Coverage of the National Credit Code

Contributed by SigourneyDrane and current to 27 July 2018

Generally

ASIC is the national regulator for consumer credit and consumer leases under the national credit legislation which includes:

• the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act );
• the National Credit Code (NCC ), which is Schedule 1 to the National Credit Act; and
• the National Consumer Credit Protection Regulations 2010 (Cth) ( Regulations ).

Prior to 1 July 2010, the Uniform Consumer Credit Code (UCCC) regulated credit and consumer issues, with each State and Territory implementing additional requirements in relation to issues which were not covered by the UCCC.

The National Credit Act and NCC establish a uniform set of consumer credit laws which apply to all State and Territories and implement:

• a comprehensive licensing regime for providers of consumer credit;
• responsible lending conduct requirements for licensees;
• expanded avenues for recourse through universal external dispute resolution membership for licensees, efficient court arrangements and remedies for consumers for licensee misconduct; and
• improved sanctions and enforcement powers for ASIC.

Application of NCC

The NCC is applicable to all credit contracts which commenced on or after 1 July 2010 under the following circumstances (see section 5(1) of the NCC):

• the debtor is a natural person or strata corporation;
• the credit is (or intended to be) provided wholly or predominantly:
  • for personal, domestic or household purposes (including buying residential property);
  • to purchase, renovate or improve residential property for investment purposes; or
  • to refinance credit previously provided for these purposes;
• a charge is made for providing the credit; and
• the lender is involved in the business of providing credit or as a party of, or incidental to, any other business of the credit provider.

Examples of credit contracts covered by the NCC are car loans, personal loans, home loans, consumer leases, credit cards and investment property loans.

Examples of credit contracts not covered by the NCC are business loans, charge cards, insurance premiums paid by instalments, investment loans for shares and business leases.

By the National Consumer Credit Protection (Transitional and Consequential Amendments) Act 2009 (Cth), the NCC is also applicable to credit contracts known as "carried over instruments" entered into between 1 November 1996 and 30 June 2010.

Natural person or strata corporation

(i) The debtor must be a human, not a corporation or trust.
(ii) Alternatively, the debtor may be a strata corporation.

Purpose of the loan

The NCC applies to loans (also referred to as "credit contracts") for wholly or predominantly personal, domestic or household purposes, including investment in residential property.

The NCC does not apply if the credit is provided wholly or predominantly for business purposes or for investment (other than residential property investment). If more than half of the credit will be used for business purposes the then the NCC does not apply to the loan (see section 5(4) of the NCC).

In legal proceedings where the borrower claims that the NCC applies to a credit contract, the credit provider has the onus of establishing that the NCC does not apply (see section 13 of the NCC).

Business purpose declarations

A borrower may sign a business purpose declaration prior to entering into the credit contract if the credit will not be used for personal, domestic or household purposes or for a residential investment property (see section 13(2) of the NCC).

The business purpose declaration must be substantially in the form prescribed by the Regulations and must contain a declaration that the protections under the NCC may be lost as a result of signing the business purpose declaration.

A business purpose declaration will be held to be ineffective if the credit provider knew that the borrower did in fact intend to use the credit for personal, domestic or household purposes (see section 13 of the NCC).

If a borrower signs a business purpose declaration and it is later established that the credit was not for business purposes then the credit provider may have committed an offence.

Charge for providing credit

(i) The NCC applies only if a charge is or may be made for providing the credit.
(ii) Any charge is sufficient and is not limited to interest charges only.

Credit provider is providing credit in the course of business

The NCC only applies if the credit provider provides credit to the borrower in the course of a business of providing credit or as part of, or incidental to, any other business.

Short term loans and payday loans

The National Credit Act and the NCC provide additional protections for borrowers in relation to short term credit contracts and small amount credit contracts (also known as pay day loans).

A short term credit contract for the purposes of the National Credit Act and the NCC is as follows (see section 5(1) of the National Credit Act):

• the credit is part of a continuing contract;
• the credit provider is not an bank, building society of credit union, that is an Authorised Deposit Taking Institution (ADI );
• the amount of the credit is $2000.00 or less (or any other amount set under the Regulations);
• the term of the contract is 15 days or less; and
• the contract meets any other requirements prescribed by the Regulations.

Credit providers who hold an Australian credit licence (with the exception of an ADI) are prohibited from offering short term credit contracts.
A small amount credit contract for the purposes of the National Credit Act and NCC is as follows (see section 5(1) of the National Credit Act):

• the credit is not continuing;
• the credit provider is not an ADI;
• the amount of the credit is $2000.00 of less (or any other amount set under the Regulations);
• the term of the contract is between 16 days and one year;
• the loan is not or will not be secured; and
• the contract meets any other requirements prescribed by the Regulations.

Reverse mortgages

Reverse mortgages are regulated under the National Credit Act and the NCC.

A reverse mortgage for the purposes of the National Credit Act and the NCC involves a credit contract where the borrower's total liability under the credit contract exceeds the maximum amount of credit that may be provided under the credit contract with no requirement to reduce the amount owing (see section 13A of the NCC). There may be other conditions prescribed by the Regulations.

A reverse mortgage enables a borrower to borrow against the equity in their property, secured by way of a mortgage. There is generally no requirement to repay the debt until the property is sold because the borrower has died or moved into other living arrangements.

Credit providers must comply with the requirements set out in Chapter 3 of the National Credit Act, including assessing whether the reverse mortgage is suitable for the borrower's needs and providing the borrower with certain information (see sections 133DB and 133DC of the National Credit Act).

What kinds of credit contracts are excluded?

The NCC does not apply to the following types of credit contracts (see section 6 of the NCC):

Short term credit

A credit contract that limits the period for which credit will be provided to 62 days or less unless the fees and charges exceed 5% of the amount of the loan or if the interest rate exceeds 24% per annum. The NCC includes anti-avoidance provisions to ensure the definition of "fees and charges" for the purposes of the exemption covers:

• a fee or charge payable by the debtor to any person for an introduction to the credit provider;
• a fee or charge payable by the debtor to any person for any service if the person has been introduced to the debtor by the credit provider; and
• a fee or charge payable by the debtor to the credit provider for any service related to the provision of credit, other than a service mentioned above.

These provisions were included to ensure that payday lenders are unable to avail themselves of the exemption.

Credit without prior arrangement

Credit provided without prior agreement between the credit provider and the debtor.
Credit contracts where only an account charge is payable: continuing credit contracts are excluded if the only charge is periodic or a fixed charge that does not vary according to the amount of credit provided and is $200.00 or less for the first 12 months and $125.00 or less for subsequent 12 month period (see r.51of the Regulations).

Joint credit and debit facilities

A consumer has funds to their credit in an account and receives interest on that amount whilst the facility also allows the consumer to draw down on the balance to an agreed credit limit below zero at which point the consumer will pay interest. These products are regulated but only in respect of the aspect of the arrangement that represents the credit facility (see section 6(6) of the NCC). A consumer could therefore not rely on the NCC to dispute the validity of a new fee which was imposed only when the consumer had funds in the account.

Bills of exchange and promissory notes: bills of exchange and promissory notes are regulated under the NCC except where bill facilities are provided by an ADI or where otherwise exempted under the Regulations (see section 6(7) of the NCC).

Insurance premiums payable by instalments

Annual insurance premiums paid by way of monthly instalments are not regulated by the NCC.

Pawnbrokers

The NCC does not apply to credit provided by a pawnbroker in the ordinary course of a pawnbroker's business provided that:

• the pawnbroker is lawfully conducting business; and
• the pawnbroker's only recourse is against the goods provided as security when the debtor is in default.

Note that certain pawnbroking transactions are subject to the unjust transaction provisions of sections 76 to 81 of the NCC.

Trustees of estates

The NCC does not apply where credit is provided by a trustee of the estate of a deceased person to a beneficiary. Note that certain arrangements are subject to the unjust transactions provisions of sections 76 to 81 of the NCC.

Employee loans

Are partially excepted from the from the operation of the NCC where credit is provided by an employer or a related corporation of an employer to an employee or former employee if:

• credit is provided on the condition that the debtor is an employee or a former employee of the employer or the related corporation; or
• where the employer or related corporation provides the credit in the course of a business of providing credit, the credit is provided on more favourable terms to the debtor than the credit provider would grant to other debtors who are not employees or former employees.

Margin loans

The NCC does not apply to margin loans within the meaning of section 761EA(1) of the Corporations Act 2001 (Cth).

Exclusions in the Regulations

See Regulations 51 to 63 for a number of further exemptions relating to various government schemes, the provision of credit by particular credit providers and other limited circumstances.