The Credit Act 1984 applies to loan contracts, credit sale contracts, and continuing credit contracts where:

• the contract was entered into, on or after 28 February 1985 and prior to 1 November 1996; and
• the amount borrowed in relation to loan contracts must not exceed $20,000  (note: a loan contract in excess of $20,000 may be regulated if part of the amount borrowed is to repay an existing contract); and
• under a credit sale contract the cash price of the goods or services must be $20,000, or less; (exception - loan contracts and credit sale contracts for farm machinery and commercial vehicles may be regulated even though the amount borrowed is in excess of $20,000); and
• under a continuing credit contract the borrower may not, otherwise than by reason of default, owe more than $20,000, excluding any credit charge; and
• from 16 July 1993 the interest rate must be in excess of 8%. (Previously 14%); and
• the loan is not to be for business purposes.

Top of page

The Consumer Credit (New South Wales) Act 1995 commenced on 1 November 1996.
The act applies the Consumer Credit Code, which is uniform in all states and territories with minor differences in Western Australia.

The Code regulates all credit which is to be used predominantly for personal, domestic or household use. If a person intends to use part of the credit for business purposes, the Code still applies if the business use accounts for less than half of the credit. The debtor is a natural person or strata corporation.

The Code regulates all credit providers, including banks, building societies, credit unions, finance companies and payday lenders as well as stores, solicitors, accountants and individuals who provide credit and charge interest for the use of that credit.

There are a small number of exemptions to the Code. These are:

• credit which is for a period of two months or less, where fees and charges do not exceed 5% of the amount of credit and the interest charge does not exceed 24% p.a.
• unauthorised overdrafts
• continuing credit products for which there is no interest payable but where account charges may be payable
• any debit facility attached to a credit product
• insurance premiums by instalments
• pawnbrokers, except for unjust contracts
• trustees of estates, except for unjust contracts
• certain sections of the Code do not apply to employee loans where favourable terms apply.

Apart from the above exceptions, all consumer credit products, including housing loans, and all mortgages and guarantees which secure obligations under products to which the code applies are covered by the Code. 

There is no monetary limit except for hardship applications and applications for the postponement of exercise of rights where the limit is 110% of the average loan amount for new dwellings, as prescribed by the Australian Bureau of Statistics. This figure is released monthly by the ABS. To view the current figure look under the ‘What’s New’ section at www.creditcode.gov.au. Goods leases (for example cars or computers) for predominantly personal use also have limited protections under Part 10 of the Code. Goods leases with an option to purchase are regarded as credit contracts and the Code applies accordingly.

Top of page

The legislation aims to ensure that debtors are given sufficient information to make appropriate choices of credit products, and to be informed throughout the term of the contract of any changes to their obligations, and of the intended actions of the credit provider in relation to their loan.

There are very specific requirements in section 15 as to what information is to be disclosed to a prospective debtor before a contract is entered into with special focus on key financial information. These include:

• the amount of credit that is to be provided
• the annual percentage rate or rates
• how interest is calculated and debited
• total amount of interest, if the contract is to be paid out within 7 years
• the credit fees and charges that are, or may become, payable under the contract
• how the debtor is to be informed of changes
• the frequency of statements of account
• if a commission is to be charged, the amount and to whom it is payable
• information as to whether a mortgage or guarantee is to be taken, and details of credit related insurance.

Part 3 of the Code also requires specific information to be given to prospective guarantors before they enter into the guarantee so that their responsibilities are understood in the event that debtors are unable to meet their commitments under the contract. The formation of contracts or guarantees must follow the sequences set out in the Code, and debtors and guarantors must receive copies of their contracts. Specific information is to be given in regular statements.

Part 4 of the Code sets out the methods by which credit providers must notify debtors of changes to a contract, and the notice period which is to be given if the debtors obligations are increased. The Code also details those contractual terms which cannot be changed.

If the debtor experiences temporary hardship and is unable to meet repayment obligations, and the credit provider is unwilling to negotiate changes to the contract, section 68 of the Code gives power to a Court to order changes to be made. This will apply only if the amount of credit under the contract is not more than 110% of the average loan amount for new dwellings, as prescribed by the Australian Bureau of Statistics. This figure is released monthly by the ABS. To view the current figure look under the ‘What’s New’ section at www.creditcode.gov.au.

A Court can also order changes to be made to a contract if the contract is considered to be unjust. Section 70 of the Code sets out a number of circumstances which the Court may consider in deciding whether or not the contract is unjust. These generally relate to abuses of the power relationship between the credit provider and the debtor.

Part 5 contains procedures to be followed in ending and enforcement of credit contracts, mortgages and guarantees. These consist of notice provisions which give details of obligations and rights of the parties, and what may be done to remedy a default.  Should there be a surrender of property, the Code specifies a sequence to be followed, and the information which is to be given to the debtor, mortgagor and guarantor. The Code details restrictions in relation to repossessions. The debtor has a right under the Code to negotiate a postponement of enforcement of proceedings where the amount of credit under the contract is less than the prescribed amount.

If there is a business link between a credit provider and a supplier of goods and services, section 119 of the Code gives a debtor rights to claim damages from the credit provider if the supplier cannot satisfy the claim. For example, this may happen if the supplier goes out of business without supplying the goods and services that have been prepaid. The Code essentially applies the Trade Practices Act in relation to these issues.

Top of page

The legislation does not regulate pricing so that credit providers are free to pass on the cost of a product in fees and charges, and in the movement of interest rates so long as the contract terms permit it. However, there are powers in section 29 of the code to prohibit certain fees and charges by regulation. In addition, under section 30, credit providers may not require the debtor to pay more than the cost to the credit provider of a third party fee or charge. Unconscionable variations in interest rates and unconscionable establishment fees or termination fees can be annulled or reduced by the Court under section 72. Section 135 requires that commission on consumer credit insurance must not be more than 20% of the premium.

Top of page

Compliance with essential disclosure requirements of the legislation is obtained by the imposition of civil penalties as set out in Part 6. A maximum penalty of $500,000 can be ordered for a breach of one of the key disclosure requirements of the Code. This figure applies nationally, so that a credit provider with a single breach in its contracts in all jurisdictions might have the maximum penalty imposed, but each jurisdiction would be entitled to a proportion of that penalty relating to the number of affected contracts in that jurisdiction. The penalty will be applied by this method if either the credit provider, or the government consumer agency applies to the court for an order. However, if a debtor applies in relation to a breach and is successful, the debtor may be relieved of the requirement to pay all or part of the interest charges under the affected contract. The Court may order compensation to be paid to the debtor for any loss resulting from the breach. For contraventions of the Code other than a breach of the key requirements, the Court may order restitution or compensation to be paid to any affected person.

In addition, there are criminal penalties for certain breaches throughout the Code.

Top of page