ASIC’s latest report outlining decisions on relief applications covering the period 1 June to 30 September 2013, gives details of a no-action letter it issued in relation to section 29 of the National Credit Code.

Section 29 prohibits the early debit or payment of interest charges under a regulated credit contract.

Regulation 78 of the National Consumer Credit Protections Regulations 2010 provides an exception to the prohibition when a person obtained credit wholly or predominantly to purchase, renovate or improve residential property for investment purposes.

However, under regulation 78 (3), the exception does not apply if, at the time the credit contract is entered into, the predominant use of the residential property is for personal, domestic or household purposes.

The applicant sought a no-action letter for past and future breaches of section 29 of the National Credit Code where customers initially enter into a loan for the purchase of residential property for a personal, domestic or household purpose but, during the term of the loan contract, the customer seeks to change the purpose of the loan to an investment purpose and pay interest in advance.

ASIC decided to provide an interim no-action letter in relation to ongoing conduct because Treasury is currently considering whether an exemption is
appropriate in the circumstances but it refused to provide a no-action letter for the past breaches.