Luật học - Chapter 14: Consumer credit law

This is the prescribed textbook for your course.Available NOW at your campus bookstore!Consumer credit lawChapter 14Learning objectivesAt the end of this chapter you should understand:the background to the development of the National Credit Codethe types of credit contract regulated by the National Credit Codethe types of credit excluded from the operation of the National Credit Codethe key requirements that must be disclosed under a consumer credit contracthow consumer credit contracts may be alteredthe rights of the credit provider against a defaulting debtor, mortgagor or guarantorthe civil and criminal remedies available for breaches of the National Credit Code.IntroductionCredit allows consumers to acquire goods and services, and pay for them at a later time.Credit providers are numerous. In July 2008 states and territories agreed to transfer power to regulate credit to the federal government.National Consumer Credit Protection Act 2009 (Cwlth) passed Schedule 1 of which is the National Credit Code.What is the National Credit Code? (NCC)Applicable to credit contracts entered into from 1 July 2010Replaced the uniform Consumer Credit Code which had been in place since 1996A single national credit framework for consumersASIC is the sole regulator of the NCCC with enhanced enforcement powers.All providers of consumer credit services to be members of an external dispute resolution body.What is the National Credit Code? (NCC) (cont.)Provides three essential obligations be met by credit providers:Credit providers be licensed Credit providers provide credit responsiblyCredit providers properly disclose a range of pertinent matters including rates and fees to consumers.DefinitionsCreditor: person providing creditDebtor: person receiving creditCredit provider: any person who provides credit, where a charge is made for the provision of the creditLinked credit provider: credit provider who has an arrangement with a supplier of goods and services whereby:prospective purchasers who require credit to finance their purchases are regularly referred to the credit provider by the supplierthe supplier supplies the credit provider’s credit application forms to purchasersa purchaser can sign contracts or credit applications at the premises of the supplier.Transactions to which the NCC appliesWhere a charge is or may be made for the provision of the credit and the credit provider provides the credit in the course of a businessthe debtor is a natural person or a strata corporationthe credit is or is intended to be , provided wholly or predominantly:for personal, domestic or household purposesto purchase, renovate or improve residential property for investment purposesto refinance credit that has been provided for such purposes.Types of credit covered by the NCCContinuing credit contracts:e.g. revolving creditLoan contracts:home loanspersonal loansbank term loans, etcConsumer leases:e.g. hire of goods by a natural person (or strata corporation), where the lessee does not have a right or obligation to purchase the goodsTypes of credit covered by the NCC (cont.)Credit sales contracts:Credit is provided to a buyer in the course of a sale of goods or services.Mortgages and guarantees:Related transactions providing security for the debtHire purchase agreements:Sale of goods by instalments, where there is a right or obligation to purchase the goods, with the cash price being less than the ultimate combined amounts paid for the goodsCredit-related insurance contracts:If credit provider requires customer to take out insuranceTransactions excluded from the NCCShort term credit, less than 62 days (with some exceptions)Provision of credit without prior agreementContinuing credit where an account charge is paid instead of interestTransactions with a pawnbrokerTransactions involving trustees and estatesConsumer lease for less than four monthsEmployee loansCredit activities and the Australian credit licenceGenerally, all people engaging in credit activities are now required to hold an Australian credit licence.A person is engaged in a credit activity if the person:is a credit provider under a regulated credit contractcarries on a business of providing regulated credit or regulated consumer leasesprovides credit assistanceis a lessor under a regulated consumer lease is a mortgagee under a regulated mortgage or is a beneficiary of a regulated guarantee.Obligations of licence holdersTo act efficiently, honestly and fairly in carrying out credit activitiesEnsure representatives are competent and adequately trainedHave an internal dispute resolution procedure that complies with ASIC’s standardsBe a member of an approved external dispute resolution scheme such as the Financial Ombudsman ServiceTo fulfil responsible lending obligationsNCC—responsible lending obligationsA credit provider must:give a consumer a credit guide and disclosure document that sets out the costs and the commission of the credit providergive a quote before providing credit assistancemake an assessment to ensure that credit is suitable for the borrower and that the borrower has the capacity to repay the proposed debtnot recommend unsuitable credit contracts.Disclosure and the NCCCredit guide—must be given when it appears credit contract will be entered into by consumerMust be in writing and specify the credit provider’s name, contact details and Australian credit licence numberInclude details regarding complaints handling and dispute resolutionDisclose the credit provider’s obligations to provide a copy of an assessment of the suitability of any proposed credit contract upon written requestDisclose obligation not to recommend unsuitable credit contractsDisclose fees and charges the debtor must pay to receive credit assistanceDisclosure and the NCC (cont.)Credit proposal disclosure document Imposes obligation on person giving credit assistance and must be given at the same time as providing credit assistanceThis document must clearly state any commission or fees which will pass to the credit assistant/ representative in relation to the proposed credit contract.Disclosure requirements by credit provider (before contract signed) Pre-contractual statement:Clearly understandableMust contain ‘key requirements’—all relevant details such as fees and charges, how interest is calculated, etc.NCC sections 16 & 17Information statement:Form 5—legal rights and obligations in plain EnglishWritten contract:Signed by debtor and credit providerInformation as set out in s. 17 of the NCCDebtor must receive a copy of contract within 14 days. What must be disclosed prior to entry into a guarantee?Not enforceable unless:in writingsigned by guarantorcontains warning to guarantorguarantor advised to seek legal advicewarned of consequences should debtor fail to payguarantor has received copy of the credit contract.Disclosure requirements (after contract signed)Regular statement of accountsContinuing credit card contracts—at least every 40 daysContinuing credit contracts—between 40 days to 3 monthsOther credit contracts—at least every 6 monthsChanges to the contractCredit provider has unilateral rights—notified in writingCredit provider and debtor mutually agree—notified in writingContract causes hardship or is unjustAlteration on the grounds of hardship—NCC Sections 72–75A debtor can apply to the credit provider for a variation of a contract on the grounds of ‘hardship’.Hardship includes illness, unemployment or ‘other reasonable’ cause.Variation must assist debtor in being able to meet their future payment obligations. Amount borrowed must be under $500 000.Alteration on grounds that credit contract is unjust—NCC Section 76Debtor, mortgagor or guarantor may apply to the court for an order that the relevant transaction is unjust—no monetary limit involved.A consumer credit contract will be unjust if it is found to be unconscionable, harsh or oppressive.The court considers many factors—legibility of the terms, undue influence or pressure, debtor’s personal circumstances, independent advice, etc.Remedies which may be granted by the court include discharge or variation of the consumer’s liability to pay, discharge of a mortgage or voiding a contract.Default by the debtorProcesses must be properly followed by credit provider.Enforcement proceedings cannot be taken unless default notice has been served on the debtor which provides 30 days for the debtor to address the default .If mortgaged goods are to be repossessed:permission to enter residential premises must be given to the credit provider or their agent once repossessed notice as to amount owed must be given to the debtor and goods must be held for 21 days before sale.When can a credit provider take action against a defaulting debtor?Credit provider gives default noticeDebtor, guarantor, mortgagor30 days to remedy Pay Not pay Mortgage reinstated Renegotiate Repossession Mortgage reinstatedLinked credit arrangementsCredit provider has a commercial relationship with a supplier of goods and services, to refer the credit provider to the prospective purchasers.Credit provider and supplier jointly liable to debtor for loss or damage, e.g. from:breach of contractmisrepresentationfailure to disclose relevant material under the terms of the contract.AdvertisingRegulated by the National Consumer Credit Protection Act 2009 (Cwlth)If a credit provider places an advertisement referring to the cost of any credit available, it must contain: the annual percentage rate or rates a statement detailing any fees or charges that may apply .Offences include false or misleading representations in a credit contract or when inducing people to enter a credit contract.If loss occurs due to a false or misleading representation, the credit provider will be liable to compensate the debtor.Contraventions carry criminal and civil consequences. Civil penalties for breaching key requirements of codeUp to $500 000 for each separate civil breach, plus compensation for any loss suffered by debtor or guarantor.Order can be applied for by:debtorguarantorcredit providerASIC.Penalties for licence misconductCriminal penalties for licence misconduct can include imprisonment for up to 2 years.ASIC has the power to suspend, cancel ban or disqualify a person from the credit industry or to make application to the court to do so.