Content of credit contracts
Section 17 of the NCC sets out the information a A debt that does not have to be paid until some future time. Being allowed to pay later, in the future, for something you are getting now. provider must disclose in a A contract relating to the giving of credit., as follows:
- the credit provider’s name;
- the amount of credit;
- the annual percentage rate or rates;
- a calculation of interest charges;
- a total amount of interest charges payable;
- credit fees and charges;
- changes affecting interest and credit fees and charges;
- statements of account;
- the Failure to do something that is legally required. For example, a person who fails to make a payment on their car is in default on the loan; if they continue to be in default the creditor may issue a default summons to take the debtor to court. rate;
- enforcement expenses;
- mortgages or guarantees;
- insurance financed by An agreement that the law will enforce.; and
- an information Extra information accompanying an Act of parliament or a contract, such as tables, lists or forms. to be included above the signature clause of the contract in form 6 or 7 of the NCCP Regulations, (together, ‘the Providing information to another person or institution as required by a contract or other legal process. requirements’).
Of the disclosure requirements, those in italic text are Treated by the law as if something is the case, even if that is not the reality. For example, children may be deemed to have the same home as their parents, whether they actually live there or not. Or a person may be deemed to have given their consent to something if they hear about it and do not object. Compare rebuttable. ‘key requirements’ (s 111 NCC).
The key requirements are slightly different for continuing credit contracts (s 111(2) NCC). These requirements are the same as those under the Old Code, the main source of Under the Australian Consumer Law, a person who buys goods or services for less than $40 000 or for personal or home use. credit law before 1 July 2010.
What if the NCC’s disclosure requirements have not been met?
Under Part 6 of the NCC, credit providers are liable to pay a civil penalty to debtors, or to a government fund, if they fail to disclose a key requirement in a credit contract document.
The payments are ‘penalties’ because they are punitive, not compensatory, in nature. Accordingly, Part 6 does not require that any loss be suffered by a A person who owes a debt. before a penalty is applied.
However, unlike most penalties, they may be paid to an individual (that is, the debtor under the credit contract), rather than the state.
A A person or organisation directly involved in a court case. Parties include the plaintiff or applicant, the defendant, and any third party added to the action, but not independent witnesses. to a credit contract, a guarantor and the Australian Securities and Investments Commission (ASIC) have The right to appear in a court action and be heard. In general, a person cannot bring a case or have their say in a court about something that does not directly affect their interests. They must be able to show that they have sufficient interest in the case because, for example, of possible effects on their property or commercial activities. Also called locus standi. to apply to a An independent body that hears legal claims brought by parties and decides between them. Serious cases are heard by a judge and jury, or just a judge. Less-serious cases are heard by a magistrate. for an order under Part 6. Before granting such an order, a court must determine:
- whether a contravention of a key requirement has been established (s 113(1) NCC); and
- whether the contravention ought to give rise to a penalty (s 113(2) NCC).
A credit provider cannot be ordered to pay a penalty to a debtor or guarantor that is more than the total amount of interest charges payable under the credit contract unless the debtor or guarantor has suffered a loss (s 114(1)–(2) NCC).
If the debtor or guarantor has suffered a loss, the court may impose a greater penalty that must not be less than the amount of the loss suffered (s 114(2) NCC).
What interest rate and fees can be charged?
Specific provisions in the NCCP A written law made by parliament. Also called an ‘Act of parliament’, ‘statute’ or legislation. commenced on 1 July 2013 that limit the amount of interest, fees and charges that a lender can (1) A statement giving the details of a crime an accused person is claimed to have committed. (2) A personal property security. (3) A judge’s directions to a jury at the end of a case. under small amount credit contracts and medium amount credit contracts (see ‘Payday loans’ in Chapter 5.8: Mortgages, consumer leases and other finance products).
For other loans, the total amount of fees and charges on a loan must not be greater than 48 per cent per annum. This limit does not apply to authorised deposit-taking institutions (e.g. banks, credit unions and building societies).
The NCC does allow ‘unconscionable’ interest or charges (such as an establishment fee or early The end of something. Contracts terminate when the parties have done what they agreed. A contract can also be terminated without being completed, for example if one party breaks the contract, or it is impossible to carry out. fee) to be reviewed and reduced or annulled (s 78 NCC).
For information about the restrictions on interest and fees under small amount credit contracts and medium amount credit contracts see ‘Payday loans’ in Chapter 5.8: Mortgages, consumer leases and other finance products.
Early termination fees and secured home loans
Credit providers cannot charge consumers early termination fees (also known as ‘exit fees’) in relation to secured home loans entered into after 1 July 2011 (reg 79A NCCP Regulations).
Not all ‘exit’ fees are prohibited. Regulation 79A(2) makes it clear that credit providers can charge:
- a break fee in relation to a fixed rate loan; and
- a (1) To fulfil an obligation or be released from an obligation. For example, a debtor can discharge a debt by paying it; a prisoner can be discharged (released) from jail. fee that reimburses the credit provider for the reasonable administrative cost of terminating the credit contract.
A ‘break fee’ is a fee or charge that relates:
- only to the early repayment of an amount provided under a credit contract for a fixed rate loan; and
- only to the portion of the loan that is fixed; and
- to the part of the credit provider’s loss, arising from the early repayment, that is a result of differences in interest rates.
Although the ban on early termination fees applies only to home loans taken out after 1 July 2011, relief may be available to consumers with older loans where the fee is, for example, not a reasonable estimate of the lenders loss (s 78 NCC; ASIC RG220 Early termination fees for residential loans: Unconscionable fees and unfair contract terms).