Treasury has released for consultation an Exposure draft of the National Consumer Credit Protection Amendment (Small Amount Credit Contract and Consumer Lease Reforms) Bill 2017. Background
The changes apply to:
- Small Amount Credit Contract (SACCs) which are loans of up to $2,000 where the term of the contract is between 16 days and 12 months;
- consumer leases of household goods (which excludes motor vehicles);
- in the case of the cap on lease payments, all consumer leases regulated by the Credit Act.
The Bill extends the operation of the Credit Act to indefinite-term consumer leases which are not currently regulated.
The key changes made by the Bill include:
• imposing a cap on the total payments that can be made under all regulated consumer leases;
• requiring SACCs to have equal repayments and equal payment intervals;
• removing 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 SACC providers and credit assistance providers from making unsolicited invitations to apply for credit and unsolicited credit offers to current or former SACC customers;
• preventing lessors and credit assistance providers from undertaking door-to-door selling of leases at residential homes;
• introducing broad anti-avoidance protections to prevent SACC and consumer lease providers from circumventing the rules and protections contained in the Credit Act; and
• increasing penalties.
The Credit Regulations will specify new protected earnings amounts for SACCs and consumer leases for household goods:
• The existing protected earnings amount for SACCs will be extended to cover all consumers and the portion of income that can be used for SACC repayments will be 10 per cent of a consumer’s net income.
• A new protected earnings amount will be introduced for consumer leases for household goods, whereby lessors cannot enter into a contract that would require a consumer to pay more than 10 per cent of their income in rental payments under consumer leases for household goods. Under the protected earnings amount, the total rental payments (including under the proposed lease) cannot exceed 10 per cent of net income in each payment period.
The amendments introduced by the Bill, as well as the accompanying amendments to the Credit Regulations, will take effect 12 months after the date of the Royal Assent.
Consumer leases
The changes include:
• imposing a cap on lease payments that applies to all consumer leases. The cap is a multiple of the base price of the good being leased, determined by adding 4 per cent of the base price for each whole month of the lease term to the amount of the base price, for a maximum of 48 months;
• improving affordability of consumer leases by:
– introducing obligations for lessors of household goods to obtain and consider 90 days of bank statements before entering into a lease with a consumer; and
– prohibiting lessors of household goods from entering into leases that exceed the ‘protected earnings amount’;
• prohibiting door-to-door selling of consumer leases for household goods; and
• requiring lessors of household goods to disclose the base price of the goods and the difference between the total payments and the base price.
Changes that apply to both SACCs and consumer leases for household goods
The reforms include:
• restrictions on the use or disclosure of account statements that are received in connection with a SACC or consumer lease;
• requirements on providers of SACCs, leases for household goods and credit assistance to document their assessment that a SACC or consumer lease for household goods is not unsuitable for a consumer;
• requirements for lessors to provide consumers with a warning statement to assist them in making a decision whether to enter into a consumer lease for household goods; and
• explicitly identifying family violence as a reasonable cause of financial hardship.
Changes that apply specifically to SACCs
The reforms include:
• removing 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;
• requiring SACCs to have equal repayments spread over equal intervals;
• preventing SACC providers from charging monthly fees in respect of the residual term of the contract where the contract has been paid out in full early by the consumer; and
• preventing SACC providers from making unsolicited credit invitations and offers to current and previous SACC consumers.
