Creditors should be aware of the protections given to consumers and the obligations they have in providing debtors (consumers) credit. Consumers should also understand their rights when signing credit contracts and borrowing credit (including credit cards, loans and reverse mortgages).
When does the National Credit Code Apply?
The Code applies to:
- Lenders who are in the business of providing credit;
- Charges made for providing credit;
- Debtors including individuals and strata corporations; and
- Credit that was provided for:
- domestic purposes; or
- to purchase or renovate residential property for investment purposes or to refinance credit.
If a borrower is not using credit for a domestic purpose, or for a residential investment property, then they may sign a business purpose declaration, which means the creditor will not need to comply with the NCC and may have negative effects on the consumer. If a creditor tries to convince a consumer to sign a business purpose declaration and it is later found that this is untrue, the creditor may be found to have committed an offence.
The NCC does not apply to:
- low-cost short-term credit under 62 days;
- insurance premiums paid by instalments;
- debit and bill facilities and loans; and
- employee loans and margin loans.
What Disclosure Obligations Apply?
The NCC requires credit providers to include a comparison rate when they advertise fixed-term credit for domestic purposes. It must include the interest rate as well as applicable fees and charges. It may not include government fees and charges or one-off fees (like early payouts).
Before entering the contract, the creditor must give the consumer a pre-contractual statement as well as an information statement.
The pre-contractual statement or credit guide provides the consumer with information about the provision of the credit. The information must include:
- Credit provider name and licence number;
- Contact details;
- Amount of the credit;
- Repayment terms;
- Percentage rate;
- Fees and charges;
- Details of the consumer’s right to complain and access to their External Dispute Resolution Scheme (EDR).
The information statement must state the consumer’s statutory rights and obligations under the contract. Consumers use the information statement to understand terms and risks before they are bound by the contract.
At the time of entering into the contract, the credit provider must provide a contract to the consumer.
During the term of the contract, the credit provider is required to provide the consumer with periodical statements of account. This keeps the consumer up to date with their payments and how much left they have to go with the contract. The creditor must also provide any updates on changes to the contract.
If disclosure requirements are not met, a credit provider may face criminal or civil penalties.
What Rights Do Debtors Have?
Debtors can apply to a court if they believe there has been an unjust contract that may be unconscionable, harsh or oppressive. The court will look at various factors, and then, if the contract is considered unjust, it may set aside or vary the contract accordingly.
If a debtor cannot comply with a contract, it may give the credit provider a notice of hardship. This notice will request a variation of the terms of the contract with the Court. The creditor may find it easier to vary the contract rather than wait for the Court to vary the terms.
A consumer has the right to make early payment of the contract anytime. It is subject to the credit provider’s payout figure and may include charges of interest and early termination.
What Can Debtors Do About Their Credit Cards?
Credit cards are one of the most common forms of lending credit. To ensure all information is compliant, consumers should:
- Read the credit card’s key facts sheet;
- Check minimum monthly repayments and work out how much would be saved by paying the credit card off faster;
- Decide whether to receive credit limit invitations (these are by choice of the debtor); and
- Check fees for exceeding the credit limit.
If you operate a business that offers credit, either through the provision of credit for domestic use, or under a credit contract such as a mortgage, guarantee or sale by instalment, you must comply to the National Credit Code. There are severe penalties that apply for credit providers in breach of the Code or conducting advertising and marketing that do not comply with the new changes.
If you have any questions about the National Credit Code, get in touch with LegalVision’s banking and finance lawyers on 1300 544 755 or by filling out the form on this page.
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