The Law Handbook 2024

Chapter 5.8: Mortgages, consumer leases and other finance products 447 • As part of its responsible lending assessment, the lender must document the preliminary assessment and inquiries and verifications made, ascertain whether the borrower is receiving a social secu- rity payment and if they are, they must obtain and consider an income statement and deduc- tion statement from the past 21 days (Reg 28HB NCCP Regulations); • The required repayment under the SACCmust not exceed 10% of the borrower’s available income. The definition of ‘repayment’ also includes any other amounts payable under any other SACC (s 133CC(1) NCCP Act, Reg 28LCA NCCP Regulations); • Lenders are prohibited from accepting payment of monthly fees relating to a period after the SACC has been paid out (s 31C NCC). Lenders are prohibited from making unsolicited communications to consumers that contain offers to enter or invitations to apply for SACCs (s 133CF(1) NCCP Act). SACC lenders also must not make proscribed referrals, which are defined to be referrals of a person to another person where it is reasonable to believe that as a result of the referral, the person would or might enter into a contract or arrangement for the provision of credit (being credit that the credit laws do not apply to) (s 160G NCCP Act). This provision commenced on 19 December 2022. Anti-avoidance mechanism: small amount credit contracts, consumer leases and product intervention orders The Financial Sector Reform Act 2022 (Cth) introduced anti-avoidance provisions which commenced on 13 December 2022. The provisions prohibit schemes designed toavoid theoperationof theSACC, consumer lease and product intervention order laws. Section 323B of the NCCP Act sets out an inexhaustive list of matters that may indicate an avoidance purpose is present, including where a consumer is provided with credit that is more complex or costly to the consumer than a SACC, or where a consumer is enabled to have the use of goods in a more complex or costly manner than a consumer lease. A presumption of avoidance will operate in relation to a scheme where the scheme is of a kind prescribed by the regulations or as determined by ASIC (s 323C NCCP Act). Contravention of the anti-avoidance provisions may attract civil or criminal penalties, or both. Medium amount credit contracts According to section 204(1) of the NCC, a ‘medium amount credit contract’ is similar to a small amount credit contract, save that the credit limit is at least $2001 and not more than $5000, the term of the contract is at least 16 days but not longer than two years, and the consumer’s obligations under the contract can be secured. Since 1 July 2013, a medium amount credit contract cannot have an annual cost rate higher than 48 per cent (s 32A NCC). The method for calculating the annual cost rate is set out in section 32B of the NCC. However, in addition to this amount, an establishment fee of up to $400 may be charged (s 32B NCC). Advice for consumers of payday loans Before taking out a payday loan, consumers should speak to a free, community based financial counsellor about managing their debts or alternative funding options. These may include hardship variations for bills, energy relief grants, emergency assistance, Centrelink advances, and low-interest loan schemes (see Chapter 5.4: Financial counselling services). If a consumer has entered into a payday loan, they should consider whether the lender has complied with its obligations (see ‘Unjust contracts’, above) and decide whether a complaint to a dispute resolution scheme is warranted. Credit-related insurance Is credit-related insurance necessary? Consumers cannot be required to take out insurance in connection with a credit contract unless the insurance is compulsory insurance, mortgage indemnity insurance and/or insurance over mortgaged property (s 143(1) NCC). Despite this, consumers are often required to, or inadvertently enter into, consumer credit, gap cover and mechanical breakdown insurance upon entering into a credit contract. These are often bad value for the consumer, and a high commission is often payable.