Understanding credit and finance

The provision of credit plays an important part in our modern lives. Whether supplying us with credit cards, lending us money to buy a car or a house, or supplying a product or service prior to receiving payment (e.g. electricity, phone), many of us rely on credit to acquire the things we need in our everyday lives.

This section provides information that is useful to be aware of when dealing with the credit industry, including what information should be included in a credit contract; what facts the credit provider must disclose to a borrower before a credit contract is entered into; and information about personal credit files and credit reporting.

Managing your money

Dealing with social security

• Key legislation related to social security
• Pensions
• Allowances and payments
• Bonuses
• Compulsory income management
• Concession cards
• International pension agreements
• Portability
• Compensation and damages payments
• Income tax and Centrelink payments
• Overpayments
• Social security appeals
• More information about dealing with social security
• Dealing with social security: Contacts

Are you in debt?

• Introduction to debt
• Credit reporting and privacy protection
• Queries about your credit report
• Contact from the creditor to try to make you pay
• Statute-barred debts
• Your rights and options
• If you are sued
• Defences if you are sued
• Applying for a rehearing
• Enforcement of court orders
• Services that can help with debt

Understanding bankruptcy

• What is bankruptcy?
• Who can be made bankrupt?
• Who administers the bankruptcy law?
• What happens to a bankrupt’s property?
• What happens to a bankrupt’s income?
• The effect of bankruptcy on debts
• Leaving Australia
• Criminal offences under the Bankruptcy Act
• The process of going bankrupt
• When does bankruptcy end?
• Other procedures under the Bankruptcy Act
• Understanding bankruptcy: Contacts

Financial counselling services

• What is a financial counsellor?
• National financial counselling services
• State-wide financial counselling services
• Melbourne financial counselling services
• Country financial counselling services
• Financial counselling services for farming communities

Taxation

• Introduction to taxation
• How is your income tax liability determined?
• Taxpayer’s responsibilities and your tax file number
• Tax returns
• Assessment of your tax return
• Queries: Private rulings and oral rulings
• Penalties, interest charges and offences relating to tax returns
• Taxation objections, reviews and appeals
• Paying your tax
• Fringe Benefits Tax
• Goods and Services Tax
• State duties and taxes
• Taxation: Contacts

Superannuation

• Superannuation: Contacts
• Superannuation schemes
• Regulation of superannuation funds
• Superannuation benefits
• Superannuation benefit disputes
• Reviewing a trustee’s decision
• Reviewing an insurer’s decision

Understanding credit and finance

• Understanding credit and finance: Contacts
• Introduction to credit and finance and key legislation
• National credit law reform
• What is a credit contract?
• Before you enter a credit contract
• Disclosure before entering a contract
• What information should be in a credit contract?

Mortgages, consumer leases and other finance products

• Mortgages
• Guarantees
• Varying, re-opening and terminating credit contracts
• Consumer leases
• Payday loans
• Credit-related insurance
• Tied credit contracts
• Vendor terms contracts and rent-to-buy arrangements
• Pawnbrokers
• Finance brokers
• Mortgages, consumer leases and other finance products: Contacts

Credit reporting

• Credit reporting: Contacts
• Introduction to credit reporting
• Credit report regulation
• Who can add information to a credit report?
• What information is in a credit report?
• Misuse of information in credit reports
• Identity theft and credit reporting
• Correcting credit reports and complaints
• Getting a copy of your credit report

Unauthorised transactions and ePayments Code

• Unauthorised transactions and ePayments Code: Contacts
• Unauthorised transactions and credit disputes
• Credit and finance industry codes of conduct
• Solving disputes with creditors
• Where to get help with a credit matter

Contributor

CEO, Consumer Action Law Centre

What information should be in a credit contract?

Content of credit contracts

Section 17 of the National Credit Code (NCC) sets out the information a credit provider must disclose in a credit contract, 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;
• repayments;
• credit fees and charges;
• changes affecting interest and credit fees and charges;
• statements of account;
• the default rate;
• enforcement expenses;
• mortgages or guarantees;
• commission;
• insurance financed by contract; and
• an information schedule to be included above the signature clause of the contract in form 6 or 7 of the NCCP Regulations, (together, ‘thedisclosure requirements’).

Of the disclosure requirements, those in italic text are deemed ‘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 consumer credit law before 1 July 2010.

What if the National Credit Codes’ 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 debtor 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 party to a credit contract, a guarantor and the Australian Securities and Investments Commission (ASIC) have standing to apply to a court 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 National Consumer Credit Protection Act 2009 (Cth) (‘NCCP Act’) commenced on 1 July 2013 that limit the amount of interest, fees and charges that a lender can charge 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 termination 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 National Consumer Credit Protection Regulations 2010 (Cth) (‘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 discharge 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).