The National Credit Code will impose a new obligation on credit providers from 1 July 2010.

If a debtor has arranged to make loan repayments by direct debit, and they are processed through the Bulk Electronic Clearing System, then the first time a repayment default occurs the credit provider must send the debtor a ‘Direct Debit Default Notice’ within 10 business days.

It is important to understand that this obligation applies even where the payments are coming from the debtor’s account with another financial institution pursuant to arrangements the debtor has made with the other financial institution.

A failure to meet this obligation is an offence of strict liability.

However Regulation 69 provides that a notice need not be sent if the default is rectified before the credit provider is required to give the direct debit default notice.

The form of the notice is prescribed – see form 11 in Schedule 1 to the NCC regulations. The form can be customised to a certain extent.