The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 amongst other things contains provisions for:
- Small amount credit contracts (in Schedule 3) (“payday lender” or micro-loans) which commence on 1 July 2012
- Caps on interest rates and costs for all other credit contracts (in Schedule 4) which commence on 1 July 2013
The Bill is the subject of 2 inquiries: Senate Economics Committee is due to report on the Bill on 23 November and the Joint Committee on Corporations and Financial Services is due to deliver its report on 24 November.
UPDATE 21 November 2011: I have been informed that the Joint Committee may delay delivery of its report and that the Bill may be carried over to February 2012.
Schedule 3 defines a small amount credit contract as a credit contract:
• that is not a continuing credit contract;
• where the credit provider is not an Authorised Deposit-taking Institution (ADI);
• that is not secured by a mortgage (over any type of property);
• where the credit limit is a maximum of $2,000 (or any other figure prescribed by the regulations);
• where the term of the contract is 2 years or less (or any term prescribed by the regulations); and
• where the contract meets any other requirements that may be prescribed by regulations.
The Bill introduces website disclosure requirements for licensees in relation to small amount credit contracts. The obligations will commence on 1 January July 2012.
UPDATE: The Bill says Schedule 3 relating to small amount contract disclosures will commence “ Immediately after the commencement of Part 2 of Schedule 1 to the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011”.That Schedule is due to commence on 1 July 2012. If the Bill is passed before then Schedule 3 applies from 1 July 2012.
The regulations will prescribe the disclosure requirements. It is proposed the disclosure requirements will consist of a short, high impact statement advising the availability of both sources of assistance and alternative no cost or low cost sources of credit.
The Bill will also introduce prohibitions to repeated and continued use of credit provided through small amount credit contracts (the multiple contract prohibitions).
Schedule 4 of the Bill introduces a new annual cost rate cap which imposes obligations in relation to the restricting the maximum amount that can be charged under both small amount credit contracts and all other credit contracts regulated by the Code. The obligations will commence on 1 January 2013.
Schedule 4 will introduce the following obligations:
• a cap on small amount credit contracts so that the maximum cost (other than in the event of default) will be the total of:
– 10 per cent of the amount of credit the debtor receives in their hand;
– monthly fees of 2 per cent of this amount; and
– any government fees, charges or duties payable in relation to the contract;
• all other credit contracts are subject to a cap so that the annual cost rate (including credit fees and charges and interest charges) cannot exceed 48 per cent;
• credit providers are liable to penalties for breaching either cap;
• providers of assistance who suggest credit contracts, or assisting the consumer to apply for credit contracts where the cost would exceed either cap are liable to penalties (including being required to refund any fees or charges paid by the consumer).
The Bill will introduce a prohibition on a provider of a small amount credit contract from charging, under the contract, the following amounts:
• interest charges (irrespective of whether there has been a default by the debtor);
• fees and charges prohibited by the Code (which would not include the permitted establishment fee and monthly fees); or
• an amount that is greater than the amount of a permitted fee and charge (for example, overcharging a government fee).
The 48 per cent cap does not apply in the following circumstances:
• where the credit provider is an ADI (to give this class of credit providers certainty where they may otherwise inadvertently breach the cap, particularly in relation to
contracts where both credit and debit facilities are provided);
• where the credit contracts is a small amount credit contract (as the small amount cap will apply); or
• where the credit contract is a bridging finance contract (where a combination of a short term and relatively high upfront costs may result in the 48 per cent cap being exceeded).
