If you sell goods or services on credit, you may be wondering how the new National Consumer Credit laws will affect you.
Ways you’re involved
Retailers should think about two ways in which they are involved in the credit process:
- as a credit provider; and/or
- as an intermediary between the customer and the credit provider.
When you’re the credit provider …
Short term credit
Many retail businesses provide goods or services ‘on terms’ (i.e., the customer has a period of time to pay for them).
Currently, under the existing Uniform Consumer Credit Code (‘UCCC’), short term credit is exempted. Retailers have the benefit of this exemption if their terms of credit do not exceed 62 days, so long as the credit fees and charges do not exceed 5% of the credit amount, and the interest charges do not exceed 24% per annum.
Under the new National Credit Code (‘NCC’), which replaces the UCCC on 1 July 2010, this same exemption continues, but there will be some new provisions on the 5% fee limit: certain fees payable by the debtor will be included as fees, even if they’re not payable under the contract. This includes fees payable to any person for an introduction to the credit provider, or for any service if the person has been introduced to the debtor by the credit provider, and fees payable to the credit provider for any service related to the provision of credit.
Commercial credit
The UCCC does not regulate credit for business purposes.
Commercial credit continues to be exempt under the NCC, except that credit for residential investment properties will now be regulated: like the UCCC, the NCC will apply to credit wholly or predominantly for personal, domestic or household purposes, but unlike the UCCC, it will also apply to credit to purchase, renovate or improve residential property for investment purposes, or to refinance credit that has been provided wholly or predominantly to purchase, renovate or improve residential property for investment purposes.
Credit for all other purposes is not regulated.
Credit with no credit charge
Under the UCCC, credit is not regulated if there is no charge that is or may be made for providing the credit. The NCC retains this exemption.
Sale of goods by instalments
In some cases, the sale of goods by instalments is treated as a credit contract under the UCCC. The NCC will operate in the same way. A sale of goods is treated as a credit contract where the amount payable to purchase the goods under the contract is payable by instalments, and that amount exceeds the cash price of the goods. The credit charge is the amount by which the amount payable to purchase the goods, together with any other amount payable under the contract, exceeds the cash price.
Lay-by sales
Lay-by sales are different to instalment sales. They are not regulated as credit contracts under the UCCC, and this will continue under the NCC.
Lay-by sales are not regulated because they do not actually involve the provision of credit (as defined in the UCCC and NCC).
Under the UCCC and the NCC, credit is provided where payment of a debt owed by one person to another is deferred, or where one person incurs a deferred debt to another. Lay-by payments are not a deferred obligation to pay.
When you’re an intermediary …
So far we have looked at the situation where the retailer is providing credit (or equivalent). However, many retailers arrange credit that is provided by a third party credit provider.
The National Consumer Credit Protection Act 2009 (Cth) (the ‘National Credit Act’) will regulate the activities of persons who arrange credit but are not the credit provider.
Persons who engage in a credit activity will generally need to obtain an Australian Credit Licence. In addition, if the credit activity involves what is called credit assistance, the licensee will generally be required to comply with the responsible lending obligations.
Credit assistance is essentially where the person suggests to the consumer that they apply for a particular credit contract with a particular credit provider, or assists them to do this.
The good news for retailers is that the draft regulations propose to exempt suppliers of goods or services where the credit is provided by a third party credit provider, and that provider is a linked credit provider of the supplier, and licensed. There are some limits to this proposed exemption.
It will not apply to rights in relation to real property and interests in real property.
It will also not apply if the retailer is a related body corporate of the linked credit provider, unless the employees of the retailer are only engaging in credit activities on behalf of the credit provider.
Credit activity will also fall outside the exemption where goods are supplied as a result of an unsolicited meeting with the consumer or an unsolicited telephone call to the consumer.
And for retailers of services, if the service is itself a service relating to credit that is regulated by the National Credit Act, that service is not exempted.
When announcing the exemption for point-of-sale finance on 25 June 2009, the Minister said that the government would be examining the issue of regulatory oversight of this area within the following 12 months. The exemption was included in response to industry lobbying, which pointed out the many practical difficulties with imposing the licensing and responsible lending model on a retail environment. While retailers have a temporary reprieve, it is therefore possible that some form of modified application of the new laws will be imposed on them in the future, following the government’s review.
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Posted 25th January 2010
by Patrick Dwyer
in Credit Code 2009
