New South Wales has amended the method of calculating the maximum interest rate for consumer credit contracts.  The changes are in the Credit (Commonwealth Powers) Bill 2010,  which has been passed by both houses of the New South Wales Parliament.

UPDATE: Act assented to on 23 March.

The new method requires the inclusion of the following fees or charges when calculating the maximum annual percentage rate under a credit contract:

• fees or charges payable by the debtor to any person for an introduction to the credit provider;
• fees or charges payable by the debtor to any person for any service if the person has been introduced to the debtor by the credit provider; and
• fees or charges payable by the debtor to the credit provider for any service relating to the provision of credit, other than a service referred to in the second point above.

This means that fees or charges payable to third parties such as broker fees for the introduction of credit will need to be included when calculating the maximum annual percentage rate.

The new method will take effect on commencement of the legislation, which is to be set by proclamation.

The legislation also includes a 12 month ‘sunset clause’ on the interest rate cap. Unless legislation is introduced to extend the life of the interest rate cap, it will therefore cease to apply 12 months after commencement of the legislation.

The amount of the maximum annual percentage rate continues to be 48%.

Section 6(1) of the National Credit Code sets out the scope of the exemption for short term credit:

The Code does not apply to the provision of credit if, under the contract:
(a) the provision of credit is limited to a total period that does not exceed 62 days; and
(b) the maximum amount of credit fees and charges that may be imposed or provided for does not exceed 5% of the amount
of credit; and
(c) the maximum amount of interest charges that may be imposed or provided for does not exceed an amount
(calculated as if the Code applied to the contract) equal to the amount payable if the annual percentage rate were 24% per
annum.

For the purpose of calculating the fee cap under section 6(1)(b), new subsections 6(2) and (3) capture fees and charges paid by the debtor to parties other than the credit provider, such as introduction fees.

The fees are included in the fee cap calculation whether or not there is an association between the person and the credit provider.

As the 1 July commencement date of the new scheme approaches, NSW has introduced the Credit (Commonwealth Powers) Bill 2010 (NSW) and Victoria has introduced the Credit (Commonwealth Powers) Bill 2010 (VIC).

The National Consumer Credit Protection Regulations 2010 for the National Consumer Credit Protection Act 2009 have been gazetted and will commence on 1 July 2010 .

The Regulations provide the operational detail for many of the provisions of the Act as well as the required forms.

From 1 July 2010 ASIC will be responsible for the national administration of consumer credit legislation.

But the states will retain responsibility for the regulation and enforcement of maximum interest rates (the interest rate caps) for regulated consumer credit.

Currently, New South Wales, Victoria, Queensland and the ACT impose an interest rate cap on regulated consumer credit. There are no caps in Western Australia, Tamania and South Australia.

In New South Wales, Queensland, and the ACT, the annual cap of 48% is generally calculated inclusive of interest, fees and charges other than government fees, charges and duties (there are some variations between the states).

In Victoria, a cap of 48% is imposed on unsecured credit regulated by the UCCC, and a cap of 30% imposed on secured credit regulated by the UCCC. The caps are imposed on the interest component alone, and the cap is not inclusive of fees and charges.

Even though the current consumer credit laws will be repealed, the states will re-establish interest cap regulation under new laws (in Queensland, the Credit (Commonwealth Powers) Bill 2009 Queensland).

According to the Queensland Office of Fair Trading, most current breaches result from lack of understanding of the model and not including fees that should be included such as establishment fees and account keeping fees.