The draft National Consumer Credit Protection Amendment (Enhancements) Bill 2011 proposes that from 1 July 2012 a credit provider must not enter into a credit contract, including continuing credit contracts but excluding small amount credit contracts, if the annual cost rate of the contract exceeds 48%.

Currently, New South Wales, Victoria, Queensland and the ACT impose an interest rate cap on regulated consumer credit but Victoria calculates its cap differently. There are no caps in Western Australia, Tamania and South Australia.

The prohibition on exceeding the annual cost rate is proposed to apply throughout the life of the contract and the rate of a contract will therefore change as, for example, fees are levied or payments are made.

The formula for calculating whether or not the 48% annual cost rate has been exceeded is based on the model currently in force in NSW.

The formula allows for amounts to be prescribed by regulation that would be taken into account in calculating the annual cost rate .

A contravention of the annual cost rate requirement will be a breach of the current prohibition in section 23 of the National Credit Code on charging amounts in excess of those allowed under the Code, and will also be a breach of a key requirement under section 111 of the Code, enabling a consumer to seek a penalty up to a maximum of all credit charges, and enabling ASIC, in respect of systemic non-compliance, to seek a penalty of up to $500,000.

Stakeholders have raised concerns about the risk of some bridging finance contracts being inadvertently caught by the 48% cap.

The current cap on costs in the Credit (Commonwealth Powers) Act (NSW) 2010 includes an exemption for temporary credit facilities provided by Authorised Deposit-taking Institutions and the continuation of this exemption will be considered in consultations.

Stakeholders have been asked to consider whether there should be a similar exemption for temporary credit facilities, and, if so, the circumstances in which it should apply.