Planned changes for Consumer Credit Code

The Queensland Department of Tourism, Fair Trading and Wine Industry Development has recently released an exposure draft of proposed amendments to the Consumer Credit Code for comment. These amendments are intended to address issues in the fringe credit market, however, they apply to, and may have substantial impact on, both the fringe credit and the mainstream market.

Submissions on the proposed amendments must be made by 21 September 2007.

The proposed amendments include amendments to the following:

Business Purpose Declarations

The proposed amendment removes the presumption relating to Business Purpose Declarations. In particular, it removes the conclusive presumption that credit is provided wholly or predominantly for business purposes and that the credit is therefore exempt from the Code. Instead, a credit provider will need to show it has taken active steps to ascertain the consumer’s particular purpose for seeking credit and, as a result of its inquiries, it received information by or on behalf of the consumer about the purpose of the loan. Similar amendments to section 150 have been proposed regarding leases.

Court review of charges and fees

If implemented, the proposed amendments to section 72 may have a significant impact on a wide range of credit providers.

Currently section 72 allows a court, on application by a debtor of guarantor, to review changes to annual percentage rates, establishment fees, early termination fees and prepayment fees and make orders if it forms the view that they are unconscionable. The proposed amendments:

• change the test applied by the court in reviewing fee and charges and changes to the annual percentage rate from ‘unconscionable’ to ‘unreasonable’. This is intended to introduce a broad and flexible test for the court following the decision in Director of Consumer Affairs Victoria v City Finance Loans and Cash Solutions
• substantially widens the range of rates, fees and charges which can be reviewed by the court. In particular, the proposed amendments extend the power to review to any credit fee or charge and any combination of the annual percentage rate and any credit fee or charge
• set out when a fee is unreasonable, which will be dependant upon whether it exceeds the credit provider's loss or costs (depending upon the fee)
• insert section 72A which allows applications under Division 3 to be made by a Government Consumer Agency. This would allow bodies such as the Office of Fair Trading to bring an action under section 72 to represent the public interest, the interests of a particular debtor, mortgagor or guarantor or of debtors, mortgagors or guarantors generally and/or individuals debtors or groups of debtors seeking review of interest and other charges.

Essential household property

New subsections prohibits the taking of security over essential household property. The definition of "essential household property" is linked to what is prescribed under regulation 6.03 of the Bankruptcy Regulations 1996 (Cth). The amendments also grant the power to prescribe other property as "essential household property".

Disclosure of an annual percentage rate

The proposed amendments require disclosure of an annual percentage rate including charges which, although not portrayed by the credit provider as interest, are in the nature of interest charges.

The 5 percent cap in section 7

Section 7(1) currently includes an exemption for certain short term credit but only if the maximum amount of credit fees and charges does not exceed 5 percent of the amount of credit. The proposed amendment inserts section 7(1A). It requires the calculation for the purposes of determining whether the 5 percent cap has been exceeded to include fees and charges payable by the debtor or anyone else in connection with the provision, irrespective of whether they are payable under the credit contract.

Conclusion

These proposed amendments are significant and, if enacted, may have a substantiated impact on a wide range of credit providers. As a result, credit providers should review the amendments carefully and consider the impact that they may have on them.

We remind you that submissions must be made by 21 September 2007. Clayton Utz can help you in considering the impact of the amendments on your business and in making a submission.