The credit contract

Contributed by Elizabeth Samra, Consumer Law Centre of the ACT and current to May 2018

The credit contract itself must be in writing, signed by the credit provider and either signed by the debtor or shown to be accepted through some special conduct such as accessing or drawing down credit (s 14 NCC). The contract document must contain the matters set out at s 17 of the NCC, which have been detailed above.

Interest

From 1 July 2013 a credit provider must not enter into a credit contract if the annual cost rate of the contract exceeds 48% (s 32A(1) NCC). This includes the amount of interest, fees and charges payable under the contract. Different calculations apply to SACCs and medium amount credit contracts (“MACCs”). The cap does not apply to loans offered by Authorised Deposit-taking Institutions (“ADIs”) such as banks, building societies and credit unions, or to continuing credit contracts such as credit cards.

A credit contract which imposes a higher rate of interest is void to the extent it does so and the borrower can recover any money paid above the maximum rate.

In the Australian Capital Territory, a maximum interest rate cap of 48% per annum for a credit contract to which the NCC applies exists by virtue of s 63 of the Fair Trading (Australian Consumer Law) Act 1992 (ACT) and regulation 3 of the Fair Trading Regulation 2009 (ACT) (“Relevant Provisions”). All interest charges, and all credit fees and charges, under the credit contract are included in working out the maximum annual percentage rate under the contract. The Relevant Provisions have not been repealed and have not been declared displacement provisions for the purposes of s 25 of the NCCP. The Relevant Provisions apply to credit contracts entered into in the ACT prior to the 1 July 2013. For credit contracts entered into in the ACT after 1 July 2013, the credit law generally applies.

Special provisions for small and medium amount credit contracts

From 1 July 2013 s 31A of the NCC has limited the amount of interest, fees and charges that may be imposed on SACCs to:

• A permitted establishment fee (of not more than 20% of the loan amount received);
• A monthly fee (of not more than 4% of the loan amount received);
• A government fee or charge payable in relation to the contract;
• Default fees or charges. A credit provider can also charge enforcement expenses (if the consumer fails to pay back the loan, the costs incurred by the credit provider going to court to recover the money owed under the credit contract).

A credit provider cannot collect more than 200% of the amount loaned for a SACC. Further, s 31A(1A) of the NCC bans establishment fees under SACCs which have been obtained for the purpose of refinancing another SACC.

The 48% annual cost cap applies to MACCs plus a maximum establishment fee of $400 (ss 32A and 32B NCC). MACCs are loans between $2,001 and $5,000 for a term of 16 days to 2 years and the obligations can be secured (s204(1) NCC).

Fees and charges

Other costs, such as establishment charges, early termination fees and transaction charges are all permitted under the credit law, provided they are adequately disclosed to the consumer pre-contract formation. The NCCP Act does not generally place limits on the fees or charges a credit provider can levy on a consumer; provided the cost cap is not breached. That said, since 1 July 2011 credit providers are prohibited from charging consumers early termination fees in relation to secured home loans (reg 79A NCCP Regs). Not all exit fees are prohibited (reg 79A(2) NCCP Regs).

Where a fee or charge is permitted, it still may be found to be unconscionable. Section 78 of the NCC deals with unconscionable interest and other charges in the following contexts:

• a change in the annual percentage rate;
• an establishment fee or charge;
• a fee or charge payable on early termination of a loan contract; or
• a fee or charge for the prepayment of an amount under the credit contract.

A consumer can seek to have interest, fees or other charges annulled or reduced on grounds of unconscionability (s 78(1) NCC).