Rights of consumers unde the Code

Contributed by Ian Macdonald and current to 1 September 2005

This section is a brief summary of the main provisions of the legislation. It is not possible in the space available to fully discuss all aspects of the Code. The legislation itself should be referred to.

OBTAINING INFORMATION

Obtaining documents

The Code requires the credit provider to give the debtor, mortgagor or guarantor copies of contract documents at the time of signing. However, copies of contracts and other documents can be requested from the credit provider at any time.

Section 163 of the Code gives debtors, mortgagors and guarantors the right to obtain the following documents by written request:

• copy of the credit contract, mortgage or guarantee;
• any credit-related insurance contract in the credit provider’s possession;
• a notice (such as a default notice) previously given to the debtor, mortgagor or guarantor under the Code.

The copy must be provided within the following time limits:

• 14 days – if the original came into existence 1 year or less before the request is made; or
• 30 days – if the original came into existence more than 1 year before the request is made.

In relation to notices, the credit provider is only obliged to provide a copy of a notice under a contract that has been discharged or terminated if the request is made within 2 years of the discharge or termination.

Obtaining account information

PERIODIC STATEMENTS

The credit provider must give the debtor periodic statements of account. These statements must be provided whether or not they are requested by the debtor (s.31). The frequency of statements depends on the type of contract:

• Credit Card Statements of Account – at least every 40 days;
• Other (non-card) Continuing Credit Contracts – at least every 40 days, except where the debtor or credit provider have agreed on a longer period; Where a longer period is agreed, that period cannot exceed 3 months;
• Any Other Credit Contract – at least every 6 months.

The Code provides an extensive list of information that must be included in a periodic statement of account (s.32). There are a number of circumstances in which a statement of account does not need to be given periodically (s.31(3)).

Information to be provided at the request of the debtor

Account information can be requested under section 34 of the Code. This information can include any or all of the following:

• the current balance of the debtor’s account;
• any amounts credited or debited during a period specified in the request;
• any amounts overdue and when each amount became due; and any amount payable and the date it became due.

The information can be requested and given orally, but if the request is in writing, then the information must be given in writing.

TIME LIMITS

Account information requested by the debtor must be given within the following time limits:

• within 14 days – if all information requested relates to a period of 1 year or less before the request is given; or
• within 30 days – if any information requested relates to a period more than one year before the request is given (s.34(2)).

The credit provider is not required to provide a further written statement if the person requesting the statement has already received a statement within 3 months before the request (s.34(4)).

A credit provider is not required to provide information in a statement about amounts credited and debited, or which were overdue and payable, more than 7 years before the request is given, unless those amounts are currently overdue and payable. This rule applies unless the State Administrative Tribunal (“the SAT”) orders otherwise.

COURT APPLICATION WHERE ACCOUNT STATEMENT NOT PROVIDED

If a statement is requested but not provided within the time required by the Code, a Court or the SAT may, on the application of the debtor or guarantor, order the credit provider to provide the statement, or itself determine the amounts in relation to which the statement was sought.

Disputing account information

A debtor who disagrees with a particular liability entered against the debtor under a credit contract can write to the credit provider to dispute the liability. The credit provider must give the debtor a written notice explaining in “reasonable detail” how the liability arises (s.36).

Where a continuing credit contract is concerned, if the disputed entry appears in a statement of account in which a date for payment of the amount of the account or part of that amount is shown, the notice of dispute must be given to the credit provider on or before that date.

In cases involving contracts other than continuing credit contracts, the notice of dispute must be given to the credit provider within 30 days of receiving the statement of account in which the amount, or part of that amount, was first shown.

A debtor or credit provider may apply to the Court or the SAT for a determination in respect of the matters in dispute (s.36(5) and (6)).

The process under section 36 cannot be used if the notice of dispute is given outside of the time limits. However, the debtor is not prevented from disputing the account in some other way, for example in using a court process to defend an action brought by the credit provider.

Where the credit provider agrees with the debtor as to the disputed amount, the credit provider can simply give the debtor a written notice advising of the agreed liability.

Statement of the pay out figure

A debtor or guarantor can make a written request to a credit provider for a statement of the pay out figure on a credit contract under section 76 of the Code. The credit provider must provide the written statement of the amount required to pay out a credit contract at a date specified by a debtor or guarantor. If the debtor or guarantor requests details of the items which make up the pay out figure (for example, the amount of credit, interest, enforcement expenses) the credit provider must also provide that information. The statement must be given within 7 days after the request is given to the credit provider.

This provision does not apply to continuing credit contracts.

The SAT can make a determination of the pay out figure on the application of the debtor or guarantor if the credit provider does not provide the information.

MISLEADING STATEMENTS ABOUT CREDIT

Section 144 of the Code makes it an offence for any person to make false or misleading representations:

• relating to anything material to entering into a credit contract or related transaction; or
• that are made to induce a person to enter into a credit contract or related transaction.

There is a defence if the person who makes the representation can show that they had reasonable grounds to believe that the representation was not false and misleading.

This section applies to the credit provider, an officer, agent or employee of the credit provider, the supplier under a tied credit contract (as defined in s.117(3) of the Code), a person acting on behalf of the supplier and the consumer.

A debtor will be caught by this section if they have made a misleading statement in a credit application, (such as overstating income). The section could also apply to a supplier such as a car dealer who induces a purchaser of a vehicle to overstate their income to a credit provider. The credit provider itself could be caught by the section if it (or one of its officers, agents or employees) makes a misleading statement about the credit transaction.

A person who suffers loss as a result of a contravention by another person of this section may recover the amount of the loss from that other person or any other person involved in the contravention.

If a supplier of goods or services (such as a car dealer) makes a statement about a credit contract entered into between a customer of the supplier and a “linked’ credit provider, that statement gives the debtor the same rights against the credit provider as the debtor would have had if it had been made by the credit provider (s.118).

The Code defines what is meant by “linked” credit provider in section 117. Basically a credit provider will be “linked” to a particular supplier where there is an arrangement between the supplier and the credit provider under which customers of the supplier regularly apply for credit to the credit provider to purchase goods and services from the supplier. For example, if the supplier misleads the customer about the finance for the customer’s purchase, and the customer as a result suffers loss, the customer has a legal right to damages against the credit provider as well as the supplier.

WHAT IS THE CORRECT FORMAT FOR A CREDIT CONTRACT?

Generally a contract regulated by the Code must be in writing signed by both the credit provider and the debtor (s.12(a)).

However, the Code allows for the situation where a written contract document signed by the credit provider as an offer to the debtor is given to the debtor and the debtor (or another authorised person) accepts the offer by drawing down credit to incur a debt (s.12(b)). An example of this would be a credit card contract.

The Code also recognises the possibility that, in the future, electronic banking may lead to non-written contracts; the regulations can authorise other methods of making a credit contract.

The credit contract does not have to be confined to one document, but may consist of one or more separate documents (s.16).

WHAT INFORMATION HAS TO BE GIVEN TO THE DEBTOR BEFORE THE CONTRACT IS ENTERED INTO?

Section 15 of the Code sets out information that must be included in a credit contract and which must be included in a pre-contractual statement given to the debtor, together with an information statement setting out the debtor’s statutory rights and obligations.

The pre-contractual statement may be the proposed contract document or a separate document or documents. In reality, most credit providers will simply provide the proposed contract document. The information statement will usually be combined with the contract document.

Both documents must be given to the debtor before the contract is entered into, or before the debtor makes an offer to enter into a contract, whichever occurs first. Thus, if the debtor makes the offer, the pre-contractual statement must be given before the offer is signed. If the credit provider makes the offer, the pre-contractual statement must be given after the credit provider signs but before the debtor either signs or does some other act which indicates acceptance of the contract.

WHAT INFORMATION DOES A CREDIT CONTRACT HAVE TO CONTAIN?

Section 15 of the Code provides that a contract document must contain basic information about the loan terms and conditions. Some of the more significant pieces of information are called “key requirements”. Failure to state information that is a “key requirement” means that the credit provider may have to pay a “civil penalty”, a monetary penalty discussed later in this chapter. There are different key requirements according to whether the credit contract is a continuing credit contract or not (see section 15 of the Code). In summary, the information that must be included in a credit contract is as follows:

• the credit provider’s name;
• the amount of credit, if ascertainable, and details of persons to whom the credit is payable, or (for continuing credit contracts) the maximum amount of credit and any credit limit;
• the annual percentage rate or rates;
• the method of calculation of interest charges;
• the total amount of interest charges payable (if the contract would normally be paid out in 7 years);
• information about repayments;
• information about the frequency of statements of account;
• information about default rates of interest;
• information about the circumstances in which enforcement expenses may become payable;
• information about mortgages or guarantees entered into in relation to the contract;
• details of commissions paid by or to the credit provider;
• details of insurance financed by the contract, including details of any commissions paid by the insurer to the credit provider.

The Code also provides for further information that may be prescribed by the Regulations as having to be included in a credit contract (s.15(O)).

COPIES OF DOCUMENTS SIGNED

The credit provider must give a copy of a contract document that is to be signed by the debtor and returned to the credit provider to the debtor to keep.

After the credit contract is made, the credit provider must give a copy of the contract to the debtor within 14 days. However this requirement does not apply where the terms of a credit contract are accepted by accessing or drawing down credit.

CAN ANY ALTERATIONS BE MADE TO THE CREDIT CONTRACT AFTER IT IS SIGNED?

Unless an alteration of a contract document by the credit provider after it is signed by the debtor reduces the debtor’s liability, it is ineffective unless, after the alteration is made, the debtor signs or initials in the margin opposite the alteration (s.17).

This provision does not seem to allow for changes to the credit contract where the debtor’s acceptance occurs other than by signing.

CAN THE BORROWER GET OUT OF THE CREDIT CONTRACT AFTER IT HAS BEEN SIGNED?

A credit contract is not subject to any “cooling off period” which allows a consumer to get out of the contract after it has been entered into. However the Code allows a borrower who has not drawn down any credit to terminate the credit contract. The termination must be by written notice, such as a letter (s.19(1)).

If the contract is terminated the credit provider may still retain or require payment of fees or charges incurred before the termination that would have been payable under the credit contract. These fees would typically be establishment or application fees paid at the time the contract is entered into (s.19(2)).

Where goods or services have been purchased with the credit, the ability to terminate the credit contract will usually be of little help to the consumer unless the contract to buy the goods or services can also be terminated (see below under ‘Sale of Goods and Services’).

MORTGAGES & GUARANTEES

A mortgage over goods or land may be regulated by the Code if it secures a credit contract or related guarantee that is regulated by the Code. The Code will only apply to the extent that the mortgage relates to obligations under the credit contract.

What is the format for a mortgage?

The Code provides that a mortgage must be in writing signed by the mortgagor (s.38) and will not be enforceable if it does not comply with section 38 of the Code. However, the mortgage does not necessarily have to be a separate document; it can be contained in a credit contract signed by the mortgagor (s.38(2)(a)).

Goods mortgages (that is, mortgages over tangible chattels as opposed to real property) are often contained in the same document as the credit contract. A goods mortgage does not have to be in writing at all if the credit provider lawfully had possession of the goods that are subject to the mortgage before the mortgage was entered into, such as where the goods were held by the credit provider as security.

In the case of a real property mortgage, the mortgage will have to be in the appropriate form for registration at the land titles office, and so will be separate from the credit contract. The real property mortgage will usually take the form of a mortgage document signed by the mortgagor which is lodged with the Titles Office, and a separate Memorandum of Provisions that is referred to in the signed document. The Code is complied with if one of the documents comprising the mortgage is signed by the mortgagor, and the other documents comprising the mortgage are referred to in the signed document (s.38(2)(b)).

Copy of mortgage for mortgagor

If a mortgage is in the form of a written mortgage document and is not part of a credit contract, the credit provider must give the mortgagor a copy to keep within 14 days after it was made (s.39).

Prohibited obligations under mortgages

The Code places a number of restrictions on mortgage obligations:

• A mortgage under the Code must describe or identify the property which is subject to the mortgage. If a provision in a mortgage charges all of the property of the mortgagor, it is void (s.40);
• A mortgage under the Code cannot contain a provision that states that the mortgagor creates or agrees to create a mortgage over property that is to be, or may be, acquired by the mortgagor after the mortgage is entered into. There are some exceptions to this general rule, such as where the property mortgaged is to be acquired wholly or partly with the credit provided under the credit contract secured by the mortgage (s.41);
• A third party mortgage (a mortgage under which the mortgagee secures the obligations of a debtor or guarantor without having any direct liability as a debtor under the relevant credit contract or a guarantor under a guarantee) is not enforceable (s.44(1)).

All accounts mortgages

In this context, an all accounts mortgage is a mortgage which initially secures obligations under a credit contract or related guarantee, but states that it can also secure credit provided under a future credit contract or future-related guarantee.

Before an all accounts mortgage can be enforceable in relation to a future credit contract or future related guarantee the credit provider must:

• give the mortgagor a copy of the credit contract or proposed credit contract or a copy of the guarantee or proposed guarantee to which the mortgage is to relate;
• obtain from the mortgagor a written acceptance of the extension of the mortgage (or obtain acceptance in some other form provided for by the regulations): s.43.

Can the mortgage secure more than the amount of the debt?

No. A mortgage can only secure the sum of the liabilities of the debtor under a credit contract and the reasonable expenses of enforcing the mortgage. A mortgage is void to the extent that it secures any greater amount.

In relation to guarantees, a mortgage is void to the extent that it secures an amount that exceeds the limit of the guarantor’s liability under the guarantee and the reasonable enforcement expenses of enforcing the mortgage (s.45).

When can the mortgagor dispose of mortgaged property?

It is an offence for a mortgagor to assign or dispose of mortgaged property (including goods and land) without the credit provider’s consent, or without the authority of the SAT. The credit provider cannot unreasonably withhold consent or attach unreasonable conditions to the consent. The Code makes it clear that a condition that the mortgagor has to give security over property of an equivalent kind and value is not to be regarded as unreasonable.

The mortgagor can make an application to a court for authorisation to dispose of the property on conditions determined by the court if the credit provider fails to reply to the mortgagor’s request for consent to disposal of property within a reasonable time, or if consent is unreasonably withheld (s.47).

The Code sets out a non-exhaustive list of the conditions that the credit provider can impose on an assignment or disposal of mortgaged property (s.48).

GUARANTEES

What is the format for a guarantee?

A guarantee is not enforceable unless it is in writing and signed by the guarantor. The guarantee can be in the same document as a mortgage signed by the guarantor (s.50).

What is the guarantor’s maximum liability?

A guarantee under the Code cannot secure an amount in relation to a credit contract to which the Code applies that exceeds the sum of the amount of the liabilities of the debtor under the credit contract together with the reasonable expenses of enforcing the guarantee (s.55).

Alternatively, the credit provider and the guarantor may agree that the guarantor is liable to pay a lesser amount, in which case the guarantee only applies to that amount (s.56).

What documents have to be given to the guarantor?

Before the obligations under a credit contract are secured by a guarantee, the credit provider must give to the debtor a copy of the credit contract or proposed credit contract. If this requirement is not complied with, then any guarantee signed is not enforceable.

The credit provider must also give the debtor a form (set out in the regulations) explaining the rights and obligations of a guarantor.

After the guarantee is signed and given to the credit provider, the credit provider must, within 14 days, give the guarantor a copy of the contract signed by the guarantor and any related credit contract or proposed credit contract (s.52).

Can the guarantor get out of the guarantee after it has been signed?

The guarantor can withdraw from the

guarantee at any time before credit is first provided under the credit contract, but only where:

• the debtor also terminates or has terminated the credit contract in accordance with section 19 of the Code (dealing with the debtor terminating before any credit is drawn down); or
• the debtor has not entered into a contract with another person in reliance on the availability of the credit subject to the guarantee.

For example, if the borrower has entered into a contract to buy a car in reliance on getting finance for which a guarantor is required, the guarantor cannot withdraw from the guarantee unless the borrower has terminated the credit contract prior to any credit being drawn down.

The guarantor may also withdraw from the guarantee after credit is first provided under the contract if the credit contract made differs in “some material respect” from the proposed credit contract or pre-contractual statement given to the guarantor before the guarantee is signed (s.53).

How can the guarantor’s liabilities be increased?

The borrower and the credit provider may agree to increase the liability of the borrower by variation of the credit contract, for example, through further borrowings under the credit contract, or through the credit provider allowing a deferral of payments.

Such changes in the borrower’s liability will not affect the liability of the guarantor unless the credit provider gives to the guarantor a written notice setting out particulars of the change in the terms of the credit contract. Also, the credit provider must get a written acceptance of the extension from the guarantor (or an acceptance in some other form prescribed by the regulations).

However, note this section does not apply to changes to the contract that can be made unilaterally by the credit provider (s.56).

Can the guarantee apply to future loans to be entered into by the principal borrower?

A guarantee may provide that the guarantor may be liable for the principal debtor’s obligations not only under a credit contract to which the guarantee initially applies, but also to a future credit contract under which the principal debtor may become liable.

However, the guarantee cannot be enforced in relation to the future credit contract unless the credit provider has:

• given the guarantor a copy of the contract document of the future credit contract; and
• after giving the copy of such contract document, obtained from the guarantor a written acceptance of the extension of the guarantee (or obtained acceptance in some other form provided for by the regulations: s.54).

The usual requirements relating to the form of a guarantee (s.50) do not apply to an extension of a guarantee.

How does the guarantor stop further liability under a credit card or other continuing credit contract?

A guarantor may limit a guarantee so that it applies only to liabilities for credit previously provided to the debtor under the debtor’s credit contract (s.55(4)). To do this, the guarantor must give notice to the credit provider. The Code does not say that the notice has to be in writing, but it is obviously preferable for the notice to be written, and sent by registered post.

Can a guarantor guarantee the obligations of a person under the age of 18?

A guarantee of the obligations of a person under the age of 18 may cause problems for the guarantor. Usually the guarantor can claim any amounts paid to the credit provider from the principal borrower. This is known as an “indemnity”. However where the borrower is under the age of 18, the credit contract may be void because the borrower is a minor and, in some circumstances, the law does not consider that a minor has the capacity to enter into a contract. Where this is the case, the guarantor might not be entitled to any indemnity from the borrower.

The Code states that a guarantee which guarantees the liability of a debtor who was under the age of 18 when the liability was incurred cannot be enforced against the guarantor unless it contains a prominent statement to the effect that the guarantor may not be entitled to an indemnity against the debtor (s.55(3)).

Thus the Code at least implies that the guarantee will still be enforceable against the guarantor even though the credit contract is void because of the borrower’s minority, but provides some protection for the guarantor.