Coverage of the Consumer Credit Code 1996 (WA)

Contributed by Ian Macdonald and current to 1 September 2005

CREDIT CONTRACTS

The Consumer Credit Code 1996 (WA) (“the Code”) applies to most consumer credit contracts entered into after 1 November 1996. As noted above, the Code is part of a Queensland Act of Parliament, which has been adopted by Western Australia and all other States and Territories in almost identical form. A copy of the Code can be obtained from the Queensland State Printers, whose contact details are provided at the end of this chapter.

Is there a deferred debt?

There must be an agreement between the parties that a debt due does not have to be paid immediately and a charge is made for granting time to pay the deferred debt. When the contract contemplates payment within a specified period of time, and there is a charge made if payment is late, the Code will probably not apply to the contract. The charge made is a penalty because the person did not pay within the specified period. It is not a charge made for the provision of credit, as there was no agreement that the person could defer the payment of the account. The parties intended that at the time of making of the contract the debtor would pay within the specified period.

Is the debt incurred by a natural person ordinarily resident (or a formed strata corporation) within the jurisdiction?

The debtor must have ordinarily resided in Western Australia at the time of the making of the contract for the Code to apply. When there is more than one debtor and the debtors reside in different states, the Code will apply if the credit is first provided in Western Australia.

When the debtor is not ordinarily resident in Western Australia, the Code will apply if they resided in Western Australia at the time of entering the contract.

Is the credit provided wholly or predominantly for personal, household or domestic purposes?

The credit is provided predominantly for personal, household or domestic purposes when more than half of the intended use of the credit provided is used for those purposes. Investment is not a personal, household or domestic purpose and is specifically excluded in the Code.

It is the intended use of the credit at the time of entering the contract and not the subsequent use of the credit that determines whether the provision of credit is regulated. A continuing credit contract that is initially for business purposes will not be regulated by the Code if the credit is subsequently used predominantly for personal, household or domestic purposes. Similarly, credit that is used to purchase an investment property will not be regulated by the Code if the debtor subsequently resides in the property.

Does the credit provider provide the credit in the course of, or incidentally to, any business of providing credit?

The credit provider does not have to be in the business of providing credit as long as they provide credit in the course of any business run by them. The definition “in the course of a business” is critical in determining whether the Code applies to the credit contract. The Code does not provide any guidance as to what is “in the course of a business”. The credit provider’s individual circumstances are of paramount importance when determining the existence of a business. What constitutes the business of lending has been discussed in a number of judicial decisions. A list of the relevant factors extrapolated from these decisions includes: whether the lending is promoted as a business; the interest rate charged; the number of borrowers; whether the business is operating out of specific premises; whether the business is actively seeking borrowers; the presence of competition; and the profit motive.

It is unlikely that the Code will apply to average retirees investing their superannuation in a number of mortgage loans as this has the characteristic of private investment rather than the carrying on of a business of investing. The Code will not apply to one-off loans between family members.

It is advisable to obtain detailed legal advice if it is unclear that the credit provider is carrying on the business of providing credit. Borrowers should be careful when entering credit contracts if the lenders are not providing credit in the course of, or incidentally to, any business of providing credit; their contract will not be regulated by the Code and the legislation that is designed to protect borrowers will not apply to them.

Is the credit an excluded class of credit?

The Code provides a list of credit contracts that, while satisfying the above criteria, are specifically excluded from the Code:

• the amount of credit is less than $200 and there is no mortgage, guarantee or insurance contract connected with the contract;
• the credit provided is for a period of less than 62 days, the maximum amount of fees and charges that may be imposed does not exceed 5% of credit, and the maximum amount of interest does not exceed an annual percentage rate of 24% per annum;
• the credit is provided under a continuing credit contract and the only charge that is made is a fixed charge or periodic charge that does not exceed the maximum amount allowed by the Code, and the charge does not vary according to the amount of credit provided. Regulations made under the Code provide that the maximum charge that may be made is $200 for the first twelve months, and $125 for any subsequent period of twelve months. If these figures are exceeded, the Code regulates the contract;
• the credit is provided without prior arrangement between the financial institution and the borrower;
• where credit is provided pursuant to a joint credit or debt facility, only the credit facility will be regulated by the Code;
• the Code will not apply to bill facilities. These facilities are most commonly used in commercial transactions but can be used in consumer transactions, most commonly for bridging finance (a Bill of Exchange is a special type of a promise to pay);
• the Code will not apply to insurance premiums paid by instalments when the total sum of the instalments is greater than the total payable in a lump sum if, on cancellation of the policy, the insured has no further liability for further payments under the contract;
• the Code will not generally apply to credit provided by trustees of estates and pawnbrokers, except that the unconscionable interest charges and unjust provisions of the Code will still apply;
• the Code does not apply to credit provided by an employer to an employee or former employee. Where the employer provides credit in the course of a business of providing credit and the credit provided to the employee is not more favourable than the credit provided to borrowers who are not employees or former employees of the credit provider, the Code will apply.

LEASES

A contract for the hire of goods by person for a specified time at a specified rental is treated by the Code as a consumer lease. Consumer leases will be regulated by the Code, where:

• the lessee is ordinarily resident in the WA;
• the goods are predominantly for household or domestic purposes;
• the lessor hires the goods in the course of a business or incidentally to any other business of the credit provider; and
• a charge is made for the hiring of the goods, and that charge, together with any amount payable under the consumer lease, exceeds the cash price of the goods.

Consumer leases to which the Code does not apply include:

• leases of less than four months;
• where the goods can be hired for an indefinite period;
• where the goods are hired by an employee in connection with that employee’s remuneration or other employment benefits.

Note that there are different legislative requirements for consumer leases than for other credit under the Code.