National Consumer Credit Reform

September 11, 2012

Federal Court fines director of unlicensed credit provider

ASIC is intensifying its enforcement activity against unlicensed credit providers.

In Australian Securities and Investments Commission v ACN 092 879 733 Pty Ltd [2012] FCA 923 Judge Nicholas imposed a $7500 pecuniary penalty on the sole director of a company (formerly known as EasyChoice Home Loans Pty Ltd) which promoted on its website home and investment property loans since March 2011 when it did not hold an Australian credit licence.

Whilst an injunction was granted against EasyChoice, ASIC did not seek a pecuniary penalty against it.

The maximum penalty that may be imposed for a contravention of s 30(2) of the National Credit Act is $1,100,000 for a corporation or $220,000 for an individual: see s 30(2) and s 167(3) of the National Credit Act and s 4AA of the Crimes Act 1914 (Cth).

Judge Nicholas commented:

In the case of the second respondent, the applicant submitted that a pecuniary penalty in the range of $10,000 to $15,000 would be appropriate.

The principal object of the pecuniary penalty provisions in the National Credit Act is deterrence. …

In its submissions the applicant accepted that the website was taken down after the proceeding was commenced. The second respondent’s failure to arrange to have the website taken down (or to take other corrective action) sooner than it did was not explained. The evidence shows that the second respondent did not treat Ms Hunter Ward’s warning seriously and that his attitude to the regulator’s efforts to have his company comply with the law was unjustifiably non-responsive. That is a matter that I take into account in fixing an appropriate pecuniary penalty. But I also take into account that the evidence before me indicates (as the applicant concedes) that the first respondent did not actually engage in credit activity at any relevant time and that there is no reason to think that any person suffered any loss as a result of the respondents’ contraventions of s 30(2).

In all the circumstances I am satisfied that a pecuniary penalty of $7,500 should be imposed upon the second respondent. The respondents should also pay the applicant’s costs of this proceeding. “

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Posted 11th September 2012 by David Jacobson in licensing

September 6, 2012

Bank exception fees: High Court overrules preliminary decision in Andrews v ANZ

In Andrews v Australia and New Zealand Banking Group Ltd [2012] HCA 30 the High Court has allowed the appeal of the customers against the decision of Justice Gordon of the Federal Court who made preliminary decisions about which of ANZ Bank’s exception fees for a range of banking products may be penalties. (see case note here). The class action has been referred back to the Federal Court for further hearing.

Justice Gordon decided that only the Late Payment Fees in respect of certain credit card accounts are capable of being characterised as a penalty as they were the only fees charged for a breach of contract. On the other hand she concluded that the Honour Fees, the Dishonour Fees, the Overlimit Fees and the Non-payment Fees were not penalties.

The High Court has decided that the fact that the honour, dishonour, non-payment and over limit fees were not payable for breach of contract did not prevent them from being characterised as penalties.

The High Court unanimously rejected the proposition in a NSW Court of Appeal decision that the penalty doctrine applies only where there has been a breach of contract.

The High Court rejected the limited scope of the penalty doctrine: it decided that the question is one of substance rather than form.

It approved the following statement:

“relief may be granted in cases of penalties for non-performance of a condition, although there is no express contractual promise to perform the condition – apparently on the basis that despite the absence of such an express promise, a penalty conditioned on failure of a condition is for these purposes in substance equivalent to a promise that the condition will be satisfied.”

The ANZ did not appeal against the Federal Court’s finding that the late payment fee was payable upon breach of contract and therefore was capable of characterisation as a penalty.

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Posted 6th September 2012 by David Jacobson in legislation

September 5, 2012

Responsible lending: loans to over 55′s

The question of loans to persons approaching retirement age was raised a number of times during our recent seminars.

ASIC updated its Regulatory Guide 209 on Responsible Lending in March 2011 to address this issue:

RG 209.71 gives 2 examples of where a loan to older borrowers can be assessed as “not unsuitable” by borrowers meeting repayment obligations from sources other than current income: one where repayment will be from superannuation and another where the borrower has future plans to sell the principal residence and downsize.

RG 209.70 notes that ” Information obtained from reasonable inquiries into the consumer’s financial situation (see RG 209.27) will assist the credit provider or credit assistance provider to establish whether the consumer has the appropriate capacity to meet repayment obligations, despite foreseeable changes to income.”

Note that new responsible lending provisions will apply to reverse mortgages from 1 March 2013.

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Posted 5th September 2012 by David Jacobson in responsible lending

Speaking about credit

Our Responsible Manager seminars in Brisbane, Sydney, Melbourne and Adelaide were well received.

Our next series will be held in February 2013. Email David Jacobson if you would like to be notified of details.

Partner Shannon Adams will be speaking on the topic of Mortgage Enforcement at the LexisNexis Credit Law Conference on 21 September.

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Posted 5th September 2012 by David Jacobson in legislation, seminar

August 28, 2012

ASIC to identify unlicensed credit providers

ASIC announced that it will conduct a surveillance campaign between September and December 2012 designed to identify entities engaging in consumer credit activities without a licence.

The campaign is designed to identify businesses which applied for an Australian credit licence, but withdrew their application, or had it refused.

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Posted 28th August 2012 by David Jacobson in licensing

August 21, 2012

Credit card key fact sheet transitional regulation

The National Consumer Credit Protection Amendment Regulation 2012 (No. 2) was registered on 20 August 2012.

This regulation amends the National Consumer Credit Protection Regulations 2010 to provide a transitional arrangement in relation to credit card application forms which credit card providers have provided to consumers before the commencement of the requirement on 1 July 2012 that such application forms include a credit card Key Fact Sheet.

The amendment to the Principal Regulations allows Australian credit licensees who are credit card providers to accept credit card application forms they have provided to consumers prior to 1 July 2012 which did not include a credit card Key Fact Sheet (KFS).

It also covers the circumstance where the application was accepted and the consumer received the credit card before 1 July 2012 but does not use it until after 1 July (i.e. the contract is entered into with the consumer’s first use of the card).

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Posted 21st August 2012 by David Jacobson in legislation

August 20, 2012

Consumer Credit Legislation Amendment (Enhancements) Bill 2012 passed

The Consumer Credit Legislation Amendment (Enhancements) Bill 2012 has been passed by both Houses of Parliament and is awaiting Royal Assent.

The provisions will commence as follows:

•The provisions relating to hardship, unfair or dishonest conduct of credit providers, representations about unsuitability assessments, new provisions for giving authorisation for deductions by employers of debtors and other “enhancements” will commence on 1 March 2013.
•The provisions relating to reverse mortgages will mainly commence on 1 March 2013.
•The provisions relating to short-term and small amount credit contracts will commence on 1 March 2013.
•The provisions relating to caps on costs and interest rates on other contracts will still commence on 1 July 2013.
•The provisions relating to consumer leases will commence on 1 March 2013.
•The provisions relating to lay-by agreements will commence on a date to be fixed, nolater than 12 months after Royal Assent.

GE Money changes unclear advertising: use of “from”

ASIC has announced that GE Money has changed its online advertising of personal loans and debt consolidation following ASIC concerns that the advertising was potentially misleading.

The advertisements stated that consumers could borrow ‘from $3,000′ with an interest rate ‘from 13.99% p.a.’ However, the fine print disclosed that only loans over $20,000 were eligible for an interest rate starting from 13.99% p.a. For loans of $3,000, interest rates started at 15.79%, and could be much higher.

ASIC was concerned that the advertising was potentially misleading because the claim in the body of the advertisement created the impression that an interest rate of 13.99% was potentially available on a $3,000 personal loan. ASIC’s view was that the disclosure in the fine print was insufficiently prominent to qualify that impression.

ASIC recently issued Consultation Paper 178 Advertising credit products and credit services: Additional good practice guidance (CP 178).

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Posted 20th August 2012 by David Jacobson in legislation, responsible lending

ASIC acts on payday loan advertising: failure to disclose interest rates

ASIC has announced that Cash Today Pty Ltd has changed the advertising of its low value short-term loans on its website following ASIC concerns about its failure to disclose interest rates appropriately.

Cash Today’s website advertised the regular repayment amounts on loans, in some cases without disclosing what interest rate would apply. In other cases, while rates were disclosed, they were not expressed as annual percentage rates, as required by Section 150 of the National Credit Code.

If an interest rate is disclosed, then a comparison rate is also required.

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Posted 20th August 2012 by David Jacobson in legislation, responsible lending

Updated NCCP Act published

Comlaw has published a consolidated National Consumer Credit Protection Act 2009 up to 1 July 2012 including the amendments made by the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011

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Posted 20th August 2012 by David Jacobson in legislation