Protections and rights available to consumers of credit contracts

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

Early termination

Where no credit has been obtained or where the credit facility (e.g. credit card) has not been used, consumers have the right to terminate a credit contract (s 21 NCC).

Statement of account

A credit provider must give the debtor periodic statements of account (s 33 NCC). The statement is designed to advise a debtor on the progress of their account and of any changes in the terms and conditions, including changes in the interest rate.

A debtor who disputes the detail in a statement may give a written notice to the credit provider. The credit provider must, within specified times, explain in reasonable detail how the liability arose. The credit provider must not begin legal action to enforce the disputed debt until at least 30 days have elapsed from the time the reasonable explanation was given.

Similar provisions apply to consumer leases (s 175G NCC).

Financial hardship

Financial hardship is difficulty paying loans and debts when they become due. It is a key consumer right under the credit law. Hardship may arise due to a change in the circumstances of the debtor (e.g. illness, unemployment, separation, any other reasonable cause) or perhaps because the debtor could not afford the repayments in the first place (see Responsible Lending).

There must be an expectation that the debtor will be able to return to making normal repayments, or meet the loan obligations, if the hardship variation were granted. Examples of hardship variations include, but are not limited to:

• Extensions of the term of the contract and reduction in payments;
• Postponement of payments for a specified period;
• Permanent payment arrangement until the debt is repaid.

The hardship options available to debtors will depend on a number of factors such as the time the loan was entered into, the relevant hardship threshold prescribed by law, whether the credit law applies and whether the credit provider is a member of external dispute resolution.

For those contracts not governed by the credit law, consumers can still negotiate with the credit provider, relying on any relevant codes of practice. A dispute can also be raised at external dispute resolution if the credit provider is a member of a scheme. External dispute resolution can seek to facilitate a resolution between the parties but not make a final decision about an appropriate repayment arrangement.

Credit law hardship procedure

Under s 72 of the NCC, if a debtor considers that they will be unable to meet their obligations under a credit contract or consumer lease, the debtor may give the credit provider a hardship notice, orally or in writing. Within 21 days of receiving a hardship notice, the credit provider may seek specified information and the debtor must provide that information within 21 days of the request. The credit provider must respond to the debtor’s hardship request within 21 – 28 days (see s 72(5) NCC).

Credit providers do not have to agree to hardship requests, particularly in circumstances where the debtor is unable to demonstrate a reasonable cause or reasonably repay the loan (see s 72(3) NCC). A credit provider must give the consumer (no later than 30 days after agreeing to vary the credit contract on hardship grounds) a written notice, setting out particulars of the change and any information required by the NCCP Regs (s 73 NCC). Guarantors must also receive notice from the credit provider of any hardship variation that has been made to the credit contract (s 73 NCC).

If a credit provider does not agree to the hardship request, it must provide reasons for the decision, the name and contact details of the AFCA scheme and the debtor’s rights under that scheme (s 72(4) NCC). Consumers can make a complaint to external dispute resolution if they are not satisfied with the hardship decision. The refusal can also be reviewed by a court and the court has the power, among other things, to stay any enforcement proceedings (s 74 NCC).

A credit provider that rejects a hardship application will not be allowed to take enforcement action within 14 days from the day the credit provider has given its notice of rejection (s 89A NCC)). However, this does not apply if a hardship notice has been made in the preceding 4 months (s 89A NCC).

Hardship thresholds apply to contracts entered into before 1 March 2013. These thresholds do not generally affect a consumer’s ability to seek a hardship variation directly with a credit provider or external dispute resolution (the way in which the value of the variation is calculated at external dispute resolution means most will be below their compensation caps), but will determine whether a consumer can get redress through the courts. A historical list of threshold amounts can be found at www.moneysmart.gov.au.

Equivalent provisions for consumer leases are at ss 177B – 177E of the NCC.

Financial counsellors are the best place to start if assistance is required with requests for hardship variations or negotiations in relation to financial hardship.

Unjust contracts

A definition of the term “unjust” is provided in s 204(1) of the NCC, which states that “unjust includes unconscionable, harsh or oppressive”. Section 76 of the NCC deals with unjust contracts and these provisions apply to credit cards, guarantees and mortgages. Contracts found to be unjust can be reopened and varied (s 76(1) NCC).

Section 76(2) of the NCC lists a number of factors used in determining whether a credit contract, mortgage or guarantee is unjust. These include but are not limited to:

• The consequence of compliance or non-compliance with all, or any provision of the contract, mortgage or guarantee;
• The relative bargaining power of the parties;
• Whether the contract was subject to negotiation;
• Whether the debtor, mortgagor or guarantor was able to reject or renegotiate any of the contract provisions;
• Whether the debtor, mortgagor or guarantor could reasonably protect their own interests because of their age, physical or mental condition;
• Whether the debtor, mortgagor or guarantor received independent legal advice or other expert advice;
• Whether the contract and consequences were explained to the debtor, mortgagor or guarantor;
• Whether unfair tactics, pressure or undue influence were applied;
• Whether at the time of the contract, the credit provider knew, or could have ascertained by reasonable inquiry, that the debtor could not repay the loan, or not without substantial hardship;
• Whether the interest and fees are excessive in comparison with similar products.

A court has a discretionary power to make any one or more orders in finding a contract, mortgage or guarantee is unjust, including relief from excessive payments, setting aside or altering an agreement, ordering in favour of an amount the court thinks is justly due under the contract and reopening an account already taken between the parties to the transaction (s 77 NCC).

An application under s 76 must be made within two years of the relevant credit contract being rescinded, discharged or otherwise brought to an end (s 80 NCC). Unjustness can also be raised at EDR.

The NCC provides similar measures to lessees in relation to unjust consumer leases (s 177F NCC).

Credit cards

There are a number of new measures relating to the regulation of credit cards. These are set out below:

• Prohibitions on making unsolicited credit limit offers in any form of communication and removing the consent exception. These amendments apply in relation to both new and existing credit card contracts from 1 July 2018;
• From 1 July 2019 credit card providers will be prohibited from imposing interest charges retrospectively to a credit card balance, or part of a balance, that has had the benefit of an interest-free period. These amendments apply in relation to both new and existing credit card contracts;
• Consumers will be able to request to reduce the limit of their credit card or terminate a credit card contract. These amendments apply to credit card contracts entered into before, on or after 1 January 2019.

Over-the-limit fees on credit cards are banned (from 1 July 2012), unless the fees are requested by the consumer (s 133BI NCCP Act).