The Financial Sector Reform Bill was passed by both houses of Parliament on 2 December 2022 after it was amended to separate it from the Financial Accountability Regime and the Financial Services Compensation Scheme of Last Resort which will now be separately considered in 2023. Background.

UPDATE: the Bill received Royal Assent on 12 December 2022.

The amendments relating to small amount credit contracts and consumer leases take effect on 12 June 2023.

The amendments relating to prohibited referrals take effect on 20 December 2022.

New anti avoidance provisions commence on 13 December 2022.

The Financial Sector Reform Bill amends the National Consumer Credit Protection Act provisions relating to Small Amount Credit Contracts and Consumer Leases.

Family violence as a cause of hardship

The Bill also amends the note to Section 72 of the Credit Code, which provides for changes to a debtor’s obligation under a credit contract on grounds of hardship, to make clear that family violence is also a reasonable cause of hardship in respect of all credit contracts regulated under the Credit Act.

Small Amount Credit Contracts

Small amount credit contracts are loans of up to $2,000, where the term of the contract is between 16 days and 12 months.

Providers of small amount credit contracts are not subject to the 48 per cent annual percentage rate cap that applies to medium amount credit contracts (between $2001 and $5000 to be repaid between 16 days and 2 years). Providers of small amount credit contracts can instead charge a maximum establishment fee of 20 per cent and a maximum monthly fee of 4 per cent of the value of the loan.

Changes include:

• Small amount credit contracts must have equal repayments and equal repayment intervals over the life of the loan, subject to certain limited exceptions.
• Licensees cannot charge a consumer monthly fees in respect of the residual term of the small amount credit contract where the consumer fully repays the loan early.
• Licensees are prohibited from making unsolicited communications to a consumer that contain an offer or invitation to enter into or apply for a small amount credit contract in certain circumstances.
• Licensees must document in writing their assessment that a small amount credit contract is not unsuitable for a consumer.
• Licensees must display information and give information to consumers about small amount credit contracts in accordance with requirements determined by ASIC in a legislative instrument.
• Small amount credit contract providers are prohibited from making referrals in certain circumstances.
• The mechanism for restricting the repayments that are allowed under a small amount credit contract (also referred to as the protected earnings amount) is updated.

Commencement of changes

The amendments relating to small amount credit contracts and consumer leases take effect on the day after the end of the period of six months beginning on the day the Financial Sector Reform Bill 2022 receives Royal Assent.

The amendments relating to prohibited referrals take effect on the day after the end of the period of seven days beginning on the day the Financial Sector Reform Bill 2022 receives the Royal Assent.

New anti avoidance provisions commence on the day after the Act receives the Royal Assent.

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Author: David Jacobson
Principal, Bright Corporate Law
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About David Jacobson
The information contained in this article is not legal advice. It is not to be relied upon as a full statement of the law. You should seek professional advice for your specific needs and circumstances before acting or relying on any of the content.