority found that the house subject of the mortgage ought be sold, with the proceeds of sale to be applied first to compensating the appellants for their net loss, then any remaining amount applied to repayment of the principal loan amount and simple interest to the respondent. Unconscionable interest changes and charges A court can also annul or reduce any change in the annual percentage rate, any establishment fee or charge or fee payable on early termination of a credit contract if the change or charge is unconscionable (s 78(1) NCC). A change to an annual percentage rate is unconscionable if: • the change occurs in an unreasonable manner, hav- ing regard to the advertised rate before or at the time the contract was entered into and the period of time since the contract was entered into; or • the change discriminates against the debtor compared to other similar debtors (s 78(2) NCC). A court or dispute resolution scheme has to decide if an establishment fee or charge is unconscionable taking into account the credit provider’s reasonable costs (s 78(3) NCC). A termination fee or charge is unconscionable if it exceeds a reasonable estimate of the credit provider’s loss arising from the early term­ ination or prepayment of a contract (s 78(4) NCC). Financial hardship It is not uncommon for things like job loss or ill health to prevent a person from making payments on their loan. Financial options It is prudent for a borrower experiencing financial difficulty to see a free financial counsellor to discuss all options available as soon as possible (for contact details, see Chapter 5.4: Financial counselling services). Application for a variation on grounds of hardship Sections 72 to 74 of the NCC allow a debtor who is experiencing financial hardship to ask a credit provider to vary the terms of their credit contract. If the debtor is dissatisfied with the credit provider’s response, they can apply to a court or dispute resolution scheme to vary the contract. The NCC also contains similar provisions that regulate hardship applications in relation to consumer leases (see ‘Consumer leases’, below). Whether these provisions apply depends on: • the date of entry into the contract; • the reason for the hardship application; and • the amount of credit provided under the contract. Successful hardship applications show that the debtor will be able to meet their obligations under the contract if it is varied in the way they propose (see Barker v GE Mortgage Solutions Ltd [2013] QCA 137). Hardship applications are available where: a Contracts entered in before 1 July 2010 – the debtor borrowed an amount less than or equal to the floating threshold used under the Old Code (item 3(5) sch 1 National Consumer Credit Protection (Transitional and Consequential Provisions) Act 2009 (Cth)) (‘ Transitional Act ’). A historical list of threshold amounts can be found at www.moneysmart.gov.au; and – the debtor is unable reasonably, because of illness, unemployment or other reasonable cause, to meet their obligations under a credit contract. b Contracts entered into from 1 July 2010 to 28 February 2013 – the maximum amount of credit provided under the contract is no more than $500000 (s 72(5) NCC (as it then was)); and – the debtor is unable reasonably, because of ill­ ness, unemployment or other reasonable cause, to meet their obligations under a credit contract. The courts have held that the time to apply the threshold test is the date on which the relevant contract was entered into, not the date when the debtor applied to the credit provider for a change to the contract under section 72 (see Perpetual Trustees Victoria Ltd v Monas [2010] NSWSC 1156). Where a loan exceeds the relevant threshold or the debtor applied for hardship for a reason other than illness, unemployment or other reasonable cause, the credit provider may still be required to provide assistance under applicable industry codes. For example, under Part 9, chapters 39–41 of the