Does the National Credit Code Apply to My Loan Agreement?

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Table of Contents

• What is the National Credit Code?
• What Protections Does the National Credit Code Offer?
• To What Does The NCC Apply? 
• What Does ‘For Business Purposes’ Mean?
• What Is a Business Purpose Declaration?
• Key Takeaways

The National Credit Code (NCC) provides protections for loans that you have borrowed for non-business purposes. As a consumer, it is in your interest that the NCC applies to your loan agreement. The NCC does not apply to loans to be used for business purposes. For such loans, the lender will ask you to sign a ‘business purpose declaration’, which confirms that you will use the loan for business purposes. You should not sign this declaration if your loan is for non-business purposes, or you could lose out on important protections. This article explains the NCC, what protections it offers, and when it applies.

What is the National Credit Code?

The National Credit Code is a national consumer protection regime which replaced the previous state-based schemes and the Uniform Consumer Credit Code on 1 July 2010. It offers protections to individuals who are borrowing money from institutional lenders for non-business purposes.

What Protections Does the National Credit Code Offer?

The NCC provides that lenders must: 

• not lend to a consumer if the loan agreement is unsuitable for them. This includes, for example, if the customer will not be able to meet repayments based on their income;
• provide a comparison rate (including the interest rate and most fees and charges) when advertising a fixed-term credit contract intended for domestic or household purposes;
• issue a notice giving borrowers 30 days to repay any arrears (a default notice) before they begin court proceedings or enforce any securities. This gives the borrower time to try to remedy the default before the lender can bring serious action against them or their property; and 
• follow specific procedures when repossessing the borrower’s property, including cars.

It also provides that borrowers have the right to request a repayment arrangement if they experience financial hardship. For example, if they unexpectedly lose their job.

To What Does The NCC Apply? 

The NCC applies to credit contracts entered into on or after 1 July 2010, where:

• the lender is in the business of providing credit (e.g. a bank);
• a charge is made for providing the credit (e.g. interest or fees);
• the debtor is a person or strata corporation (not a company); and
• the credit is provided:
  • for personal, domestic or household purposes;
  • to purchase, renovate or improve residential property for investment purposes; or
  • to refinance credit previously provided for this purpose.

Examples of loans the NCC applies to include: 

• personal loans;
• home loans;
• investment property loans;
• car loans;
• car leases;
• consumer goods leases; and 
• credit card loans. 

Some examples of loans that the NCC does not apply to include:

• loans to businesses or trusts;
• short term loans (less than 62 days);
• loans made by entities that are not in the business of providing credit (for example, a loan from a friend);
• loans and goods leases for business purposes;
• insurance premiums paid by instalments;
• investment loans for shares;
• bill facilities;
• staff loans;
• pawnbroking loans (some parts of the NCC apply);
• overdrafts that have not been arranged in advance with the financial institution; and 
• charge cards (when the entire balance must be paid every month). 

What Does ‘For Business Purposes’ Mean?

To be for ‘business purposes’, either:

• more than half the amount of the loan must be for business purposes; or
• the goods or services acquired with the loan must be more for business purposes than for personal purposes.

For example, if a leased car is used for business purposes five days a week and personal purposes two days a week, then it is for business purposes.

What Is a Business Purpose Declaration?

A business purpose declaration is a statement that a lender may ask you to sign if you have told them that your loan is for business purposes. This allows them to confirm that they do not have to apply the NCC requirements to your loan.

If you have been asked to sign a business purpose declaration, and your loan is not predominantly for business purposes, then you should not sign the declaration.

If you do, you will lose your rights under the NCC, unless you can show that your lender knew that your loan was for personal purposes and asked you to sign the declaration anyway.

Key Takeaways

The NCC provides a range of important protections to consumers taking out personal and home loans. Consumers should, therefore, be cautious about signing a business purpose declaration if their loan is not for business purposes. If you have any questions about your protections under the National Credit Code, please contact LegalVision’s banking and finance lawyers on 1300 544 755 or fill out the form on this page.