Know your obligations under the National Credit Code
When you are in the business of providing credit to a consumer, you are likely aware of the various pieces of legislation with which your business will need to comply during the transaction. Just as importantly, you should also be aware of the consumer protections contained within a wide range of legislative and regulatory instruments.
One such regulatory document which credit providers should be familiar with is the National Credit Code (NCC). The NCC is an Australia-wide regime of Consumer Protection contained within the National Consumer Credit Protection Act 2009, setting out specific protections for consumers when they enter in to consumer credit contracts.
It is extremely important for you as a credit provider to know whether the NCC applies to a credit contract you have or are intending to provide, and to consequently understand your obligations as a credit provider. It is often difficult for businesses looking to provide credit to determine which, if any, of these requirements, their contract documents must comply with.
When does the NCC apply?
The NCC applies to credit contracts, that is, a contract under which credit is or may be provided. Credit is provided where a person incurs a debt, which is deferred to be paid at a later date. The NCC also sets out specific situations to which the code does and does not apply.
The NCC will apply to contracts where:
- The lender provides the credit in the course of a business of providing credit (for example a bank loan);
- A charge is made, or may be made, for providing the credit;
- The debtor is a natural person; and
- The credit is provided, or intended to be provided, either wholly or predominantly:
- for personal, domestic or household purposes;
- to purchase, renovate or improve residential property for investment purposes (subject to limitations); or
- to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes
The NCC will not apply to a wide range of contracts, including:
- Short term credit contracts where the term is no more than 62 days, the maximum amount of credit fees and charges is not more than 5% of credit amount, and the maximum amount of interest charges does not exceed 24% per annum;
- Credit contracts entered into without express prior agreement; and
- Credit contracts where only account charges are payable.
Thus the NCC provides protection for individuals in a range of consumer credit transactions obtained for personal use. It does not apply to individuals or companies seeking credit for business purposes.
Key Features of the NCC
Under Section 13 of the NCC, there is a rebuttable presumption that the Code will apply to a credit contract. This presumption applies unless the debtor makes a Business Purposes Declaration prior to entering into the contract. If entering into a contract it is important that you carefully consider, and seek legal advice if necessary, on the debtor’s purpose in entering into the contract.
Where the NCC applies to a credit contract, there are a wide range of disclosure requirements with which the credit provider must comply.
Prior to entering into the contract the credit provider must give the consumer a pre-contractual statement and information statement. The pre-contractual statement must provide the debtors with information relating to the provision of the credit including, the credit provider name, the amount of credit, repayment terms, percentage rate, and fees and charges. The information statement sets out the debtor’s statutory rights and obligations under the contract. The detailed information provided can be used by potential debtors to understand the terms and risks of the contract prior to being bound by the contract.
When entering into the contract the credit provider must provide a contract to the debtor. During the term of the contract, the credit provider is required to provide the debtor with periodical statements of account. The credit provider is also entitled to make various unilateral changes to the contract, and must notify the Debtor of the changes in accordance with the NCC.
Where a credit provider fails to comply with these obligations they may face criminal or civil penalties.
The Courts have a discretionary power to reopen unjust contracts under the NCC; unjust contracts include contracts which are unconscionable, harsh or oppressive. The Court must consider a wide range of factors when determining whether a transaction is unjust. Where the Court finds that a transaction is unjust they may make a wide range of order including setting aside or altering part or a whole agreement.
Under the NCC, a debtor who is not able to comply with the requirement of the contract may give the credit provider a hardship notice to seek a variation of the terms of the Contract. Once this occurs, a process commences in which the credit provider is obligated to consider varying the terms of the Contract. If you have been given a hardship notice it is important that you carefully consider all of the relevant factors and be aware of your rights and obligations relating to these notices.
A debtor may make early prepayment of the contract and may pay out the contract at any time under the NCC. This is subject to the credit providers’ payout figure, which may include interest and early termination charges.
Drafting agreements that comply with the National Credit Code is a process that takes a great deal of care and consideration to ensure that they are drafted in compliance with the law. Should you provide credit to which these provisions apply then, please contact one of the Solicitors at Streten Masons Lawyers on 07 3667 8966 to discuss your requirements.
Charlotte Streten – Law Graduate