The Government has released its response to the final report of the independent review of the small amount credit contract laws (SACCs) . Background.

The Government has supported most of the Review Panel’s recommendations, in part or in full and in some cases the Government went further than the review panel recommended. But other recommendations were not accepted.

The Government’s agreed recommendations include:

• Extending the protected earnings amount regulation to cover SACCs provided to all consumers.
• Reducing the cap on the total amount of all SACC repayments (including under the proposed SACC) from 20 per cent of the consumer’s gross income to 10 per cent of the consumer’s net (after tax) income.
• Retaining the existing 20 per cent establishment fee and 4 per cent monthly fee maximums.
• Prohibiting the monthly fee for a month after the SACC is discharged by its early repayment. If a consumer repays a SACC early, the credit provider under the SACC cannot charge the monthly fee in respect of any outstanding months of the original term of the SACC after the consumer has repaid the outstanding balance and those amounts should be deducted from the outstanding balance at the time it is paid.
• Providing a safe harbour allowing credit providers to rely on a consumer’s bank statements when determining a consumer’s average income for the purposes of the protected earnings amount, unless there is evidence suggesting that it is inappropriate to do so.
• Extending the application of the existing civil penalty regime in Part 6 of the National Credit Code to SACCs, and, in relation to contraventions of certain specific obligations by SACC providers, provide for automatic loss of the right to their charges under the contract.

The Government did not accept the following recommendations:

Referral fees: The Government did not accept a recommendation that SACC providers should not receive a payment or any other benefit for a referral made to another SACC provider. The Government accepted that there are legitimate instances where it may be appropriate for a referral to occur. For example, some SACC providers only target specific geographical locations. If such a SACC provider receives an application from a consumer from another location, they may wish to refer that consumer to another SACC provider. In addition, paying for referrals may be less expensive than other means of attracting customers, who are in any case subject to a cap on costs (a 20 per cent establishment fee and a 4 per cent monthly fee).

Disclosure of APRs: the Government does not consider it appropriate to require disclosure of an APR for SACCs.

Default fees:  The Government did not accept the recommendation that SACC providers should only be permitted to charge a default fee that represents their actual costs arising from a consumer defaulting on a SACC up to a maximum of $10 per week. It has decided that the existing limitation of the amount recoverable in the event of default to twice the adjusted credit amount should be retained.

Direct debit fees
The review panel recommended that direct debit fees should be incorporated into the existing SACC fee cap.

In response to the recommendation, on 8 November 2016 ASIC published ASIC Credit (Repeal) Instrument 2016/1087 which repealed ASIC Class Order [CO 13/818] Certain small amount credit contracts. The class order allowed SACC providers to charge a separate fee for direct debit processing.

As a result of the repeal consumers will not be able to be charged direct debit fees when taking out a SACC. The change will apply to any SACC provided from 1 February 2017 and SACCs provided before that date which are varied after 1 February 2017.

Timetable
It is intended that (except for the ASIC change to direct debit fees) the changes will apply 12 months following the passage of the legislation through Parliament which is expected to be during 2017.

The Government will put in place appropriate grandfathering arrangements for existing contracts.

The Government will conduct a further review of the small amount credit contract laws within three years from the commencement of the legislative changes.

Cash Converters EU

ASIC has announced that following an ASIC investigation, lender Cash Converters will refund $10.8 million to consumers who received small amount loans under approximately 118,000 small amount credit contracts. Cash Converters has also paid a $1.35 million penalty following the issuing of infringement notices by ASIC.

ASIC agreed to accept an enforceable undertaking from Cash Converters following concerns that, in respect of small amount loans processed via its online website, Cash Converters failed to make reasonable inquiries into consumers’ income and expenses, particularly in situations where the small amount loan was presumed by the credit legislation to be unsuitable.

In addition, ASIC had concerns that Cash Converters did not take reasonable steps to verify consumers’ expenses in accordance with its responsible lending obligations. Instead of assessing the actual expenses recorded in a consumer’s bank statements, Cash Converters applied an internally-generated assumed benchmark that had no relationship to the real expenses of the individual consumer.

For the small amount loans that were likely to be unsuitable because of the consumer’s circumstances, ASIC was concerned that Cash Converters failed to assess the loans as unsuitable for the particular consumers and subsequently entered into them in breach of the credit legislation.