In Australian Securities and Investments Commission v Teleloans Pty Ltd [2015] FCA 648 the Federal Court decided that a fee charged by Teleloans for loan application services to applicants for small amount credit to another company (Finance & Loans Direct Pty Ltd (FLD)) was not a fee under the credit contract with FLD and that therefore the credit contract was covered by the short term credit exemption under section 6(1) of the National Credit Code and not regulated by the Code. Judge Logan specifically rejected the argument that the structuring of the contracts in this case were “arrangements” which constituted credit contracts regulated by the Code.

Rejecting ASIC’s attempt to aggregate the contracts and its request for declarations of contraventions, the Court decided that the credit contract with FLD fell within the exemption found in section 6(1)(b) of the National Credit Code in that “the maximum amount of credit fees and charges that may be imposed or provided for does not exceed 5% of the amount of credit”.

While the decision was based on the Credit Act and Code at the relevant time when the various contracts were entered into and services and funds were provided, it should be noted that on 13 June 2014 (before the hearing date), Regulation 50A of the National Consumer Credit Protection Regulations 2010 amended the fees and charges that must be included for the purposes of the section 6 exemption in the National Credit Code. (Background).

In particular Regulation 50A prohibits the following persons from requiring or accepting payment by the debtor of a fee or charge in relation to a small amount credit contract:
1. A person who introduces a debtor to a credit provider (whether or not the person is associated with the credit provider).
2. A person who has been introduced to a debtor by a credit provider to provide a service in relation to a small amount credit contract (whether or not the person is associated with the credit provider).

Notwithstanding the new Regulation the comments of Judge Logan with respect to interpretation of the Credit Act and anti-avoidance are of significance:

In my view, it must follow from the High Court’s rejection in Australian Finance Direct of reasoning based on economic equivalence that it is nothing to the point that the respondent companies (or those who controlled them) might have adopted a different model which could, on analysis, be seen to have yielded the same economic gains as the present but which was a model to which, as a matter of ordinary language, the Act and the Code applied. Put another way, neither the Act nor the Code prevents the making of choices. And some of those choices may, as a matter of ordinary language, fall outside the reach of the Act and the Code….

It may possibly, even probably, be that the level of credit charges made by FLD, its minimal staffing and its overall business model are, from a practical, business point of view, inexplicable unless one takes into account the separate income streams FLD derives from Teleloans. It was not though part of the case advanced by the ASIC that any foundation of those income streams was a sham….

In any event, a difficulty with any such development would be that, even though there is no general anti-avoidance provision in either the Act or the Code, s 6(2) of the Code contains some particular anti-avoidance measures. The presence of these would make it difficult to conclude that some more general doctrine ought to be imported. It is to be remembered, too, that the Act and the Code were enacted after Australian Finance Direct and Bahadori. Had Parliament wished further to extend the definition of “contract” or the anti-avoidance measures found in earlier State consumer credit models so as to extend to “helpers”, it could have done so.

As it happens, s 6(2) of the Code does not apply to the circumstances of the present case.

“Arrangement” is a word of such generality that it is apt to capture the relationship between Teleloans and FLD. But the position which obtains remains that credit is provided only under the contract with FLD. There is no credit provided under the contract with Teleloans. The charges made under that contract are a fee for services provided by Teleloans to the would be borrower. Those charges have no direct relationship with the loan which comes to be made by FLD under its separate contract with the borrower. In these circumstances, the Code is not applicable.