Hon J Anderton

Consumer Credit Law Review

What the Government approved: technical detail

Note: this outlines the proposals for a new Consumer Credit Bill in broad terms. Detail will be provided in the Bill.

Application of consumer credit legislation

The Credit Contracts Act 1981 and the Hire Purchase Act 1971 are to be repealed and replaced by a new Consumer Credit Bill.

The reopening provisions of the Credit Contracts Act are to be maintained without substantial amendment and will continue to apply to all credit contracts.

The remaining provisions of the Bill will only apply to credit provided for personal, domestic or household purposes. Australian provisions will be adapted to give effect to this.

Separate provisions in the Bill will regulate long-term consumer leases. The Bill will define features of a lease that makes it subject to regulation.

Transparency in consumer credit

The disclosure regime in the Credit Contracts will be maintained and enhanced through: · Disclosure of certain terms not currently required to be disclosed e.g. whether there is a charge payable upon early settlement, the borrower's right to cancel the contract (in certain circumstances). · An extension of the requirement for continuing disclosure. · A performance standard to requiring disclosure information to be expressed clearly, concisely, in a logical order and a manner likely to bring the information to the attention of the borrower. · Model forms which lenders may use to be sure they have complied with the performance standard. · Removing the requirement on lenders to calculate and disclose the finance rate.

Provisions found in Australian law regulating interest charges, fees and payments will be adapted and modified. Features of the regime will be: · A prohibition on charging interest in advance. · Providing that no interest charge may exceed the amount that would be charged by applying a daily interest rate to the unpaid daily balance owed by the borrower. · Modifying the above rule by allowing interest to be calculated on half-yearly, quarterly, monthly, fortnightly or weekly rests, and allowing lenders to "hold" scheduled payments until their due date. · Limitations on establishment fees and fees paid by lenders to third parties and passed to borrowers.

Borrowers will have the right to early repayment of a credit contract. Lenders will have the right to recover a charge for any reasonable estimate of loss resulting from the early repayment of a fixed credit contract. Guidance will be provided by provision of a formula lender's may use in calculating "loss".

The three-day cooling-off period following initial disclosure will be maintained.

Credit-related insurance

Repayment waivers and extended warranties will be defined as credit-related insurance for the purpose of the Bill.

Insurance policies must be disclosed to borrowers.

Transitional provisions

Contracts formed prior to the Bill coming into force will continue to be governed by the law in force at the time the contracts were formed. However, revolving credit contracts formed prior to the Bill coming into force must comply with the Bill after a transition period.

Measures raised in consultation that will not be included in the Bill

The following will not be included in the Bill: · A third-party, centralised disclosure mechanism. · A "hardship" provision allowing borrowers to seek Court-order variations to the terms of a credit contract. · Reopening provisions based on a lender's failure to assess a borrower's ability to repay or a requirement on lender's to undertake a budgeting process with prospective borrowers. · A prohibition on lender's nominating an insurer.

ENDS

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