Excluded contracts
Excluded contracts
Section 6 of the NCC exempts from regulation certain categories of contracts that would otherwise be covered by the NCC.
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Generally, the NCC will not apply to a credit contract that limits the period for which credit will be provided to 62 days or less (NCC s 6(1)(a)). However, the NCC will apply to a loan of less than 62 days if fees and charges exceed five per cent of the amount of the loan or if the interest rate exceeds 24 per cent p.a. (NCC ss 6(1)(b)–(c)). For contracts entered into on or after 1 July 2011, fees and charges for the purposes of this exemption include:
a fee or charge payable by the debtor to any person for an introduction to the credit provider;
a fee or charge payable by the debtor to any person for any service if the person has been introduced to the debtor by the credit provider; and
a fee or charge payable by the debtor to the credit provider for any other service related to the provision of credit (NCC s 6(2)).
These provisions seek to ensure that credit provided by short-term, high-cost lenders such as payday lenders will be covered by the NCC.
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The NCC does not apply to credit that is provided without prior agreement between the credit provider and the debtor (NCC s 6(4)). For example, the NCC does not apply when a cheque account becomes overdrawn but there is no agreed overdraft facility, or when a savings account falls into debit.
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Continuing credit contracts – such as credit cards and overdraft facilities – are excluded from the NCC if the only charge that is made for providing the credit is a periodic or other fixed charge (NCC s 6(5)).
However, such a contract will be covered by the NCC if the charge is more than $200 for the first 12 months and more than $125 for each 12-month period after that (NCCP Regulations reg 51). Some ‘buy now, pay later’ arrangements fall within this exemption.
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A number of banks and other financial institutions now offer products that can be used by consumers as both a savings account and credit facility. Under such a facility, a consumer with funds in their account will receive interest on those funds but can also run the balance below zero to an agreed credit limit on the terms set out in the contract. The NCC will apply only to the part of the contract that relates to the credit facility, or both the credit facility and the savings account. It will not apply to the part of the contract that relates only to the savings account (NCC s 6(6)).
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The NCC applies to bills of exchange and promissory notes except where they are provided by an authorised deposit-taking institution (such as a bank or credit union), or are otherwise exempted under the NCCP Regulations (NCC s 6(7)).
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Many insurers now allow annual insurance premiums to be paid by monthly instalments. Often the combined amount of the monthly premiums exceeds the annual premium by an amount equivalent to a finance company interest rate (e.g. 20 per cent). However, these agreements are not regulated by the NCC (NCC s 6(8)).
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The NCC does not apply to credit provided by a pawnbroker, in the ordinary course of a pawnbroker’s business, as long as:
the pawnbroker is lawfully conducting business; and
if the debtor is in default, the pawnbroker’s only recourse is against the goods provided as security (NCC s 6(9)).
However, pawnbroking transactions may be considered to be unjust and re-opened under sections 76–81 of the NCC. See also ‘Pawnbrokers’ in Chapter 5.8: Mortgages, consumer leases and other finance products.
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The NCC will not apply where credit is provided by a trustee of the estate of a deceased person to a beneficiary or prospective beneficiary of the deceased’s estate. However, such arrangements are also subject to the unjust transactions provisions of sections 76 to 81 of the NCC (NCC s 6(10)).
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A partial exemption from the NCC applies where credit is provided by an employer (or a corporation related to an employer) to an employee or former employee if:
credit is provided on the condition that the debtor is either an employee or a former employee of either the employer or the related corporation; or
where the employer or related corporation provides the credit in the course of a business of providing credit, the credit is provided to the debtor on terms more favourable than the credit provider would grant to non-employees.
Nevertheless, Part 1, Part 4, division 3 of Part 5, division 4 and 5 of Part 7 and Parts 12, 13 and 14 of the NCC do apply to employee loans (NCC s 6(11)).
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The NCC does not apply to margin loans within the meaning of section 761EA(1) of the Corporations Act 2001 (Cth) (NCC s 6(12)). Margin loans are regulated as a financial product under chapter 7 of the Corporations Act 2001 (Cth).
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A number of exemptions apply to various government schemes, the provision of credit by particular credit providers, and other limited circumstances pursuant to the NCCP Regulations (regs 51–65C). Most notable among these is the exemption in certain circumstances of credit under $50 (NCCP Regulations reg 52) and the provision of charge cards by a number of specified corporations.
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The consumer protections under the NCCP Act and the NCC do not generally apply to BNPL and similar arrangements (e.g. wage-advance products).
In November 2022, the Federal Government published an options paper seeking feedback on future regulatory framework for BNPL arrangements under the NCCP Act. It is expected that legislation will be enacted in 2024.
What is a credit contract?
Chapter: 5.7: Understanding credit and finance
Contributor: Stephen Nowicki, Director of Legal Practice, Consumer Action Law Centre
Current as of: 1 September 2024
Law Handbook Page: 373
Next Section: Which credit providers must comply with the National Consumer Credit Protection Act?
