JON DENOVAN – PARTNER, GADENS

Forgotten Raiders Of The Lost Ark

JON DENOVAN – PARTNER, GADENS

AKA Forgotten Sections of the NCCP Act

Variations documented by a new credit contract

Action Responsible lending triggered?

Variations increasing the principal irrespective of whether documented as a variation or a new credit contract Yes

Other variations documented as variations No

Other variations documented as new loans Yes

A ‘mere’ variation will not normally be considered to be a suggestion that a consumer remain in a particular contract if the changes merely give effect to the consumer’s direct request for a variation.

Insurance financing disclosure and one year limit

S144 Lenders must not provide a loan to pay insurance premiums over mortgaged

property for more than one year. They may provide credit for successive

premiums for one year or less.

S149 Lenders must notify borrowers by a

Form 16 if a credit contract is terminated during the currency of

insurance over mortgaged property financed by the loan.

Insurance – there’s more! – s 148

•  Any CCI insurance financed is terminated if the credit contract is terminated.

•  The lender must pay a proportionate rebate of the premium.

•  The provision does not apply to insurance to the extent that the insurance provides a benefit payable on the death of the borrower, if the contract is terminated by the death.

How money is paid

•  S17(3) – the persons to whom the credit will be paid and the amount but only if both the person and the amount are ascertainable.

A key requirement!!

Key requirements – disclosures – s11

•  How money is paid

•  Interest rate

•  Method of calculation of the interest rate

•  Total interest charges (for terms of 7 years or less)

•  Retained credit fees and charges, with the amount if ascertainable or a method of calculation [but not the total]

•  Whether interest rates or fees can change, and how borrowers will be notified

•  Default interest rate and how it will be applied

•  CCI information

•  For reverse mortgages, whether an occupant can be nominated

Other key requirements

•  Not impose a monetary obligation on the debtor prohibited by the Code or exceeding amounts permitted by the Code.

•  SACCs not to exceed SACC caps •  Other loans not to exceed 48% per annum (plus

$400 for MACCs) •  Exceptions for bridging loans and loans by ADIs

S179(7) NCCP Act – lending to seniors

•  If a lender provides an unsuitable loan when a reverse mortgage would have been suitable and was available from the lender or any another lender, the borrower can apply to court for an order to allow the borrower to remain in their principal place of residence or prevent or reduce the loss or damage suffered by the borrower vacating the place.

S179(7) NCCP Act – lending to seniors

Finance for goods and land

S9 Consumer hire purchases (a right or obligation to buy

goods) where the total amount payable exceeds the cash price of the goods is converted to a

secured loan.

S10 Purchaser in possession of land prior to title transfer, and total payments exceed the cash price comprises

regulated credit.

S11 Sale of goods payable by instalments, and total; payments exceed the cash price of the goods.

Prohibited securities

S50 – A mortgage cannot be created over:

•  an employee’s remuneration or employment benefits;

•  benefits under a superannuation scheme;

•  goods that are essential household property (unless the lender supplied the goods or is a linked credit provider of the supplier);

•  goods that are property used by the mortgagor in earning income by personal exertion if the goods do not have a total value greater than the relevant limit; and

•  a cheque, or bill of exchange or promissory note, endorsed or issued by the borrower or guarantor.

Linked credit provider

S204 services includes land and insurance

S129 lenders jointly liable with suppliers of goods or services

for ‘loss or damage as a result of misrepresentation, breach of contract, failure of consideration’

S127 is very wide

A linked credit provider is a lender: a)  to whom the supplier, by arrangement with the

lender, regularly refers customers;

b)  whose application forms or offers of credit are, by arrangement with the credit provider, made available to customers by the supplier; or

c)  with whom the supplier has a contract, arrangement, or understanding under which applications for credit may be signed on the premises of the supplier.

Purpose v requirements and objectives

‘Requirements and objectives’

are given equal billing

with affordability.

But what are

requirements and objectives,

and how do they differ from

purpose?

RG209’s explanation

Requirements and objectives will vary depending on the circumstances. Some examples include: •  the nature of the credit requested by the consumer, and the

consumer’s stated objectives in obtaining the credit;

•  if the consumer has more than one requirement or objective, the relative importance of each to the consumer (e.g. whether the cost of the credit or flexibility to make later changes is more important to the consumer);

•  if the credit is to purchase a specific item, the term of the credit relative to the likely useful life of the asset;

RG209’s explanation (continued)

Requirements and objectives will vary depending on the circumstances. Some examples include: •  the interest rate, fees and charges applying to the credit

contract or consumer lease;

•  the consumer’s understanding of the proposed contract;

•  for a consumer lease, whether the consumer is aware that they will not own the goods at the end of the contract;

•  the complexity of the credit contract or consumer lease, and whether a more basic product could meet the consumer’s needs;

RG209’s explanation (continued)

Requirements and objectives will vary depending on the circumstances. Some examples include: •  if other expenses, such as premiums for insurance relating to

the credit contract or consumer lease, are to be financed, whether the consumer is aware of this and accepts the additional costs of these expenses being financed;

•  whether the consumer will need to finance a large final payment under the contract; and

•  in relation to switching, the extent to which switching to the new credit contract will benefit the consumer

Two types of declined credit notice

•  If a lender refuses consumer credit wholly or partly based on a credit report received from CRB, irrespective of when a credit report is received – s21P Privacy Act.

•  If credit is refused within 90 days of receiving a credit report, irrespective of whether credit was refused wholly or partly because of information in that credit report - paragraph16.3 of the Credit Reporting Code

Section 165 comparison rates in documents other than advertisement

•  If a document other than a credit advertisement contains a comparison rate, Division 2 applies as if it was a credit advertisement.

The end