What information should be in a credit contract?

31 Jan

Written By For Good Digital

Section 17 of the NCC sets out the information a credit provider must disclose in a credit contract, as follows:
- the credit provider’s name;
- the amount of credit;
- the annual percentage rate or rates;
- a calculation of interest charges;
- a total amount of interest charges payable;
- repayments;
- credit fees and charges;
- changes affecting interest and credit fees and charges;
- statements of account;
- the default rate;
- enforcement expenses;
- mortgages or guarantees;
- commission;
- insurance financed by contract; and
- an information schedule to be included above the signature clause of the contract in Form 6 or 7 of the NCCP Regulations, (together, ‘the disclosure requirements’).
Of the disclosure requirements, those in italic text are deemed ‘key requirements’ (NCC s 111).
The key requirements are slightly different for continuing credit contracts (NCC s 111(2)). These requirements are the same as those under the Old Code, the main source of consumer credit law before 1 July 2010.
Under Part 6 of the NCC, credit providers are liable to pay a civil penalty to debtors, or to a government fund, if they fail to disclose a key requirement in a credit contract document.
The payments are ‘penalties’ because they are punitive, not compensatory, in nature. Part 6 does not require that any loss be suffered by a debtor before a penalty is applied.
However, unlike most penalties, they may be paid to an individual (, the debtor), rather than the state.
A party to a credit contract, a guarantor and ASIC have standing to apply to a court for an order under Part 6.
Before granting such an order, a court must determine:
- whether a contravention of a key requirement has been established (NCC s 113(1)); and
- whether the contravention ought to give rise to a penalty (NCC s 113(2)).
How the amount of the penalty can be calculated is set out in s 114(2) of the NCC.
Specific provisions in the NCCP Act limit the amount of interest, fees and charges that a lender can charge under small amount credit contracts and medium amount credit contracts (see ‘Payday loans’ in Chapter 5.8: Mortgages, consumer leases and other finance products). Repayments on small amount credit contracts and consumer leases cannot be more than 10 percent of the borrower’s income (NCCP Regulations regs 28LCA, 28LCB). These requirements do not provide for further limits to the interest and fees but regulate the affordability of loan repayments.
For other loans, the total amount of fees and charges on a loan must not be greater than 48 per cent per annum. This limit does not apply to authorised deposit-taking institutions (e.g. banks, credit unions and building societies).
The NCC does allow ‘unconscionable’ interest or charges (such as an establishment fee or early termination fee) to be reviewed and reduced or annulled (NCC s 78).
For information about the restrictions on interest and fees under small amount credit contracts and medium amount credit contracts see ‘Payday loans’ in Chapter 5.8: Mortgages, consumer leases and other finance products.
Credit providers cannot charge consumers early termination fees (also known as ‘exit fees’) in relation to secured home loans entered into after 1 July 2011 (NCCP Regulations reg 79A).
Not all ‘exit’ fees are prohibited. Regulation 79A(2) makes it clear that credit providers can charge:
- a break fee in relation to a fixed rate loan; and
- a discharge fee that reimburses the credit provider for the reasonable administrative cost of terminating the credit contract.
A ‘break fee’ is a fee or charge that relates:
- only to the early repayment of an amount provided under a credit contract for a fixed rate loan; and
- only to the portion of the loan that is fixed; and
- to the part of the credit provider’s loss, arising from the early repayment, that is a result of differences in interest rates.
Although the ban on early termination fees applies only to home loans taken out after 1 July 2011, relief may be available to consumers with older loans where the fee is, for example, not a reasonable estimate of the lender’s loss (NCC s 78; ASIC Regulatory Guide 220 Early termination fees for residential loans: Unconscionable fees and unfair contract terms.).