Uniform Consumer Credit Code © Credit Education Services Australia Pty Ltd 2006
Uniform Consumer Credit Code <ul><li>This module will help you understand: </li></ul><ul><ul><li>The Code’s purpose </li><...
General Overview
General <ul><li>The  Uniform Consumer Credit Code  is commonly known as  </li></ul><ul><ul><li>the &quot; Code &quot; </li...
Application <ul><li>The  Code  applies if the following key requirements are met:  </li></ul><ul><ul><li>There is a loan, ...
Application – Key Questions <ul><li>The best way to decide if the  Code  applies is to decide if the key requirements are ...
Exclusions <ul><li>The  Code  does not apply if : </li></ul><ul><ul><li>the customer is a business entity such as </li></u...
Exclusion Criteria <ul><li>The Code does not apply to the following: </li></ul><ul><li>Business purpose loans </li></ul><u...
Product Types <ul><li>It applies to the following consumer products: </li></ul><ul><ul><li>Personal Loans  </li></ul></ul>...
Purpose
Purpose <ul><li>The  Code’s  main purposes are to: </li></ul><ul><ul><li>Simplify consumer credit lending process through ...
Purpose <ul><li>The  Code  uses disclosure to assist consumers to make informed credit choices.  </li></ul><ul><li>It regu...
Purpose - Disclosure  <ul><li>Lenders must manage consumer lending in a very specific way, such as:  </li></ul><ul><ul><li...
Linked Suppliers
Linked Suppliers <ul><li>The  Code  links together all those involved in the overall credit process, including: </li></ul>...
Linked Supplier - Liabilities <ul><li>Lenders can be held responsible for any misrepresentations made by those associated ...
Comparison Rates & Schedules
Comparison Rates - General <ul><li>A  comparison rate is a tool used to help consumers compare credit products </li></ul><...
Comparison Rate Schedules <ul><li>A Comparison Rate Schedule (CRS)  </li></ul><ul><ul><li>Is a list of comparison rates fo...
CRS – Availability & Changes <ul><li>CRS must be made available: </li></ul><ul><ul><li>At a lender's offices and branches ...
Advertising
Advertising <ul><li>Advertisements include  </li></ul><ul><ul><li>any form of promotional material that is </li></ul></ul>...
Comparison Rates – Advertising <ul><li>Must be  </li></ul><ul><ul><li>included if repayments or the interest rate are adve...
Comparison Rates - Advertising <ul><li>The comparison rate must also be included in </li></ul><ul><ul><li>any advertisemen...
Advertising breaches <ul><li>Advertising breaches of the  Code  can result in penalties of  </li></ul><ul><ul><li>up to $1...
Contract Formation Disclosure
Disclosure <ul><li>The  Code  is very specific about a range of contract formation and account management processes </li><...
Disclosure – Additional Obligations <ul><li>The Privacy Act imposes additional obligations </li></ul><ul><ul><li>particula...
Pre-contract formation <ul><li>Before a customer signs a contract, s/he must have  the opportunity to </li></ul><ul><ul><l...
Post contract formation <ul><li>Once the contract has been signed, copies of the contract must be given to </li></ul><ul><...
Pre contract formation - conduct <ul><li>The  Code  prohibits the following behaviour when selling consumer credit:  </li>...
Pre-contractual Statements <ul><li>Lenders must give each applicant a Precontractual Statement before they sign the contra...
Precontractual Statements <ul><li>The Table form   must contain the following information: </li></ul><ul><ul><li>The credi...
The Contract
Contracts - General <ul><li>Credit contracts must always be in writing </li></ul><ul><ul><li>In a 10 point font – as a min...
  Contracts - Variations <ul><li>If, during the course of a loan, a lender wants to  </li></ul><ul><ul><li>vary the fees a...
Contract Details <ul><li>Regardless of how the contract is formed, the contract must include the following specific inform...
Contracts – Customer Withdrawal <ul><li>A customer has a statutory right to withdraw from the contract  </li></ul><ul><ul>...
Maximum Interest Rates <ul><li>Some States/Territories have capped the annual percentage rate (interest rate or APR) a len...
Credit Cards  –  Fair Trading legislation <ul><li>Fair Trading legislation  imposes some additional compliance obligations...
Guarantees
Guarantees <ul><li>Definition: A guarantee is where someone, other than the customer, agrees to repay the loan if the cust...
Guarantees – Code Requirements <ul><li>Guarantee documents must:  </li></ul><ul><ul><li>be signed by the guarantor;  </li>...
Guarantees - Enforcement <ul><li>When a customer is unable to meet their obligations under a loan, the lender will require...
Mortgages
Mortgages <ul><li>Definition:   A mortgage is where the customer agrees to the lender taking security over their property ...
Mortgages - Obligations <ul><li>A mortgage must </li></ul><ul><ul><li>be in writing  & </li></ul></ul><ul><ul><li>signed b...
Mortgages - Limitations <ul><li>A mortgage  cannot  be taken over the following  </li></ul><ul><ul><li>All the mortgagor's...
Mortgages – Property Transfers <ul><li>The mortgagor (customer) cannot transfer the mortgaged property without the lender'...
Insurances
Insurances <ul><li>Customers may wish to finance certain insurance products when they take out a loan </li></ul><ul><ul><l...
Insurances - Prohibitions <ul><li>A lender must not:  </li></ul><ul><ul><li>require a customer or guarantor to take out, o...
Insurances – Consumer Credit <ul><li>Consumer Credit Insurance, also know as Loan Protection Insurance, is a product that ...
Linked Credit
Linked Credit <ul><li>Where a lender has an arrangement with a dealer or supplier to finance their goods or services, the ...
Linked Credit <ul><li>A lender can be liable, along with the linked supplier, for any:  </li></ul><ul><ul><li>representati...
Commissions <ul><li>A lender must disclose all commission payments associated with financed consumer credit products </li>...
Customer Service
Statements - General <ul><li>There are two types of statements of account </li></ul><ul><ul><li>One is a periodic one give...
Statements - Customer Request <ul><li>Customers have the right to request a statement of account status and history at any...
Disputed Accounts <ul><li>If a customer disputes an account, the lender must provide a written explanation of how the liab...
Contract Variations <ul><li>If the contract allows the lender to vary the contract terms such as interest rate, payment am...
Account Closure <ul><li>A customer always has the right to finalise a contract at any time.  </li></ul><ul><li>Where it is...
Payout Statement <ul><li>A lender must provide a written payout statement to the customer if they request one in writing. ...
Insurance Cancellation Rights <ul><li>When an account is finalised, or a repossessed/surrendered vehicle sold, the lender ...
Hardship Management <ul><li>Any customer in financial difficulties has the right to apply for a contract variation </li></...
Collections
Collections - General <ul><li>The  Code  is very specific about collections processes, documentation and their time frames...
Default Notices <ul><li>Before any enforcement action can be taken, a default notice must be issued to each customer on th...
Default Notices <ul><li>Enforcement action can be taken if  </li></ul><ul><ul><li>the customer does not rectify the accoun...
Default Notices - Exceptions <ul><li>A lender does not need to issue a default notice if they can establish:  </li></ul><u...
Voluntary Surrender <ul><li>When a customer voluntarily surrenders the mortgaged goods to the lender, they must receive a ...
Consent to Enter Premises <ul><li>Where the lender needs to repossess goods that are on residential property, they must ob...
Repossession <ul><li>Where the lender repossesses goods, the process is similar to a voluntary surrender  </li></ul><ul><u...
Repossession <ul><li>The customer has the right to  </li></ul><ul><ul><li>introduce a buyer for the estimated value  </li>...
Statement of Sale Proceeds <ul><li>Once the goods are sold, the lender must give the customer a statement detailing </li><...
Unjust Contracts
Unjust Contracts <ul><li>Under the  Code , the term &quot;unjust&quot; includes unconscionable, harsh, or oppressive condu...
Unjust Contracts - Elements <ul><li>Factors the Court or Tribunal can consider when judging whether a contract is unjust i...
Unjust Contracts – Third Parties <ul><li>A customer can bring an application to re-open the contract up to two years after...
Unjust Contracts – Disadvantaged Customers <ul><li>For all customers, the  Code  requires two main things: willing and kno...
Co-borrowers
Co-borrowers <ul><li>Co-borrowers must both be actively engaged in the credit application/decision-making process  </li></...
Penalties
Penalties <ul><li>Accountability for  Code  breaches sits at various levels depending on the type of breach </li></ul><ul>...
Penalties & the Contract <ul><li>A  Code  breach does not make the contract, mortgage or guarantee illegal.  </li></ul><ul...
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Uniform Consumer Credit Code Content

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Uniform Consumer Credit Code

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Uniform Consumer Credit Code Content

  1. 1. Uniform Consumer Credit Code © Credit Education Services Australia Pty Ltd 2006
  2. 2. Uniform Consumer Credit Code <ul><li>This module will help you understand: </li></ul><ul><ul><li>The Code’s purpose </li></ul></ul><ul><ul><li>Linked supplier liabilities and obligations </li></ul></ul><ul><ul><li>Advertising obligations </li></ul></ul><ul><ul><li>Comparison Rates & Schedules </li></ul></ul><ul><ul><li>Contract formation disclosure & conduct requirements </li></ul></ul><ul><ul><li>Guarantees & Mortgages </li></ul></ul><ul><ul><li>Insurance </li></ul></ul><ul><ul><li>Customer management obligations </li></ul></ul><ul><ul><li>Enforcement processes & obligations </li></ul></ul><ul><ul><li>Unjust contracts </li></ul></ul><ul><ul><li>Co-borrower issues </li></ul></ul><ul><ul><li>Penalties </li></ul></ul>
  3. 3. General Overview
  4. 4. General <ul><li>The Uniform Consumer Credit Code is commonly known as </li></ul><ul><ul><li>the &quot; Code &quot; </li></ul></ul><ul><ul><li>&quot; CCC &quot; or </li></ul></ul><ul><ul><li>the &quot; UCCC &quot; </li></ul></ul><ul><li>It regulates consumer or personal lending only </li></ul><ul><ul><li>Business lending is not covered BUT </li></ul></ul><ul><ul><li>The loan can be used for some business purposes provided it is not for more than 49% of the total loan. </li></ul></ul><ul><li>There are 8 Codes in Australia </li></ul><ul><ul><li>The legislation is State/Territory based, but </li></ul></ul><ul><ul><li>It is uniform across all Australian States and Territories </li></ul></ul><ul><ul><ul><li>with some minor differences between States </li></ul></ul></ul>
  5. 5. Application <ul><li>The Code applies if the following key requirements are met: </li></ul><ul><ul><li>There is a loan, which is an amount to be repaid over time (&quot;deferred debt&quot;) </li></ul></ul><ul><ul><li>The lender is in the business of providing loans </li></ul></ul><ul><ul><li>The loan is for more than 62 days </li></ul></ul><ul><ul><li>A charge is made for providing the credit (e.g. interest or fees) </li></ul></ul><ul><ul><li>The loan is predominantly for personal, domestic or household purposes – </li></ul></ul><ul><ul><ul><li>more than 50% of the loan must be for these purposes </li></ul></ul></ul><ul><ul><li>The debtor is </li></ul></ul><ul><ul><ul><li>a natural person who usually resides in Australia or </li></ul></ul></ul><ul><ul><ul><li>a strata corporation </li></ul></ul></ul>
  6. 6. Application – Key Questions <ul><li>The best way to decide if the Code applies is to decide if the key requirements are met is by asking the following questions: </li></ul><ul><ul><li>Is the loan for an individual or Strata Corporation? </li></ul></ul><ul><ul><li>Is the loan mainly for the customer's personal, domestic or household use? </li></ul></ul><ul><ul><li>Is the loan term for more than 62 days? </li></ul></ul><ul><ul><li>Will fees and charges apply? </li></ul></ul><ul><li>If the answer is ' yes ' to all four questions, then you can be fairly sure the Code applies, although there are some exceptions. </li></ul>
  7. 7. Exclusions <ul><li>The Code does not apply if : </li></ul><ul><ul><li>the customer is a business entity such as </li></ul></ul><ul><ul><ul><li>a company </li></ul></ul></ul><ul><ul><ul><li>corporate trustee </li></ul></ul></ul><ul><ul><ul><li>incorporated association or </li></ul></ul></ul><ul><ul><ul><li>government body and/or </li></ul></ul></ul><ul><ul><ul><li>the loan is to be used mainly for business purposes </li></ul></ul></ul><ul><li>If there is a business and personal purposes mix </li></ul><ul><ul><li>the main purpose of the loan is the key indicator. </li></ul></ul><ul><ul><li>So, if the loan is mainly for business purposes, i.e. more than 50%, then the loan is not covered by the Code </li></ul></ul><ul><li>Business purpose loans are known as 'unregulated' loans, as the contract itself, rather than any particular law, states what rights the lender and customer have. </li></ul>
  8. 8. Exclusion Criteria <ul><li>The Code does not apply to the following: </li></ul><ul><li>Business purpose loans </li></ul><ul><ul><li>or where more than 50% of the loan is to be used for business purposes </li></ul></ul><ul><li>Short term credit of 62 days or less, except </li></ul><ul><ul><li>if the fees and charges exceed 5% of the amount borrowed; or </li></ul></ul><ul><ul><li>where the interest rate is greater than 24% p.a. </li></ul></ul><ul><li>Continuing credit where no interest is paid and </li></ul><ul><ul><li>where account charges do not exceed $200 in the first year or $125 in any subsequent year </li></ul></ul><ul><li>Consumer leases for a fixed period of four months or less or which are for an indefinite period </li></ul><ul><li>Consumer leases of goods as part of an employee's employment package or benefits </li></ul><ul><li>Credit for investments </li></ul><ul><li>Loans between friends or family members - who are not in the business of lending money </li></ul>
  9. 9. Product Types <ul><li>It applies to the following consumer products: </li></ul><ul><ul><li>Personal Loans </li></ul></ul><ul><ul><li>Housing Loans </li></ul></ul><ul><ul><li>Continuing Credit </li></ul></ul><ul><ul><ul><li>Credit cards </li></ul></ul></ul><ul><ul><ul><li>Store cards </li></ul></ul></ul><ul><ul><li>Mortgages </li></ul></ul><ul><ul><ul><li>Land and goods </li></ul></ul></ul><ul><ul><li>Pay Day Loans (some) </li></ul></ul><ul><ul><li>Overdrafts </li></ul></ul><ul><ul><li>Hire of Goods </li></ul></ul><ul><ul><li>Guarantees </li></ul></ul><ul><ul><li>Consumer Leases </li></ul></ul>
  10. 10. Purpose
  11. 11. Purpose <ul><li>The Code’s main purposes are to: </li></ul><ul><ul><li>Simplify consumer credit lending process through similar laws in all Australian States and Territories; </li></ul></ul><ul><ul><li>Promote 'truth in lending' (disclosure) as the basis for consumer choice and market competition; </li></ul></ul><ul><ul><li>Assist consumers to compare and make informed credit choices based on </li></ul></ul><ul><ul><ul><li>disclosures about fees, &charges and </li></ul></ul></ul><ul><ul><ul><li>contract terms and conditions </li></ul></ul></ul><ul><li>Provide for product flexibility and choice in a competitive market; & </li></ul><ul><li>Improve consumer protection through a range of penalties for Code breaches. </li></ul>
  12. 12. Purpose <ul><li>The Code uses disclosure to assist consumers to make informed credit choices. </li></ul><ul><li>It regulates </li></ul><ul><ul><li>advertising, </li></ul></ul><ul><ul><li>disclosure, </li></ul></ul><ul><ul><li>comparison rates, </li></ul></ul><ul><ul><li>contract formation, </li></ul></ul><ul><ul><li>fees and charges, </li></ul></ul><ul><ul><li>insurances </li></ul></ul><ul><ul><li>mortgages, </li></ul></ul><ul><ul><li>guarantees, </li></ul></ul><ul><ul><li>account management, </li></ul></ul><ul><ul><li>account finalisation and </li></ul></ul><ul><ul><li>related sales, all important elements of the credit cycle. </li></ul></ul>
  13. 13. Purpose - Disclosure <ul><li>Lenders must manage consumer lending in a very specific way, such as: </li></ul><ul><ul><li>Certain information must be clearly disclosed </li></ul></ul><ul><ul><ul><li>Before and during contract formation </li></ul></ul></ul><ul><ul><ul><li>In a particular order </li></ul></ul></ul><ul><ul><ul><li>In a specified format and font </li></ul></ul></ul><ul><ul><li>Certain notices must be given: </li></ul></ul><ul><ul><ul><li>within particular timelines and </li></ul></ul></ul><ul><ul><ul><li>In a particular format & font </li></ul></ul></ul><ul><li>Customers must given time to respond </li></ul><ul><ul><li>Some exceptions exist </li></ul></ul>
  14. 14. Linked Suppliers
  15. 15. Linked Suppliers <ul><li>The Code links together all those involved in the overall credit process, including: </li></ul><ul><ul><li>Introducers of any kind, such as </li></ul></ul><ul><ul><ul><li>Car dealers </li></ul></ul></ul><ul><ul><ul><li>Finance brokers </li></ul></ul></ul><ul><ul><ul><li>Vendors and </li></ul></ul></ul><ul><ul><li>External debt collection agents </li></ul></ul><ul><li>Lenders can be held responsible for: </li></ul><ul><ul><li>The introducer’s conduct and/or </li></ul></ul><ul><ul><li>The quality of any financed goods or services provided to customers. </li></ul></ul>
  16. 16. Linked Supplier - Liabilities <ul><li>Lenders can be held responsible for any misrepresentations made by those associated with the lending process about </li></ul><ul><ul><li>a financed product such as a car or insurance policy </li></ul></ul><ul><ul><li>the finance itself or </li></ul></ul><ul><ul><li>the debt collection process. </li></ul></ul><ul><li>Those involved in the lending process must conduct their businesses honestly, ethically and in keeping with the law </li></ul><ul><ul><li>This includes brokers, introducers, car dealers, door to door sales etc </li></ul></ul><ul><li>Penalties for fail to comply with the Code include </li></ul><ul><ul><li>court action that </li></ul></ul><ul><ul><ul><li>could result in civil penalties up to $500,000 and/or </li></ul></ul></ul><ul><ul><li>criminal charges </li></ul></ul>
  17. 17. Comparison Rates & Schedules
  18. 18. Comparison Rates - General <ul><li>A comparison rate is a tool used to help consumers compare credit products </li></ul><ul><li>It is a percentage figure, like an interest rate, calculated on the </li></ul><ul><ul><li>Amount borrowed </li></ul></ul><ul><ul><li>Loan term </li></ul></ul><ul><ul><li>Interest Rate </li></ul></ul><ul><ul><li>Fees and charges associated with the loan, but excluding </li></ul></ul><ul><ul><ul><li>Government charges, such as stamp duty or mortgage registration fees: </li></ul></ul></ul><ul><ul><ul><li>Fees and charges which may or may not be charged, because they depend on some event which may or may not occur (for example, fees for early repayment or redraw fees); and </li></ul></ul></ul><ul><ul><ul><li>Fees and charges where the amounts are unknown at the time the comparison rate is provided. </li></ul></ul></ul><ul><li>Comparison rates only have to be provided for Code regulated fixed term credit </li></ul><ul><ul><li>Fixed term credit is a loan, such as a home loan or personal loan, which must be repaid within a specified amount of time, e.g. 5 or 30 years. </li></ul></ul><ul><li>Comparison rates do not apply to continuing credit products, such as credit cards or store cards. </li></ul>
  19. 19. Comparison Rate Schedules <ul><li>A Comparison Rate Schedule (CRS) </li></ul><ul><ul><li>Is a list of comparison rates for a range of standard loan amounts and terms for a particular credit product </li></ul></ul><ul><ul><li>should give an indication of the effect of fees and charges on the proposed loan </li></ul></ul><ul><li>The standard amounts and terms have been set by legislation to cover what is considered fairly standard loan scenarios but </li></ul><ul><ul><li>do not represent all the possible combinations of loan amounts and terms, </li></ul></ul><ul><ul><ul><li>so customers are unlikely to have a perfect match between their loan and the comparison rate schedule </li></ul></ul></ul><ul><li>The CRS must be headed &quot;Comparison Rate Schedule“ & state </li></ul><ul><ul><li>The lender's name </li></ul></ul><ul><ul><li>The product name, although generic names are acceptable </li></ul></ul><ul><ul><li>The credit amount - according to the Regulations </li></ul></ul><ul><ul><li>The loan - according to the Regulations </li></ul></ul><ul><ul><li>Both the interest rate and the comparison rate </li></ul></ul><ul><ul><li>The date of issue </li></ul></ul><ul><ul><li>If the loan is secured or unsecured </li></ul></ul><ul><ul><li>Display a specified warning about the comparison rate's accuracy </li></ul></ul><ul><ul><li>Be a printed document or text on a screen </li></ul></ul><ul><ul><li>Not contain any other information other than permitted information, listed above </li></ul></ul>
  20. 20. CRS – Availability & Changes <ul><li>CRS must be made available: </li></ul><ul><ul><li>At a lender's offices and branches </li></ul></ul><ul><ul><li>At the office of any dealer, finance broker or other linked supplier </li></ul></ul><ul><ul><ul><li>where the lender's consumer credit products are advertised, or </li></ul></ul></ul><ul><ul><ul><li>credit applications can be taken in person </li></ul></ul></ul><ul><ul><li>On lender’s website, if credit is advertised electronically </li></ul></ul><ul><li>It must also accompany any credit application that is sent or given to the customer </li></ul><ul><li>Must be updated & distributed within 7 days of any change in any of the calculation elements e.g. fees, charges, interest rate etc </li></ul>
  21. 21. Advertising
  22. 22. Advertising <ul><li>Advertisements include </li></ul><ul><ul><li>any form of promotional material that is </li></ul></ul><ul><ul><li>displayed in business premises, public places or provided to a customer. </li></ul></ul><ul><li>Where interest rates or repayment amounts are shown, the Code requires lenders to provide additional information in the advertisement, including the comparison rate and a statutory warning </li></ul><ul><li>Where an advertisement for credit contains an annual percentage rate, it must also state: </li></ul><ul><ul><li>the equivalent comparison rate for the credit amount and the term for the closest amount and term as specified in the Code Regulations and </li></ul></ul><ul><ul><li>that credit fees and charges are payable, either by </li></ul></ul><ul><ul><ul><li>a statement that fees and charges are payable, or </li></ul></ul></ul><ul><ul><ul><li>stating the fees; or </li></ul></ul></ul><ul><ul><ul><li>stating some fees and that others are payable. </li></ul></ul></ul>
  23. 23. Comparison Rates – Advertising <ul><li>Must be </li></ul><ul><ul><li>included if repayments or the interest rate are advertised & </li></ul></ul><ul><ul><li>clearly identified as the comparison rate & </li></ul></ul><ul><ul><li>be equally prominent with the annual percentage rate and any repayment amounts shown, </li></ul></ul><ul><ul><ul><li>all three must have the same size, boldness and similar placement in the advertisement </li></ul></ul></ul><ul><li>The advertisement must also include: </li></ul><ul><ul><li>the product's name </li></ul></ul><ul><ul><li>the credit amount and </li></ul></ul><ul><ul><li>term to which the comparison rate applies; </li></ul></ul><ul><ul><li>whether the loan is secured or unsecured and </li></ul></ul><ul><ul><li>the Code prescribed warning, either the long or short version, about the comparison rate's accuracy. </li></ul></ul>
  24. 24. Comparison Rates - Advertising <ul><li>The comparison rate must also be included in </li></ul><ul><ul><li>any advertisement for fixed term consumer credit that contains an interest rate or repayment amount </li></ul></ul><ul><ul><ul><li>Comparison rates are not required for continuing credit products </li></ul></ul></ul><ul><li>Comparison rates must be based on the amount and term in a legislated standard list </li></ul><ul><ul><li>Lenders must select the combination most typical of the loan being advertised </li></ul></ul><ul><ul><li>For example, the standard list includes </li></ul></ul><ul><ul><ul><li>a loan of $30,000 for 5 years, which is similar to a typical car loan, and </li></ul></ul></ul><ul><ul><ul><li>$150,000 for 25 years, which is similar to a typical home loan. A credit advertisement must clearly state the amount and term on which a comparison rate is based. It must also include a warning. The Code specifies the warning's wording. </li></ul></ul></ul>
  25. 25. Advertising breaches <ul><li>Advertising breaches of the Code can result in penalties of </li></ul><ul><ul><li>up to $10,000 and </li></ul></ul><ul><ul><li>compensation to those affected by the breach </li></ul></ul><ul><li>Those who can be held responsible are: </li></ul><ul><ul><li>Lenders who provide the advertised credit </li></ul></ul><ul><ul><li>Suppliers, or those with an interest in, the good and services promoted </li></ul></ul><ul><ul><li>Those identified in the advertisement by their personal or business names, address, phone or fax number </li></ul></ul><ul><li>A person will not be found guilty of a breach of the Code if they can prove that they could not, despite reasonable care, have prevented the breach. </li></ul>
  26. 26. Contract Formation Disclosure
  27. 27. Disclosure <ul><li>The Code is very specific about a range of contract formation and account management processes </li></ul><ul><li>Consumers must receive information about aspects of their loan, particularly at: </li></ul><ul><ul><li>Contract Formation </li></ul></ul><ul><ul><ul><li>Pre-contractual statement </li></ul></ul></ul><ul><ul><ul><li>Comparison Rate Schedule </li></ul></ul></ul><ul><ul><ul><li>Loan Contract </li></ul></ul></ul><ul><ul><ul><li>Mortgage </li></ul></ul></ul><ul><ul><ul><li>Guarantee & Indemnity </li></ul></ul></ul><ul><ul><li>Account Management/Servicing </li></ul></ul><ul><ul><ul><li>Statements </li></ul></ul></ul><ul><ul><ul><li>Payout Figures </li></ul></ul></ul><ul><ul><ul><li>Hardship Variations </li></ul></ul></ul><ul><ul><ul><li>Account Finalisation </li></ul></ul></ul><ul><ul><li>Collections Processes </li></ul></ul><ul><ul><ul><li>Default Notices </li></ul></ul></ul><ul><ul><ul><li>Voluntary Surrender </li></ul></ul></ul><ul><ul><ul><li>Repossession </li></ul></ul></ul><ul><ul><ul><li>Sale of Mortgaged Property </li></ul></ul></ul><ul><ul><ul><li>Statement of Sale Proceeds </li></ul></ul></ul><ul><ul><ul><li>Enforcement </li></ul></ul></ul><ul><li>Documents must be clearly understandable (plain language) and printed in not less than 10 point type. </li></ul>
  28. 28. Disclosure – Additional Obligations <ul><li>The Privacy Act imposes additional obligations </li></ul><ul><ul><li>particularly those involved with credit reporting procedures </li></ul></ul><ul><li>Those requirements impact on: </li></ul><ul><ul><li>Contract Formation </li></ul></ul><ul><ul><ul><li>Privacy Statement & Consent </li></ul></ul></ul><ul><ul><ul><li>Application Rejection - where credit bureau report a factor </li></ul></ul></ul><ul><ul><li>Account Management </li></ul></ul><ul><ul><ul><li>Third Party Authorisation </li></ul></ul></ul><ul><ul><li>Collections Processes </li></ul></ul><ul><ul><li>Default Listing Notification </li></ul></ul>
  29. 29. Pre-contract formation <ul><li>Before a customer signs a contract, s/he must have the opportunity to </li></ul><ul><ul><li>understand the terms and conditions of the loan and </li></ul></ul><ul><ul><li>to compare products if they wish.  </li></ul></ul><ul><li>Before signing a contract, each customer must receive: </li></ul><ul><ul><li>A Comparison Rate Schedule, if they also receive a copy of the application or they request one; & </li></ul></ul><ul><ul><li>A Precontractual Statement and an Information Statement </li></ul></ul><ul><ul><ul><li>Often this is also the contract document </li></ul></ul></ul>
  30. 30. Post contract formation <ul><li>Once the contract has been signed, copies of the contract must be given to </li></ul><ul><ul><li>Each customer & </li></ul></ul><ul><ul><li>The guarantor, if any </li></ul></ul><ul><ul><ul><li>who must receive both a copy of the guarantee & the contract </li></ul></ul></ul><ul><ul><li>Or sent to each within 14 days if not given when contract signed </li></ul></ul><ul><li>During the course of the loan, the customer is entitled to receive: </li></ul><ul><ul><li>Regular account statements, if the interest rate is variable </li></ul></ul><ul><ul><ul><li>Only on request for fixed interest rate loans </li></ul></ul></ul><ul><ul><li>Payout statement - verbal or written </li></ul></ul><ul><ul><li>Document copies </li></ul></ul><ul><ul><ul><li>contract and all issued documents </li></ul></ul></ul><ul><ul><li>Default notices for overdue payments or other contract breaches </li></ul></ul><ul><ul><li>Notice of intention to list a default on a credit reporting bureau </li></ul></ul>
  31. 31. Pre contract formation - conduct <ul><li>The Code prohibits the following behaviour when selling consumer credit: </li></ul><ul><ul><li>false or misleading representations </li></ul></ul><ul><ul><ul><li>about something that affects a customer's decision to take out credit or </li></ul></ul></ul><ul><ul><ul><li>a related transaction e.g. insurance/goods/services or </li></ul></ul></ul><ul><ul><ul><li>any attempts to induce a person to enter into a credit contract or related transaction </li></ul></ul></ul><ul><ul><li>harassing a person to apply for, or enter into, a credit contract or related transaction; and </li></ul></ul><ul><ul><li>home visits to induce the occupant to apply for, or obtain, credit, unless the visit is arranged in advance. </li></ul></ul><ul><li>This means that credit cannot be sold door to door by cold calling </li></ul><ul><li>The lender can visit a potential customer at their home to discuss his/her credit requirements only if that person requests, or agrees, to the visit </li></ul>
  32. 32. Pre-contractual Statements <ul><li>Lenders must give each applicant a Precontractual Statement before they sign the contract </li></ul><ul><ul><li>This Statement and the credit contract contain much of the same information </li></ul></ul><ul><ul><li>Most lenders combine the Precontractual Statement and the loan contract </li></ul></ul><ul><ul><ul><li>so customers only receive one document </li></ul></ul></ul><ul><li>There are two parts to the Precontractual Statement </li></ul><ul><ul><li>The first part is a table that must disclose specific financial details </li></ul></ul><ul><ul><ul><li>Where the Statement and contract are combined, the front page of the loan includes a 'Financial Table' to meet this requirement </li></ul></ul></ul><ul><ul><li>The second part contains other important information </li></ul></ul>
  33. 33. Precontractual Statements <ul><li>The Table form must contain the following information: </li></ul><ul><ul><li>The credit amount </li></ul></ul><ul><ul><ul><li>If the amount is not known at the time the contact is made, e.g. a continuing credit product, then the maximum amount of credit to be provided must be stated * </li></ul></ul></ul><ul><ul><li>The annual percentage rate or rates* </li></ul></ul><ul><ul><li>Details of any interest free period* </li></ul></ul><ul><ul><li>The total amount of interest if the contract is to be paid out within 7 years * </li></ul></ul><ul><ul><li>The number, amount and frequency of repayments </li></ul></ul><ul><ul><li>Any credit fees and charges * </li></ul></ul><ul><li>The rest of the Statement must disclose: </li></ul><ul><ul><li>The lender's name </li></ul></ul><ul><ul><li>The amount of credit and to whom it is to be paid* </li></ul></ul><ul><ul><li>Details of any changes that can be made under the contract * </li></ul></ul><ul><ul><li>The frequency of account statements </li></ul></ul><ul><ul><li>Any default rate of interest </li></ul></ul><ul><ul><li>Whether enforcement expenses are payable by the customer if they breach the contract </li></ul></ul><ul><ul><li>Mortgage or guarantee details, if taken </li></ul></ul><ul><ul><li>Commission payable, if applicable </li></ul></ul><ul><ul><li>Details of insurance financed under the contract * </li></ul></ul><ul><ul><li>If a number of documents are provided, each document must state it does not contain all of the required information. </li></ul></ul>* All information marked with a '*' is a key disclosure requirement and must be contained in the Precontractual Statement. Failure to provide any of these details can lead to a civil penalty of up to $500,000, plus compensation for any loss suffered by the debtor or guarantor. 
  34. 34. The Contract
  35. 35. Contracts - General <ul><li>Credit contracts must always be in writing </li></ul><ul><ul><li>In a 10 point font – as a minimum and </li></ul></ul><ul><li>Can be formed in two ways </li></ul><ul><ul><li>a written contract signed by the customer(s) and the lender; or </li></ul></ul><ul><ul><li>a written offer by the lender, which is accepted by the customer through a particular action </li></ul></ul><ul><ul><ul><li>e.g. by use of a credit or store card </li></ul></ul></ul><ul><li>The credit contract must also contain a prescribed &quot;Things you must know&quot; warning </li></ul><ul><ul><li>on the same page and immediately above the place the customer is to sign it </li></ul></ul><ul><ul><li>content is specified by the Code </li></ul></ul><ul><li>The information provided must cover the terms and conditions of the loan, including </li></ul><ul><ul><li>the financial details & </li></ul></ul><ul><ul><li>how the loan will be managed & </li></ul></ul><ul><ul><li>what rights and obligations both the customer and lender have </li></ul></ul><ul><li>The customer must be given a copy of the credit contract at the time the contract is signed, or a copy must be forwarded within 14 days. </li></ul>
  36. 36. Contracts - Variations <ul><li>If, during the course of a loan, a lender wants to </li></ul><ul><ul><li>vary the fees and charges; or </li></ul></ul><ul><ul><li>introduce new ones, then </li></ul></ul><ul><ul><li>the contract must disclose this right </li></ul></ul><ul><li>If the variation right is not included in the terms and conditions </li></ul><ul><ul><li>No changes in fees and charges are permissible during the loan </li></ul></ul>
  37. 37. Contract Details <ul><li>Regardless of how the contract is formed, the contract must include the following specific information: </li></ul><ul><ul><li>The lender's name </li></ul></ul><ul><ul><li>To whom the credit is to be paid * </li></ul></ul><ul><ul><li>Credit amount to be provided. </li></ul></ul><ul><ul><ul><li>If the amount is not known at the time, then the maximum amount of credit to be provided* </li></ul></ul></ul><ul><ul><li>Annual percentage rate or rates * </li></ul></ul><ul><ul><li>Details of any interest free period * </li></ul></ul><ul><ul><li>Total amount of interest, if the contract is to be paid out within 7 years * </li></ul></ul><ul><ul><li>Number, amount and frequency of repayments </li></ul></ul><ul><ul><li>Credit fees and charges * </li></ul></ul><ul><ul><li>Details of any changes that can be made under the contract * </li></ul></ul><ul><ul><li>Frequency of account statements </li></ul></ul><ul><ul><li>Any default rate of interest and how it is calculated (eg. from a published reference rate) </li></ul></ul><ul><ul><li>Whether enforcement expenses must be paid by the debtor in the event of a breach </li></ul></ul><ul><ul><li>Details of any mortgage or guarantee that may apply </li></ul></ul><ul><ul><li>Details of any commission to be paid </li></ul></ul><ul><ul><li>Details of insurance financed under the contract* </li></ul></ul>* All information marked with a '*' is a key disclosure requirement and must be contained in the contract. Failure to provide any of these details can lead to a civil penalty of up to $500,000, plus compensation for any loss suffered by the debtor or guarantor. 
  38. 38. Contracts – Customer Withdrawal <ul><li>A customer has a statutory right to withdraw from the contract </li></ul><ul><ul><li>before credit has been provided </li></ul></ul><ul><li>The lender must be informed of the termination </li></ul><ul><ul><li>in writing; or </li></ul></ul><ul><ul><li>where a particular action is required to form the contract, such as use of a credit or store card, </li></ul></ul><ul><ul><ul><li>the customer has not performed that action </li></ul></ul></ul><ul><li>The lender is entitled to be paid any fees or charges involved in establishing the loan </li></ul><ul><ul><li>provided the contract allows for them </li></ul></ul>
  39. 39. Maximum Interest Rates <ul><li>Some States/Territories have capped the annual percentage rate (interest rate or APR) a lender can charge. </li></ul><ul><ul><li>These caps are not imposed under the Code itself but under either the Consumer Credit Act or Regulations of the State concerned </li></ul></ul><ul><li>The States/Territories with maximum APRs have taken different approaches to how they are calculated </li></ul><ul><ul><li>In Victoria , a consumer credit contract is unenforceable if the APR exceeds 48%. Also, if the contract is secured by a mortgage, the mortgage is unenforceable if the APR exceeds 30% </li></ul></ul><ul><ul><li>New South Wales the APR cannot exceed 48% </li></ul></ul><ul><ul><ul><li>It is calculated by combining the actual interest rate and all fees and charges that can be quantified at the time the calculation is made. </li></ul></ul></ul><ul><ul><li>The Australian Capital Territory takes a similar approach to MSE </li></ul></ul><ul><li>Queensland is currently drafting a Bill to introduce a cap of 48% </li></ul><ul><ul><li>It will include fees and charges in the cap calculation </li></ul></ul><ul><li>The Northern Territory, Western Australia and South Australia have not introduced caps to date. </li></ul><ul><li>  </li></ul>
  40. 40. Credit Cards – Fair Trading legislation <ul><li>Fair Trading legislation imposes some additional compliance obligations for credit cards </li></ul><ul><li>In all States and Territories , Fair Trading legislation prohibits a lender from issuing a credit card unless the customer has made a written request for such a credit facility. </li></ul><ul><ul><li>The only exception is if the card is to be renewed, replaced or substituted for a card already issued to the customer </li></ul></ul><ul><li>In the Australian Capital Territory , there are additional obligations imposed under its Fair Trading Act (FTA). </li></ul><ul><ul><li>A lender has a positive obligation to assess a customer's capacity to repay the credit card debt. </li></ul></ul><ul><ul><li>This obligation applies both when the card is first issued and also if any increased credit limit is requested </li></ul></ul><ul><ul><li>A satisfactory assessment process includes a customer’s written statement providing the following information: </li></ul></ul><ul><ul><ul><li>Current income </li></ul></ul></ul><ul><ul><ul><li>Details of all credit accounts, including limits and balances </li></ul></ul></ul><ul><ul><ul><li>Current repayment commitments </li></ul></ul></ul><ul><ul><li>The lender cannot rely on a customer's statement that they have the capacity to manage repayments on an increased continuing credit limit. </li></ul></ul><ul><li>NB: If a customer wishes an increased credit limit, the request must be in writing. If the lender offers an increase, the customer must also accept it in writing </li></ul>
  41. 41. Guarantees
  42. 42. Guarantees <ul><li>Definition: A guarantee is where someone, other than the customer, agrees to repay the loan if the customer does not </li></ul><ul><li>The guarantor receives no benefit from the loan and is only asked to repay the account when things go wrong </li></ul><ul><li>The Code is very specific about how a guarantee can be taken and the type of information that must be provided to the guarantor. </li></ul><ul><li>Before taking a guarantee, the lender must give the guarantor: </li></ul><ul><ul><li>A copy of the credit contract to be guaranteed; and </li></ul></ul><ul><ul><li>The Information Statement &quot;Things you should know about guarantees“; and </li></ul></ul><ul><ul><li>The guarantor must be given a copy of the guarantee at the time they sign it, or it must be sent to them within 14 days </li></ul></ul><ul><li>A guarantor can </li></ul><ul><ul><li>withdraw from a guarantee any time before the customer is provided with the finance; or </li></ul></ul><ul><ul><li>withdraw later if the credit contract differs in any significant way from the copy given to them before they signed the guarantee; & </li></ul></ul><ul><ul><li>limit their liability to the amount stated in the contract </li></ul></ul><ul><ul><ul><li>They are not obliged to guarantee any further increases the borrower may request. </li></ul></ul></ul>
  43. 43. Guarantees – Code Requirements <ul><li>Guarantee documents must: </li></ul><ul><ul><li>be signed by the guarantor; </li></ul></ul><ul><ul><li>contain a prescribed warning immediately above the place the guarantor signs the guarantee; </li></ul></ul><ul><ul><li>disclose that the amount recoverable under the guarantee is limited to the total amount payable under the loan, plus the reasonable enforcement costs; </li></ul></ul><ul><ul><li>if any debtor is a minor (under 18 years of age), contain a prominent statement warning the guarantor they may not be able to recover guaranteed amounts from the customer if the guarantee is called upon; & </li></ul></ul><ul><ul><li>not prevent, or limit, the guarantor's right to protect his or her own interests against the customer, such as prohibiting the guarantor from lodging a proof of debt if the customer files for bankruptcy. </li></ul></ul><ul><ul><li>be in plain language and be printed in a minimum 10 point font </li></ul></ul><ul><li>The guarantee will not apply to any increased liabilities under the contract unless </li></ul><ul><ul><li>the lender sends the guarantor details of the increase & </li></ul></ul><ul><ul><li>seeks their agreement to it & </li></ul></ul><ul><ul><li>obtains a written acceptance of the increased credit amount from them. </li></ul></ul>
  44. 44. Guarantees - Enforcement <ul><li>When a customer is unable to meet their obligations under a loan, the lender will require the guarantor to do so </li></ul><ul><li>If the guarantor chooses not to, or is unable to, the lender is entitled to take legal action against both the customer and the guarantor </li></ul><ul><li>Where the lender takes legal action through the courts, a judgment cannot be enforced against a guarantor unless: </li></ul><ul><ul><li>the customer is insolvent/bankrupt; </li></ul></ul><ul><ul><li>a court approves the action because recovery from the customer is unlikely; </li></ul></ul><ul><ul><li>the lender has made reasonable attempts to locate the customer, without success; or </li></ul></ul><ul><ul><li>judgment has already been obtained against the customer and remains unsatisfied 30 days after written demand. </li></ul></ul>
  45. 45. Mortgages
  46. 46. Mortgages <ul><li>Definition: A mortgage is where the customer agrees to the lender taking security over their property or goods </li></ul><ul><li>The goods offered can be a car, house or piece of equipment </li></ul><ul><li>Where a customer agrees to a mortgage over their property </li></ul><ul><ul><li>they are then called a 'mortgagor' </li></ul></ul><ul><ul><li>the lender is called a 'mortgagee’ </li></ul></ul><ul><ul><li>the lender has the right to take that particular piece of property and sell it if </li></ul></ul><ul><ul><ul><li>the loan repayments cannot be maintained as agreed or </li></ul></ul></ul><ul><ul><ul><li>the customer does not manage their other loan obligations such as keeping the property insured or properly cared for </li></ul></ul></ul><ul><ul><ul><ul><li>These other requirements must be set out in the loan contract </li></ul></ul></ul></ul><ul><ul><ul><ul><li>They are not enforceable otherwise </li></ul></ul></ul></ul>
  47. 47. Mortgages - Obligations <ul><li>A mortgage must </li></ul><ul><ul><li>be in writing & </li></ul></ul><ul><ul><li>signed by the mortgagor (customer) & </li></ul></ul><ul><ul><li>clearly identify the property so there can be no disputes over what the security is. </li></ul></ul><ul><ul><ul><li>Where a car is taken as security, its model, make, colour, registration number, chassis number and vehicle identification number provide the information needed to identify it clearly.  </li></ul></ul></ul><ul><ul><ul><li>These details should be listed in the mortgage to avoid any confusion or disputes about what vehicle has been taken as security </li></ul></ul></ul><ul><ul><li>. </li></ul></ul><ul><li>The mortgage can only secure recovery of </li></ul><ul><ul><li>the total amount payable under the contract and </li></ul></ul><ul><ul><ul><li>any reasonable enforcement costs </li></ul></ul></ul><ul><li>If mortgaged goods are sold </li></ul><ul><ul><li>The customer must be refunded any surplus </li></ul></ul><ul><ul><li>If there is a shortfall, the customer must repay the lender </li></ul></ul>
  48. 48. Mortgages - Limitations <ul><li>A mortgage cannot be taken over the following </li></ul><ul><ul><li>All the mortgagor's (customer's) property; </li></ul></ul><ul><ul><li>Unidentified property </li></ul></ul><ul><ul><ul><li>The lender must be able to describe the property accurately, so there can be no dispute about rights; </li></ul></ul></ul><ul><ul><li>Continuing credit contract (credit & store cards) purchases, unless the goods are specifically identified in the mortgage; </li></ul></ul><ul><ul><li>The customer's future property, unless: </li></ul></ul><ul><ul><ul><li>it is to be purchased with the credit provided & is described in the contract; or </li></ul></ul></ul><ul><ul><ul><li>is in replacement, or addition, to other mortgaged goods </li></ul></ul></ul><ul><ul><li>Employee remuneration (wages, salary, commission etc) or superannuation; or </li></ul></ul><ul><ul><li>Cheques, bills of exchange or promissory notes issued or endorsed by customer or guarantor. </li></ul></ul><ul><li>The Code also specifies processes for the repossession and sale of the goods if the mortgagor cannot meet their obligations. These are discussed under Enforcement. </li></ul>
  49. 49. Mortgages – Property Transfers <ul><li>The mortgagor (customer) cannot transfer the mortgaged property without the lender's (or a Court's) consent </li></ul><ul><li>The lender cannot </li></ul><ul><ul><li>unreasonably withhold consent or </li></ul></ul><ul><ul><li>make the transfer subject to unreasonable condition </li></ul></ul><ul><ul><li>. </li></ul></ul><ul><li>If the mortgagor wants to transfer the property, the lender can require any, or all, of the following: </li></ul><ul><ul><li>Alternative security of an equivalent kind and value; </li></ul></ul><ul><ul><li>Any contract breaches to remedied; </li></ul></ul><ul><ul><li>The person to whom the goods are being transferred to accept liability for the customer's debt and mortgage obligations (assignment); </li></ul></ul><ul><ul><li>The payment of any costs involved in transferring the goods, such as stamp duty and legal costs. </li></ul></ul>
  50. 50. Insurances
  51. 51. Insurances <ul><li>Customers may wish to finance certain insurance products when they take out a loan </li></ul><ul><ul><li>Generally, lenders cannot insist a customer take our, or finance, insurance </li></ul></ul><ul><li>Exception: </li></ul><ul><ul><li>A lender can require customers to take out insurances such as mortgage indemnity insurance, mortgaged property insurance (e.g. motor vehicle comprehensive insurance) or other insurances that are permitted by Code regulations </li></ul></ul><ul><ul><li>Mortgage property insurance can be required because it provides some level of protection for damage to secured property. </li></ul></ul><ul><ul><li>Customers can also be required to maintain compulsory insurances such as those the law requires for vehicles used on public roads </li></ul></ul><ul><li>Customers are entitled to choose what insurances, if any, they require, and from whom they wish to purchase </li></ul><ul><ul><li>The lender cannot insist insurance be taken with a particular insurance company </li></ul></ul><ul><li>Lenders cannot require customers to take out </li></ul><ul><ul><li>Warranties; </li></ul></ul><ul><ul><li>GAP insurance; </li></ul></ul><ul><ul><li>Consumer Credit ;or </li></ul></ul><ul><ul><li>Any other form of life, unemployment, sickness or disability insurances </li></ul></ul><ul><li>The customer must be able to choose their insurance provider. </li></ul><ul><ul><li>The lender cannot insist the insurance be taken out with any particular insurance company. </li></ul></ul>
  52. 52. Insurances - Prohibitions <ul><li>A lender must not: </li></ul><ul><ul><li>require a customer or guarantor to take out, or pay the cost of, insurance </li></ul></ul><ul><ul><ul><li>except for mortgaged property insurance, mortgage indemnity insurance or compulsory insurance; </li></ul></ul></ul><ul><ul><li>require the customer to take out insurance with a specified insurer </li></ul></ul><ul><ul><ul><li>unless it is the only one providing the relevant insurance or </li></ul></ul></ul><ul><ul><ul><li>make unreasonable requirements as to the terms of the required insurance; </li></ul></ul></ul><ul><ul><li>finance mortgaged property insurance premiums for more than one year at a time; or </li></ul></ul><ul><ul><li>debit the premium to the customer's account more than 30 days before the insurance cover commences </li></ul></ul>
  53. 53. Insurances – Consumer Credit <ul><li>Consumer Credit Insurance, also know as Loan Protection Insurance, is a product that </li></ul><ul><ul><li>covers some, or all, loan repayments if the customer is </li></ul></ul><ul><ul><li>unemployed or </li></ul></ul><ul><ul><li>unable to work due to sickness or injury, or </li></ul></ul><ul><ul><li>if they die </li></ul></ul><ul><li>No customer can be required to take out this type of insurance </li></ul><ul><li>Commissions cannot exceed 20%, whether paid to: </li></ul><ul><ul><li>the lender or </li></ul></ul><ul><ul><li>linked supplier or </li></ul></ul><ul><ul><li>an agent </li></ul></ul><ul><li>When a loan contract is terminated, regardless of the reason, any consumer credit insurance financed under it must also be terminated. </li></ul><ul><ul><li>In this situation, the lender must give the customer a rebate on the premium when calculating the pay out amount. </li></ul></ul><ul><ul><li>The lender can then recover this amount from the insurer. </li></ul></ul>
  54. 54. Linked Credit
  55. 55. Linked Credit <ul><li>Where a lender has an arrangement with a dealer or supplier to finance their goods or services, the lender is known as a 'linked credit provider’ </li></ul><ul><li>Suppliers, such as motor dealers, are known as a 'linked supplier' because they introduce customers to the lender to finance the goods they wish to buy </li></ul><ul><li>This relationship increases the lender's legal obligations </li></ul><ul><ul><li>Lenders must take some responsibility for the linked supplier's conduct and the quality of their goods and / or services </li></ul></ul>
  56. 56. Linked Credit <ul><li>A lender can be liable, along with the linked supplier, for any: </li></ul><ul><ul><li>representation, warranty or statement by the linked supplier about the loan contract; or </li></ul></ul><ul><ul><li>misrepresentation about the sale contract or a breach of it, including the failure to provide the goods or to provide goods of an inferior quality or standard for their age or type </li></ul></ul><ul><li>If a lender is held responsible for incorrect representations about the finance, goods (e.g. the vehicle), or services or the products are defective, the lender has some defences: </li></ul><ul><ul><li>only if the lender made appropriate enquiries about the supplier's reputation and financial standing before becoming linked; and/or </li></ul></ul><ul><ul><li>There was no any reason, at any time, to suspect that the supplier's conduct may be unethical or the goods sold are faulty or not as represented. </li></ul></ul><ul><li>The lender cannot be held responsible for the supplier's goods or conduct if the customer chose to apply for finance without any introduction or inducement from the supplier </li></ul><ul><li>If a lender becomes liable for damages, they are entitled to be indemnified by the linked supplier </li></ul><ul><ul><li>This means the supplier must reimburse the lender for any compensation paid to the customer and/or penalty imposed by a regulator </li></ul></ul>
  57. 57. Commissions <ul><li>A lender must disclose all commission payments associated with financed consumer credit products </li></ul><ul><li>Disclosure is required </li></ul><ul><ul><li>For both introduced and financed business </li></ul></ul><ul><ul><li>whether the lender pays or receives the commission </li></ul></ul><ul><li>A lender is required to disclose: </li></ul><ul><ul><li>That commission is to be paid or received </li></ul></ul><ul><ul><li>The name of person to whom commission is paid (dealer, broker, introducer or lender) </li></ul></ul><ul><ul><li>Name of person paying the commission </li></ul></ul><ul><ul><li>The commission amount, if known </li></ul></ul><ul><li>A lender must also disclosure any commission they know is paid to anyone involved in arranging consumer credit insurance and/or mortgaged property insurance. </li></ul>
  58. 58. Customer Service
  59. 59. Statements - General <ul><li>There are two types of statements of account </li></ul><ul><ul><li>One is a periodic one given through the life of the loan (depending on whether the rate is variable or fixed); </li></ul></ul><ul><ul><li>the other is one generated on request giving account status and history (regardless of the type of rate). </li></ul></ul><ul><li>Periodic Statements </li></ul><ul><ul><li>must be provided at least every six months to customers who have variable interest rate loans. </li></ul></ul><ul><li>The information in the statement must include the following: Statement period </li></ul><ul><ul><li>Balances - opening & closing </li></ul></ul><ul><ul><li>Interest charges </li></ul></ul><ul><ul><li>Fees & Charges </li></ul></ul><ul><ul><li>Payments </li></ul></ul><ul><ul><li>Account corrections/variations </li></ul></ul><ul><ul><li>Other information </li></ul></ul><ul><li>There is no obligation to provide account statements for fixed rate loans. </li></ul>
  60. 60. Statements - Customer Request <ul><li>Customers have the right to request a statement of account status and history at any time, regardless of their contract type </li></ul><ul><ul><li>Where there is more than one borrower, the statement only needs to be given to the customer who requested it </li></ul></ul><ul><li>The statement can be given orally but, if the request is in writing, then it must be provided in writing </li></ul><ul><li>The Code also specifies timelines for the provision of the statement. It must be provided within:               14 days - if the information requested is within the last 12 months; or               30 days - if the information required relates to a period of longer than 12 months </li></ul><ul><li>If a written statement has been given in the last three months, there is no obligation to provide that information again. </li></ul><ul><li>Lenders are not required to provide statements for transactions that occurred more than 7 years ago. </li></ul>
  61. 61. Disputed Accounts <ul><li>If a customer disputes an account, the lender must provide a written explanation of how the liability was incurred </li></ul><ul><li>If the lender agrees with the customer, this must also be confirmed in writing. </li></ul><ul><ul><li>If there is no agreement, either the customer or the lender can apply to the Court for it to settle the dispute </li></ul></ul><ul><ul><li>. </li></ul></ul><ul><li>If a customer wishes to dispute an account, they must provide written notice within the following timeframes: </li></ul><ul><ul><li>Continuing Credit </li></ul></ul><ul><ul><ul><li>Before the next payment is due </li></ul></ul></ul><ul><ul><li>Other Contracts - where Statements are given: </li></ul></ul><ul><ul><ul><li>Within 30 days of receiving a Statement </li></ul></ul></ul><ul><ul><li>Finalised Contracts </li></ul></ul><ul><ul><ul><li>Within 3 months after finalisation </li></ul></ul></ul><ul><li>Enforcement proceedings cannot be commenced on a disputed account until at least 30 days after the customer has been given a written explanation about it. </li></ul>
  62. 62. Contract Variations <ul><li>If the contract allows the lender to vary the contract terms such as interest rate, payment amount and/or frequency, fees and charges etc the customer to be notified of any change </li></ul><ul><li>This notification can be by press advertisement or by mail for most variations. The loan contract will specify how this is done </li></ul><ul><li>The timing of the notification varies as shown below: </li></ul><ul><ul><li>Fees and charges </li></ul></ul><ul><ul><ul><li>20 days before the change </li></ul></ul></ul><ul><ul><li>Repayments </li></ul></ul><ul><ul><ul><li>20 days before the change * </li></ul></ul></ul><ul><ul><li>Interest calculation methodology </li></ul></ul><ul><ul><ul><li>20 days before the change </li></ul></ul></ul><ul><ul><li>Other unilateral changes </li></ul></ul><ul><ul><ul><li>20 days before the change </li></ul></ul></ul><ul><ul><li>Interest rate </li></ul></ul><ul><ul><ul><li>Not later than the day on which the change is introduced </li></ul></ul></ul><ul><li>* NB: Customers must be given notice of loan repayment changes in writing. </li></ul>
  63. 63. Account Closure <ul><li>A customer always has the right to finalise a contract at any time. </li></ul><ul><li>Where it is finalised early, a lender may be able to charge early termination fees </li></ul><ul><ul><li>provided they are disclosed in the loan contract </li></ul></ul><ul><li>There are two main processes associated with account closure where the account is not in arrears. </li></ul><ul><ul><li>The first is a payout statement that must be provided to the customer on request. </li></ul></ul><ul><ul><li>The other is a statutory notice about mortgaged property insurance that must be sent to the customer once the account is finalised. </li></ul></ul>
  64. 64. Payout Statement <ul><li>A lender must provide a written payout statement to the customer if they request one in writing. </li></ul><ul><li>Where the request is verbal, the statement can be provided orally </li></ul><ul><li>The lender is only obliged to provide details of how the payout figure is calculated if the customer requests that detail </li></ul><ul><li>The statement must be provided within 7 days of the request and only needs to be given to the person making the request. </li></ul><ul><li>A fee can be charged for the provision of written information only if the loan contract contains terms that allow for it. </li></ul><ul><li>EXCEPTION: While a customer's account information is confidential and can generally only be released to a third party with the customer's written authority, the payout figure is the exception. Any person at all (e.g. dealer, family member, friend, another lender etc) can request a payout figure on a customer's account without written permission </li></ul><ul><li>No other details other than the payout amount can be released. </li></ul>
  65. 65. Insurance Cancellation Rights <ul><li>When an account is finalised, or a repossessed/surrendered vehicle sold, the lender must send the customer a letter advising of the right to cancel the mortgaged property insurance </li></ul><ul><li>This only applies to financed insurance, provided it is still current </li></ul><ul><ul><li>this type of insurance can only be financed for one year, so generally the requirement will only apply to contracts less than a year old when finalised </li></ul></ul><ul><li>Notice must be in writing, with the wording exactly as prescribed by the Code </li></ul><ul><li>This is a statutory obligation that gives the customer the opportunity to claim a proportionate rebate from the insurer </li></ul>
  66. 66. Hardship Management <ul><li>Any customer in financial difficulties has the right to apply for a contract variation </li></ul><ul><li>The customer can apply for a variation on the following grounds: </li></ul><ul><ul><li>financial hardship due to illness, unemployment or other reasonable grounds; and </li></ul></ul><ul><ul><li>an expectation they will be able to complete the contract if a variation is given </li></ul></ul><ul><li>The types of variation to which a lender can agree are: </li></ul><ul><ul><li>deferment of some payments </li></ul></ul><ul><ul><li>extension of the contract term </li></ul></ul><ul><ul><li>both deferment and extension </li></ul></ul><ul><li>Under s66, the customer has no right to request a decrease in the interest rate, nor does the lender have a legal obligation to reduce it </li></ul><ul><li>Where the lender makes an agreement with the customer to vary the contract terms, they must provide written confirmation of the changes within 30 days </li></ul><ul><li>. </li></ul><ul><li>If the lender does not agree, the customer has the right to apply to the Court to vary the contract </li></ul><ul><ul><li>If the Court does grant a variation, the lender also has the right to apply to the Court for that order to be varied or revoked </li></ul></ul>
  67. 67. Collections
  68. 68. Collections - General <ul><li>The Code is very specific about collections processes, documentation and their time frames. </li></ul><ul><li>A lender's right to enforce its loan contracts, and associated mortgages and guarantees, depends on managing these processes as the Code directs. </li></ul><ul><li>The main collections functions requiring specific documentation, processes and timelines are: </li></ul><ul><ul><li>Default Notice </li></ul></ul><ul><ul><li>Voluntary Surrender </li></ul></ul><ul><ul><li>Consent to Enter Premises </li></ul></ul><ul><ul><li>Repossession & Sale </li></ul></ul><ul><ul><li>Statement of Sale Proceeds </li></ul></ul>
  69. 69. Default Notices <ul><li>Before any enforcement action can be taken, a default notice must be issued to each customer on the loan contract. </li></ul><ul><ul><li>A lender cannot send one jointly addressed to spouses or partners (co-borrowers) </li></ul></ul><ul><ul><li>Guarantors must also receive a copy of the default notice, regardless of whether the customer wishes the default to remain confidential </li></ul></ul><ul><li>The customer has 30 days from the date of the notice to bring the account back into order. </li></ul><ul><ul><li>This applies to both payment and non-payment breaches (e.g. no insurance or assignment of a vehicle etc). </li></ul></ul><ul><li>During the 30 day time frame, the customer must not default in the same way again. </li></ul><ul><ul><li>if another repayment is due in that time, that must be paid as well as the default, otherwise the customer remains in default. </li></ul></ul>
  70. 70. Default Notices <ul><li>Enforcement action can be taken if </li></ul><ul><ul><li>the customer does not rectify the account within the specified time, or </li></ul></ul><ul><ul><li>defaults in the same way during the default period, or </li></ul></ul><ul><ul><li>does not make a payment arrangement </li></ul></ul><ul><li>NB: Secured goods cannot be repossessed, or legal action commenced, until the default notice time frame has expired. </li></ul><ul><li>The customer must always be given the opportunity to rectify the default, where it is possible. </li></ul><ul><ul><li>If they do, then the contract continues as if no default occurred </li></ul></ul><ul><ul><li>Any subsequent default must follow the same default procedure again </li></ul></ul><ul><li>Where the default cannot be rectified (e.g. goods destroyed), the lender can commence enforcement action 31 days after the date of the notice. </li></ul>
  71. 71. Default Notices - Exceptions <ul><li>A lender does not need to issue a default notice if they can establish: </li></ul><ul><ul><li>The customer cannot be found; or </li></ul></ul><ul><ul><li>There are reasonable grounds for believing the credit was obtained fraudulently; or </li></ul></ul><ul><ul><li>There are reasonable grounds for believing the customer has, or will, dispose of secured goods without permission. </li></ul></ul>
  72. 72. Voluntary Surrender <ul><li>When a customer voluntarily surrenders the mortgaged goods to the lender, they must receive a written notice within 14 days of handing the goods back which advises them of their rights </li></ul><ul><ul><li>This is a statutory document that cannot be altered in any way </li></ul></ul><ul><li>In that document, the lender must give the customer the following information: </li></ul><ul><ul><li>an estimate of value of the goods </li></ul></ul><ul><ul><li>details of enforcement expenses </li></ul></ul><ul><ul><ul><li>to the date of the notice </li></ul></ul></ul><ul><ul><ul><li>daily rate </li></ul></ul></ul><ul><ul><li>how to get the goods back </li></ul></ul><ul><ul><li>the sale process </li></ul></ul><ul><ul><li>account finalisation process </li></ul></ul><ul><li>The customer has 21 days to introduce a buyer or take the goods back </li></ul><ul><ul><li>An introduced buyer must be willing to pay the estimated value of the goods or any higher amount already offered </li></ul></ul><ul><ul><li>The offer should be in writing </li></ul></ul><ul><li>Once the 21 days has expired, the lender can sell the goods. </li></ul><ul><ul><li>The lender has an obligation to do this as quickly as possible and to get the best price reasonably obtainable for the goods. </li></ul></ul>
  73. 73. Consent to Enter Premises <ul><li>Where the lender needs to repossess goods that are on residential property, they must obtain the written consent of the occupier or a Court order. </li></ul><ul><ul><li>The occupier may be one of the owners or a co-tenant </li></ul></ul><ul><ul><li>It does not need to be the customer </li></ul></ul><ul><li>If the lender cannot obtain consent to enter the property, they can apply to the Court for permission. </li></ul><ul><ul><li>If the Court grants the request, the occupier no longer needs to give consent </li></ul></ul><ul><ul><li>The lender can enter the property against the occupier's will </li></ul></ul><ul><li>Whether the lender uses a debt collection agency or repossesses the goods themselves, the consent of the occupier must be given in writing. </li></ul><ul><ul><li>The Code specifies both the form and the procedure that must be used </li></ul></ul><ul><li>EXCEPTION : If the vehicle is on public property or at business premises, it can be repossessed without the consent process the Code requires for vehicles on private property. </li></ul>
  74. 74. Repossession <ul><li>Where the lender repossesses goods, the process is similar to a voluntary surrender </li></ul><ul><ul><li>The customer must receive a written notice within 14 days of the repossession which advises them of their rights </li></ul></ul><ul><ul><li>This also is a statutory document that cannot be altered in any way </li></ul></ul><ul><li>In that document, the lender must give the customer the following information: </li></ul><ul><ul><li>Reason for repossession </li></ul></ul><ul><ul><li>Date of repossession </li></ul></ul><ul><ul><li>Amount required to redeem the vehicle </li></ul></ul><ul><ul><li>Estimated value of the vehicle </li></ul></ul><ul><ul><li>Enforcement expenses </li></ul></ul><ul><ul><ul><li>to the date of the notice </li></ul></ul></ul><ul><ul><ul><li>daily rate </li></ul></ul></ul><ul><ul><li>How to get the goods back </li></ul></ul><ul><ul><li>Sale process </li></ul></ul><ul><ul><li>Account finalisation process </li></ul></ul>
  75. 75. Repossession <ul><li>The customer has the right to </li></ul><ul><ul><li>introduce a buyer for the estimated value </li></ul></ul><ul><ul><ul><li>This offer should be in writing </li></ul></ul></ul><ul><ul><li>take the goods back, provided all the arrears and enforcement costs (insurance, storage, towage etc) are paid </li></ul></ul><ul><ul><li>Either action must be taken within 21 days of the notice </li></ul></ul><ul><li>Once the 21 days has expired, the lender can sell the goods </li></ul><ul><ul><li>The lender has an obligation to do this as quickly as possible and to get the best possible price for it </li></ul></ul><ul><li>EXCEPTION : A vehicle repossession can only proceed with a Court order if less than $10,000 or 25% of the credit amount is owed on it. </li></ul>
  76. 76. Statement of Sale Proceeds <ul><li>Once the goods are sold, the lender must give the customer a statement detailing </li></ul><ul><ul><li>all costs involved </li></ul></ul><ul><ul><li>the amount realised at the sale and </li></ul></ul><ul><ul><li>the amount of any refund or balance outstanding </li></ul></ul><ul><li>While the Code does not specify a particular time frame for giving this notice, it should be provided as soon as possible after the sale so the customer is advised of any surplus or balance outstanding </li></ul><ul><li>Where there is a balance outstanding, the customer must also be advised of intended enforcement action if the shortfall is not paid or a payment arrangement made </li></ul>
  77. 77. Unjust Contracts
  78. 78. Unjust Contracts <ul><li>Under the Code , the term &quot;unjust&quot; includes unconscionable, harsh, or oppressive conduct. </li></ul><ul><li>If a customer, or guarantor, considers their credit contract to be unjust, or unfair, in some way, s/he can apply to a Court or Tribunal to re-open the contract </li></ul><ul><li>The Court/Tribunal looks at </li></ul><ul><ul><li>the contract terms and conditions and </li></ul></ul><ul><ul><li>the circumstances that led to the customer or guarantor signing the contract </li></ul></ul><ul><li>If an unjust contract is reopened, the terms of the agreement can be changed, or set aside in some circumstances </li></ul><ul><li>The customer obtain an order that says s/he </li></ul><ul><ul><li>may have to pay less, </li></ul></ul><ul><ul><li>may have to pay over a different period, </li></ul></ul><ul><ul><li>may be released entirely or, </li></ul></ul><ul><ul><li>in some limited circumstances, may be refunded amounts already paid. </li></ul></ul>
  79. 79. Unjust Contracts - Elements <ul><li>Factors the Court or Tribunal can consider when judging whether a contract is unjust include: </li></ul><ul><ul><li>The bargaining positions of the parties; </li></ul></ul><ul><ul><li>The benefit received from the loan; </li></ul></ul><ul><ul><li>The customer’s ability to negotiate the terms of the contract; </li></ul></ul><ul><ul><li>Whether the contract imposes unfair conditions; </li></ul></ul><ul><ul><li>The customer's age, mental and/or physical capacity; </li></ul></ul><ul><ul><li>The customer's income, educational background and literacy; </li></ul></ul><ul><ul><li>Whether the contract was difficult to read and/or understand; </li></ul></ul><ul><ul><li>Whether independent legal advice or other expert advice was received; </li></ul></ul><ul><ul><li>Whether the contract was explained to the customer and whether they understood that explanation; </li></ul></ul><ul><ul><li>Whether unfair tactics or pressure were used; </li></ul></ul><ul><ul><li>Whether the consequences of the contract were explained; </li></ul></ul><ul><ul><li>Whether the lender knew, or should have known, the customer could not repay the loan, or could not pay without substantial hardship; and </li></ul></ul><ul><ul><li>Whether, in comparison with other similar loans, the interest and fees are excessive </li></ul></ul><ul><li>The above list is only a guide of the factors that may be considered to determine whether a contract is unjust. </li></ul>
  80. 80. Unjust Contracts – Third Parties <ul><li>A customer can bring an application to re-open the contract up to two years after it has been finalised </li></ul><ul><li>Any third party can be joined, or legally required to participate, in this action </li></ul><ul><li>This includes a motor dealer, broker or any other introducer </li></ul><ul><li>What this means in practice is the customer cannot be pressured into a contract by anyone, including a dealer, broker or a co-borrower </li></ul>
  81. 81. Unjust Contracts – Disadvantaged Customers <ul><li>For all customers, the Code requires two main things: willing and knowing acceptance of the responsibilities and obligations of the credit contract </li></ul><ul><li>Lenders are entitled to offer finance to customers with special needs on the same grounds as any other customer </li></ul><ul><ul><li>The customer must have the capacity to repay and understand their obligations </li></ul></ul><ul><ul><li>Additional assistance may be required to assist the customer understand the loan and their obligations under it </li></ul></ul><ul><li>For a customer with a disability, it may mean more time and assistance is given to assist them express their credit requirements, understand the options and make their choice. </li></ul><ul><ul><li>Some examples of this are: </li></ul></ul><ul><ul><ul><li>Where English is not a customer's first language, an interpreter is used; </li></ul></ul></ul><ul><ul><ul><li>Where a customer has some form of intellectual disability, a caseworker or family member or friend provides assistance, or the process is taken more slowly and more simply; or </li></ul></ul></ul><ul><ul><ul><li>Where a customer has health problems, the process occurs on a day when they feel as well as the situation permits </li></ul></ul></ul>
  82. 82. Co-borrowers
  83. 83. Co-borrowers <ul><li>Co-borrowers must both be actively engaged in the credit application/decision-making process </li></ul><ul><li>The application should not proceed in joint names if </li></ul><ul><ul><li>it becomes clear one party does not wish to be involved in the loan; and/or </li></ul></ul><ul><ul><li>is under pressure from the other </li></ul></ul>
  84. 84. Penalties
  85. 85. Penalties <ul><li>Accountability for Code breaches sits at various levels depending on the type of breach </li></ul><ul><li>and how it occurred. Accountability is as follows: </li></ul><ul><li>Company/Business </li></ul><ul><ul><li>For conduct of officers, agents and employees </li></ul></ul><ul><li>Staff </li></ul><ul><ul><li>For offences, committed knowingly, even if action not taken against the business entity </li></ul></ul><ul><li>Management & Directors </li></ul><ul><ul><li>If company liable, each officer of the company considered liable </li></ul></ul><ul><li>There is a range of penalties that can be incurred for Code breaches that include: </li></ul><ul><li>Civil Penalties ss. 100 - 113A </li></ul><ul><ul><li>Awarded against the company/business </li></ul></ul><ul><ul><li>For breaches of key contract requirements </li></ul></ul><ul><ul><li>Paid into a regulator (Consumer Affairs/Fair Trading) trust fund </li></ul></ul><ul><li>Fines </li></ul><ul><ul><li>Anyone, including staff, who aids or abets an offence, </li></ul></ul><ul><ul><li>whether directly or indirectly </li></ul></ul><ul><li>Compensation </li></ul><ul><ul><li>Paid to customer or guarantor </li></ul></ul><ul><ul><li>Amount of loss or detriment </li></ul></ul>
  86. 86. Penalties & the Contract <ul><li>A Code breach does not make the contract, mortgage or guarantee illegal. </li></ul><ul><li>Generally, the terms of the contract, mortgage and guarantee remain valid and can be enforced </li></ul><ul><li>There are some situations, however, where enforcement is not possible. For example, the Code will not allow enforcement of the following: </li></ul><ul><ul><li>A mortgage over remuneration (wages etc) or superannuation </li></ul></ul><ul><ul><li>A guarantee if, before the guarantor signed </li></ul></ul><ul><ul><ul><li>s/he was not given a copy of the loan contact and </li></ul></ul></ul><ul><ul><ul><li>a copy of the mandatory rights and obligations statement that the Code specifies </li></ul></ul></ul><ul><li>  </li></ul>

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