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A Bill for an Act to amend the National Consumer Credit Protection Act 2009, and for related purposes
For authoritative information on the progress of bills and on amendments proposed to them, please see the House of Representatives Votes and Proceedings, and the Journals of the Senate as available on the Parliament House website.
Registered 22 Oct 2018
Introduced HR 22 Oct 2018

2016-2017-2018

 

 

 

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

 

 

 

HOUSE OF REPRESENTATIVES

 

 

 

 

 

 

 

 

National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2018

 

 

EXPLANATORY MEMORANDUM

and

STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

 

 

 

 

 

 

 

Circulated by authority of

Cathy McGowan AO


National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2018

 

OUTLINE

 

This bill would implement the recommendations of the Independent Review of the Small Amount Credit Contract Laws (the Review), which recommended these changes to the law in March 2016.

 

This bill replicates word for word the Government’s exposure draft legislation, released on 23 October 2017.

 

This follows the introduction of this Bill by the former Member for Perth, Mr Tim Hammond MP, which was removed from the notice paper in accordance with (SO 42), and a motion put to the House of Representatives by the Member for Indi, on 13 August 2018, to have the bill brought on.

 

As was the intent of the former Member for Perth, the introduction of this Bill provides the Government with the opportunity to bring on the bill for debate and a vote, to implement the reforms that will protect vulnerable Australians from predatory payday lenders and consumer lease providers.

 

The bill would make amendments to the National Consumer Credit Protection Act 2009 (the ‘Credit Act’) including the National Credit Code, which is contained in Schedule 1 to the Credit Act (referred to as ‘the code’).

 

This bill would:

 

-       impose a cap on the total payments that can be made under a consumer lease. Currently, there is no cap on the total amounts of payments that can be made under a consumer lease;

-       require small amount credit contracts (SACCs) to have equal repayments and equal payment intervals;

-       remove the ability for SACC providers to charge monthly fees in respect of the residual term of a loan where a consumer fully repays the loan early;

-       preventing lessors and credit assistance providers from undertaking door-to-door selling of leases at residential homes;

-       introduce broad anti-avoidance protections to prevent SACC loan and consumer lease providers from circumventing the rules and protections contained in the Credit Act and the Code; and

-       strengthen penalties to increase incentives for SACC providers and lessors to comply with the law.

 

The bill would also facilitate the making of regulations establishing a protected earnings amount for all consumers of SACCs and also for consumer leases.

 

This would prevent SACC providers or consumer lease providers from entering into SACCs or consumer lease contracts where meeting the obligations under these leases would mean that a customer has to devote in excess of a specified proportion of their income to SACCs or consumer leases respectively.

 

 

 

NOTES ON CLAUSES

 

This explanatory memorandum draws on the exposure draft explanatory memorandum released by the Government on 23 October 2017. Additional details about this legislation are available in the exposure draft explanatory memorandum, which is available on the Treasury website.[1]

 

Significant consultation has already been undertaken on these reforms. As detailed in paragraphs 6.19 to 6.24 of the Government’s exposure draft explanatory memorandum.

 

Short title

 

This clause provides for the Bill, when enacted, to be cited as the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2018.

 

[Clause 1]

 

Commencement

 

The provisions in this bill will commence 12 months after the day it receives the Royal Assent.

 

[Clause 3]

 

Schedules   

 

This clause specifies that an Act that is specified in a Schedule is amended or repealed as set out in that Schedule. Any other item in a Schedule operates according to its terms.

 

[Clause 3]

 

Reforms that apply specifically to Small Amount Credit Contracts (SACCs)

 

This bill makes a number of reforms that would apply to SACCs.

 

Protected Earnings Amount for SACCs

 

The bill enables the regulations to set a protected earnings amount on SACC repayments for all consumers, and not just for specified classes of consumers. SACC providers are prevented from offering to enter into or entering into credit contracts where the repayments under the contract would breach the requirements in the regulations. SACC providers will be prevented from requiring or accepting payments that fail to meet these requirements.

 

[Schedule 1, items 19 and 21, subsections 133CC(1), 133CD(1) and (2)]

 

 

 

 

Removing rebuttable presumptions in relation to unsuitability of SACCs

 

This bill removes the rebuttable presumption that a SACC is unsuitable if the consumer entered into two or more SACCs in the last 90 days, or is in default under a SACC. The Review found that this requirement was ineffective and should be replaced with the strengthened protected earnings amount requirement described above.  

 

[Schedule 1, items 5, 7, 13 and 15, subsections 118(3A), 123(3A), 131(3A) and 133(3A)]

 

Equal Repayments and Repayment Intervals for SACCs

 

SACCs will be required to have equal repayments and equal repayment intervals over the life of the loan, subject to certain limited exceptions. This reform addresses a concern that some SACC providers are artificially extending the life of SACC loans by ‘front-loading’ repayments early in the loan, followed by lower repayments in the later months of the contract. This practice enables the SACC provider to receive additional monthly fees with no benefit to the consumer.

[Schedule 1, item 21, section 133CE]

 

Prohibition on fees where balance repaid early

 

This bill prohibits SACC providers from charging or requiring payment of an ‘unexpired permitted monthly fee’ where the consumer fully repays the balance of a SACC before the end of the original term of the loan. This bill also ensures that a debtor or guarantor has the right to pay out a SACC early.

 

[Schedule 1, items 42, 44, 45 and 66, subsections 31C(1)-(4), 82(2) and (3) and 204(1) of the Code]

 

Preventing unsolicited SACC invitations

 

This bill will prevent licensees from making an unsolicited SACC invitation to a person who is a current customer with a SACC provider, or has had a SACC over the last two years. It also applies these prohibitions to credit assistance providers. This prohibition is not intended to capture general advertising.  The bill also provides for regulations for the purposes of determining whether a communication is a third party unsolicited SACC invitation.

 

[Schedule 1, items 1, 3, 10, 16 and 22, subsection 5(1), section 124C, subsections 133CF(1)-(6) and paragraph 133CG(1)(b), the guide to Part 3-1, the guide to Part 3-2C]

 

Consequences for breaches

 

The bill also provides for consequences for the breaches of the above requirements including civil penalties and criminal penalties. Strict liability offences are included given the need for deterrence and the significant consequences that breaches of these requirements can have for customers.

The bill also includes loss of charge provisions. This means that customers are not liable for certain fees and charges under the SACC where the requirements have been breached. These fees and charges can be recovered as a debt from the SACC provider. 

 

 

[Schedule 1, items 20, 21, 22, 40, 41, 42 and 46 subsections 5(1), 133CC(3), 133CD(1)-(3), 133CE(1), (6), (7), 133CF(1)-(4) and 133CG(1)-(3) of the Credit Act and subsections 23A(1), 31A(1), 31C(1)-(4) and 111(1)   of the Code]

Reforms that apply specifically to consumer leases

This bill includes a number of reforms that apply to consumer leases. The new cap on costs and anti-avoidance measures in this bill apply to all consumer leases regulated under the Credit Act. The other consumer lease reforms apply only to consumer leases for household goods.

A ‘consumer lease for household goods’ is defined as a consumer lease where any of the goods under the lease are ‘household goods’. ‘Household goods’ are defined as goods of a kind ordinarily acquired for domestic or household use.

[Schedule 1, items 1 and 64, subsection 5(1) of the Credit Act and subsection 204(1) of the Code]

 

Caps on costs under consumer leases

 

This bill would impose a cap on the total payments that can be made under a consumer lease. Currently, there is no cap on the total amounts of payments that can be made under a consumer lease.

 

The permitted cap is the sum of the base price of the goods hired under the lease and 0.04 multiplied by the base price for each whole month of the consumer lease, to a maximum of 48 months.


Leases with an indefinite term are effectively capped at an equivalent level (the sum of the base price of the goods hired under the lease and 1.92 multiplied by the base price).

 

Exceptions are made for specified delivery fees, installation fees and enforcement expenses.

 

[Schedule 1, items 58, 64 and 65, section 175AA and subsection 204(1) of the Code]

 

Requirement to obtain bank account statements

 

This bill introduces a requirement that licensees that are lessors under consumer leases in respect of household goods must, in verifying the consumer’s financial situation, obtain and consider 90 days of statements for a bank account into which income of the consumer is deposited. This requirement does not limit the existing obligation on the lessor to take reasonable steps to verify the consumer’s financial situation under the general responsible lending obligations. This obligation is also applied to licensees that provide credit assistance in relation to consumer leases for household goods.

 

[Schedule 1, items 26 and 32, subsections 140(1A) and (1B), 153(1A) and (1B)]

 

Affordability of consumer leases: protected earnings amount

 

This bill facilitates the making of regulations to establish a protected earnings amount for consumer leases, consistent with the new protected earning amount for SACCs.

 

[Schedule 1, items 30 and 34, guide to Part 3-4, sections 156A, 156B]

 

 

 

 

 

Door-to-door selling of consumer leases

 

This bill introduces a prohibition on the door-to-door selling of consumer leases for household goods, or by someone who provides credit assistance, unless there is a prior arrangement with a person who resides at the property.

 

[Schedule 1, items 62 and 64, subsections 179VA(1) and 204(1) of the Code]

 

Base Price Disclosure

 

This bill requires lessors to disclose, in relation to consumer leases for household goods, the base price of the goods hired under the lease and the difference between the base price and the total amount payable under the lease.  ASIC will also have the power to prescribe by legislative instrument additional information that lessors are required to disclose and the form the disclosure must take.

 

[Schedule 1, items 54, 55, and 57, section 174 of the Code]

 

Consequences for Breaches

 

For breaches of the cost cap, protected earnings, door to door sales requirement, and base price disclosure requirements, the bill also provides for new civil penalties and criminal penalties. A strict liability offence is included for breaches of the door to door selling requirement given the need for deterrence and the significant consequences that breaches of these requirements can have for customers.

 

The bill also includes loss of charge provisions for breaches of the cost cap, protected earnings, and door to door sales requirements. This means that, where one of these requirements has been breached, the lessee is not liable for fees and charges above the base price of the goods, and that these fees and charges can be recovered as a debt. 

 

[Schedule 1, items 34, 47, 48, 49, 55, 56, 58, 62, 63, 66, subsections 156A(2), 156A(3), 156B(1), 156B(2), 156B(3), 174(3), 174(1A), 175AA(1), 175AB(1), 175AB(2), 175AC(1), 175AC(2), sections 179VA and 179VB,  and subsection 179W(1) of the Act, subsections 111(1A), 114(1B), 114(4),  and 204(1) of the Code]

 

Reforms applying to both SACCs and consumer leases

 

The bill also includes reforms that apply to both SACCs and consumer leases.

 

The reforms include:

-       restrictions on the use or disclosure of account statements that are received in connection with a SACC or consumer leases for household goods;  and

 

[Schedule 1, items 1, 35, 36, subsection 5(1), the guide to Part 3-6A, sections 160F and 160G]

 

-       requirements on providers of SACCs and leases for household goods and credit assistance providers to document their assessment that a SACC or consumer lease for household goods is not unsuitable for a consumer, and to provide a copy of this to the customer. ASIC will have the power to prescribe form and content requirements for these assessments.

 

[Schedule 1, items 2, 4, 6, 11, 12, 14, 23, 25, 27, 29, 31, 33, section 116A, subsection 120(1A), section 129A, subsection 132A(2A), section 139A, subsection 143(1A), section 152A, subsection 155(2A), and the guides to Part 3-1, Part 3-2, Part 3-3, and Part 3-4]

 

Civil and criminal penalties are provided for breaches of these requirements. These include strict liability offences, given the need to deter breaches of these requirements and the significance of breaches for customers[Schedule 1, item 12, 25, 36, subsections 129A(3) and (4), and sections 139A and 160H]

 

The bill also makes changes to:

 

-       improve and extend the existing requirements for warning statements to be displayed in relation to SACCs. The bill will require SACC providers, credit assistance providers and lessors of consumer leases for household goods to provide consumers with information in accordance with requirements specified in a legislative instrument to assist them in making a decision whether to enter into a consumer lease for household goods. This will provide ASIC with greater flexibility in prescribing these requirements and extends these statements to consumer leases for household goods; and

 

[Schedule 1, item 9, 17, 18, 24, 28, 30, 34, sections 124B, 133CB, 147A, 156C, and the guides to part 3-3 and part 3-4]

 

-       explicitly identify family violence as a reasonable cause of financial hardship for the purposes of the hardship provisions under the Code.

 

[Schedule 1, items 43 and 59, paragraph (a) of the note to subsection 72(3) of the Code and paragraph (a) of the note to subsection 177B(3) of the Code]

 

Anti-Avoidance Measures

 

The bill also introduces three anti-avoidance measures, which are:

-       a prohibition on business model avoidance schemes that are designed to prevent a contract being a SACC or consumer lease regulated under the Credit Act;

-       a prohibition on internal avoidance schemes that are designed to avoid the application of a provision of the Credit Act that applies only to a SACC or consumer lease; and

-       the regulation of indefinite-term consumer leases under the Credit Act, subject to constitutional limitations.

 

The measures are intended to provide a systematic response to avoidance practices, rather than individual responses being developed that address a specific practice after it has come into use in the credit market.

 

[Schedule 1, items 37, 38, 50, 51, 52, 53, 58, 60, 61, 63, 64, the Guide to Part 7-1,Division 1A, and sections 323A, 323B, 323C, and 323D of the Act, subsections 171(1) and (1A), section 172A, subsection 175AA(3), section 179 and subsection 204(1) of the Code]


STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS

 

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

 

National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2018

 

This bill is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.

 

Overview of the bill

 

This bill replicates the exposure draft legislation released by the Government on 23 October 2017. It strengthens the regulation of small amount credit contracts and consumer leases.

 

This bill would:

 

-       impose a cap on the total payments that can be made under a consumer lease. Currently, there is no cap on the total amounts of payments that can be made under a consumer lease;

-       require small amount credit contracts (SACCs) to have equal repayments and equal payment intervals;

-       remove the ability for SACC providers to charge monthly fees in respect of the residual term of a loan where a consumer fully repays the loan early;

-       preventing lessors and credit assistance providers from undertaking door-to-door selling of leases at residential homes;

-       introduce broad anti-avoidance protections to prevent SACC loan and consumer lease providers from circumventing the rules and protections contained in the Credit Act and the Code; and

-       strengthen penalties to increase incentives for SACC providers and lessors to comply with the law.

 

The bill would also facilitate the making of regulations establishing a protected earnings amount for all consumers of SACCs and also for consumer leases. This would prevent SACC providers or consumer lease providers from entering into SACCs or consumer lease contracts where meeting the obligations under these leases would mean that a customer has to devote in excess of a specified proportion of their income to SACCs or consumer leases respectively.

 

Human rights implications

Consistent with the Government’s draft legislation, this bill imposes strict liability offences on SACC providers and consumer lease providers for some breaches of the new requirements.

The imposition of strict liability for these offences is appropriate because of the potentially serious financial impact a contravention may have on an affected consumer. Requiring fault to be demonstrated as part of the offence would undermine deterrence and increase the likelihood of contraventions that could impact negatively on vulnerable consumers.

Furthermore, by addressing predatory behaviour by SACC lenders and consumer lease providers this bill would enhance the protection of human rights recognised under the International Covenant on Economic, Social and Cultural Rights.

 

Conclusion

 

This bill is compatible with human rights because to the extent that it may limit human rights, those limitations are reasonable, necessary and proportionate.

 

 

Cathy McGowan AO