The Financial Sector Reform Bill has now passed by both houses of Parliament with changes to the National Consumer Credit Protection Act 2009 (Credit Law), and the Credit Code. The areas affected relate to small amount credit contracts (SACCs), consumer leases and the hardship provisions relating to family violence. The changes include:
- repayments on SACCs and consumer leases to be capped at 10% of a borrower’s income
- amount that can be charged for a consumer lease to be capped so that the maximum charge (including add-on fees) cannot be more than x1.92 the base price of the goods leased
- prohibitions on referrals to and unsolicited communications, offers or invitations to apply for SACCs or consumer leases
Currently all changes have now taken effect except the changes to small amount credit contracts and consumer leases which take effect on 12 June 2023.
Small amount credit contracts
SAACs are loans of up to $2,000, with repayments terms up to a maximum of 12 months. Currently, lenders providing small amount credit contracts are not subject to the APR cap of 48% that applies to medium amount credit contracts but are limited to charging a maximum establishment fee of 20% and monthly fees of 4% of the value of the loan.
Under the new changes SAACs must now have equal repayments for borrowers over the life of the loan (with limited exceptions) and lenders cannot charge the residual of any outstanding amount of monthly fee owed if the borrower repays the loan early. The usual responsible lending requirements now also apply, including that lenders must document their suitability assessments.
Importantly, referrals to and unsolicited offers or invitations to enter into or apply for SAACs are prohibited (with limited exceptions). There are other changes contemplated to the law relating to SAACs (see discussion on protected earnings below), however if you would like more information please contact us.
Consumer leases
Consumer leases for household goods are currently not classified as credit contracts and the obligations in the Credit Act that cover credit contracts do not automatically apply to them. Under the new changes consumer leases will be covered under the Credit Act with rules related to protected earnings applying.
Under the old law, which only related to SAACs, the protected earnings rule stated that if a consumer received at least 50% of their gross income from social security payments, 80% of their income was protected and couldn’t be used to repay a SACC. The new changes extends the protected earnings rule amount and will now apply to all consumers of SAACs and consumer leases.
For example, the new changes will provide a protected earnings amount of 10% of a consumer’s net income. This means that a licensee cannot enter into a contracts with consumers for SAACs or consumer leases for household goods if the total repayments would exceed 10% of the consumer’s net income.
Financial hardship
The Credit Code has been amended to ensure that family violence is now included as a reasonable ground for financial hardship in respect of all credit contracts regulated under the Credit Act.
If you need advice on the changes to the Credit Laws give us a call. We are always happy to have a no obligation confidential chat with you.
