Penalties for breach of the National Credit Code

Contributed by SigourneyDrane and current to 27 July 2018

A debtor, a guarantor, ASIC or a credit provider may apply to the court to make an order in respect of a contravention of a 'key requirement' under the NCC by a credit provider. Failure to disclose or wrongful disclosure resulting in a contravention of a key requirement may attract a civil penalty.

For the purposes of Division 1 of the NCC, a 'key requirement' in connection with a credit contract (other than a continuing credit contract) is any one of the following:

• Subsection 17(3) – disclosure as to the amount of credit;
• Subsection 17(4) – disclosure as to the annual percentage rate or rates;
• Subsection 17(5) – disclosure as to the calculation of interest charges;
• Subsection 17(6) – disclosure as to the total amount of interest charges payable;
• Paragraphs 17(8)(a) and (b) – disclosure of credit fees and charges but only in respect of retained credit fees and charges;
• Subsection 17(9) – disclosure as to changes affecting interest and credit fees and charges;
• Subsection 17(11) – disclosure as to the default rate;]
• Paragraphs 17(15)(a) and (b) – disclosure as to the name of the insurer and amount payable to the insurer where the insurance under a credit-related insurance contract is to be financed under the credit contract;
• Subsection 17(15A) – disclosure as to provisions for a person other than a debtor to occupy reverse mortgaged property;
• Subsection 23(1) – monetary liabilities on the debtor, but only at the time the credit contract is entered into;
• Subsection 32A(1) – a credit provider must not enter into a credit contract if the annual cost rate of the contract exceeds 48%;
• Subsection 32AA(2) – prohibition on annual cost rate of credit contracts;

For the purposes of Division 1 of the NCC, a 'key requirement' in connection with a continuing credit contract is any one of the following:

• Paragraph 17(3)(b) – disclosure as to the maximum amount of credit agreed to be provided, or the credit limit under the contract;
• Subsection 17(4) – disclosure as to the annual percentage rate or rates;
• Subsection 17(5) – disclosure as to the calculation of interest charges;
• Paragraphs 17(8)(a) and (b) – disclosure of credit fees and charges but only in respect of retained credit fees and charges;
• Subsection 17(9) – disclosure as to changes affecting interest and credit fees and charges;
• Subsection 17(15A) – disclosure as to provisions for a person other than a debtor to occupy reverse mortgaged property;
• Subsection 23(1) – monetary liabilities on the debtor, but only at the time the credit contract is entered into;
• Subsection 32A(1) – a credit provider must not enter into a credit contract if the annual cost rate of the contract exceeds 48%;
• Subsection 32AA(2) – prohibition on annual cost rate of credit contracts;
• Subsection 34(6) – disclosure as to interest charges in statements of account;
• Section 35 – the opening balance shown in each successive statement of account must not exceed the closing balance shown in the last statement of account.

On an application by a debtor, a guarantor, ASIC or a credit provider, the court must make an order as to whether or not the credit provider has contravened a key requirement.

If the court is of the opinion that the credit provider has contravened a key requirement, it may make an order requiring the credit provider to pay a civil penalty.

When imposing a civil penalty on a credit provider, a court must have regard to the financial standing of the credit provider, or any subsidiary of that credit provider, if the credit provider or subsidiary is a borrowing corporation and only if the credit provider requests that the court take its financial standing into consideration.

The court may also have regard to the following matters:

• the conduct of the credit provider and debtor before and after the credit contract was entered into;
• whether the contravention was deliberate or otherwise;
• the loss or other detriment (if any) suffered by the debtor as a result of the contravention;
• when the credit provider first became aware, or ought reasonably to have become aware, of the contravention;
• any systems or procedures of the credit provider to prevent or identify contraventions;
• whether the contravention could have been prevented by the credit provider;
• any action taken by the credit provider to remedy the contravention or compensate the debtor or to prevent further contraventions;
• the time taken to make the application and the nature of the application; and
• any other matter the court considers relevant.

The maximum civil penalty that can be imposed where the application is made by a debtor or a guarantor in relation to a credit contract (other than a small amount credit contract) is an amount not exceeding the amount of (see section 114 of the NCC):

all interest charges payable under the credit contract from the date it was made; or

in the case of a contravention of a key requirement relating to a statement of account of a continuing credit contract – all interest charges payable under the credit contract for the period to which the statement of account relates; or

in the case of a contravention of a key requirement relating to prohibited monetary obligations – all interest charges accruing under the credit contract from the date the contravention occurred.

The maximum civil penalty that can be imposed where the application is made by a debtor or a guarantor in relation to a small amount credit contract is an amount not exceeding the amount of (see section 114 of the NCC):

• the amount of the permitted establishment fee payable in relation to the small amount credit contract;
• the total amount of the permitted monthly fees payable in relation to the small amount credit contract based on the term of the small amount credit contract when it was made.

The court may impose a greater penalty if the debtor or guarantor is able to satisfy the court that the debtor has suffered a loss (see section 114 of the NCC).

The maximum civil penalty that can be imposed where the application is made by a credit provider or ASIC is an amount calculated so that the total penalty for all contraventions of the key requirement in Australia (as disclosed by the credit provider) does not exceed $500,000.00 (see section 116 of the NCC).

The court may, on application by a debtor or a guarantor, order that a credit provider pay to the debtor or guarantor an amount by way of compensation for loss arising from the contravention of a key requirement (see section 118 of the NCC).