11 February 2005
Key Points:
In all States and Territories (except Tasmania) the Consumer Credit Code hardship threshold has been substantially increased. The threshold amount is adjusted on a monthly basis.
Under the Consumer Credit Code, a person who is facing financial hardship may be able to renegotiate a credit contract or negotiate a postponement of enforcement rights.
Section 66 of the Code allows a debtor who is unable reasonably, because of illness, unemployment or other reasonable cause to meet the obligations of a credit contract, to apply to the credit provider for certain changes to the terms of the contract, if the debtor reasonably expects to then be able to meet the revised obligations. Section 86 allows a debtor, mortgagor or guarantor who has been given a default notice under Division 2, or a demand for payment under section 82 of the Code, to negotiate a postponement of the enforcement proceedings or the operation of an acceleration clause with the credit provider. This right to negotiate continues until the end of the period specified in the notice or demand.
If the credit provider refuses to change the terms of the contract, or to negotiate a postponement of enforcement proceedings or the operation of an acceleration clause, an application can then be made to the Court, which may grant a change or postponement.
Prior to 5 November 2004, the rights in section in section 66 and 86 and the right to apply to the Court were limited to credit contracts under which the maximum amount of credit that is, or may be provided, was not more than $125,000.
Effective from this date, as a result of amendments to the Consumer Credit Code Regulation 1995, the threshold was increased, and, in order to keep pace with inflation, the threshold amount is no longer set out in the Regulation. Instead, the Regulation now prescribes that the threshold is equal to 110 percent of the average loan size for the purchase of new dwellings in New South Wales. The average loan size figure is released monthly by the Australian Bureau of Statistics and set out in the Table of Housing Finance Commitments in the publication Housing Finance, Australia.
As from 11 December 2004 the threshold was $330,550. From 17 January 2005 the threshold is $333,080.
The old threshold was set in 1996, and, when announcing the amendments to the Regulation, Queensland Fair Trading Minister Margaret Keech noted that today's real estate prices mean that the average mortgage is more than $125,000.
Given that the threshold is now a "floating" figure with a relationship to the value of new dwellings in New South Wales, the threshold can drop, as well as rise, from month to month.
Unlike the other States and Territories, the threshold in Western Australia and Tasmania did not change on 5 November 2004. In Western Australia, the new method of determining the threshold came into operation on 31 December 2004. In Tasmania, because the Consumer Credit (Tasmania) Regulations are yet to be amended in the same manner as the Consumer Credit Code Regulation 1995, the threshold remains at $125,000.
The current threshold amount can be found on the "What's New" page of the Consumer Credit Code website.
For further information, please contact Randal Dennings and Graeme Howatson.
