The Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 has been passed by the House of Representatives with amendments. (Background)

The amended Bill incorporates the new commencement dates as previously announced.

The amendments incorporate the government’s response to industry submissions and Committee reports.

New tiered cap on costs regime
The Bill, as amended:

• creates a new tiered cap on costs regime for for non-ADIs for short-term credit contracts, small amount credit contracts, medium amount credit contracts and all remaining credit contracts;
• defines small amount credit contracts as 1 year or less, for an amount of $2000 or less;
• caps costs for loans under $2000 so that the maximum any lender can charge for a small amount credit contract is 20 per cent of the amount of credit upfront and 4 per cent for each month of the loan;
• prohibits credit providers entering into a small amount credit contract with a term of 15 days or less; and
• introduces a cap of an interest rate of 48%, plus an additional $400 to cover establishment costs for mid-tier loans of amounts between $2000 and $5000 with a maximum term of 2 years.

Short-term credit contracts
The Bill inserts a definition of short-term credit contract as being a contract that is not a continuing credit contract, where the credit provider is not an ADI, the credit limit of the contract is $2,000 or less and the term of the contract is 15 days or less.

The Bill prohibits licensees from:
• entering into a short-term credit contract;
• increasing the credit limit of a short-term credit contract; and
• suggesting that a consumer apply, or assisting the consumer to apply, for a short-term credit contract or an increase to the credit limit of a short-term credit contract.

Small amount credit contracts
The Bill amends the definition of small amount credit contract from the original Enhancements Bill to exclude short-term credit contracts from the definition, to remove the requirement that the debtor’s obligation not be secured by a mortgage, and to reduce the maximum length of the contract from two years to one year.

Centrelink benefits
The Government has also announced it will introduce a ‘Protected Earnings Amount’ for borrowers who are dependent on Centrelink benefits. Under this reform, the maximum repayments this class of borrowers would have to repay, on a short term small amount loan, cannot exceed 20% of their income.

The operation of provisions in the Credit Act and the Code in relation to small amount credit contracts, including the provisions imposing caps on costs will be reviewed after 2 years .

Responsible lending changes (for small amount credit contracts only)
The bill also introduces the following responsible lending obligations:

• a rebuttable presumption that a refinance is unsuitable where the borrower is already in default;
• a rebuttable presumption that a small amount credit contract is unsuitable where it would be the borrower’s third such loan in the last 3 months;
• where a consumer has an account with an ADI into which their income is paid, a requirement for credit providers to obtain and consider a copy of the borrower’s bank statements for the last 90 days before making an assessment.

Other changes
The amendments also include:

• a revised definition of “reverse mortgage” so that a credit contract will not be a reverse mortgage if the debtor’s total liability may exceed the maximum loan amount without the debtor being obliged to reduce their liability to the maximum amount or below the maximum amount (rather than just to an amount less than the maximum loan amount).
• a revised definition of bridging finance contract to include a requirement that the contract must also be for a term of two years or less.

CORRECTION NOTE: The heading in respect of responsible lending changes was clarified to add “(for small amount credit contracts only)” at 5.15pm on 27 June.