The Minister for Financial Services, Superannuation and Corporate Law, Chris Bowen MP has introduced the reform package into Parliament (details here).

He announced that changes have been made to the exposure draft bills following industry and consumer consultation.

The significant changes include:

• Breach reporting by holders of an Australian Credit Licence has been removed;
• An express provision has been included to allow some flexibility to the application of the obligations of a licence holder according to the nature, scale and complexity of the credit activities engaged in by the licensee;
• Licence requirements only apply to legal (not equitable) assignees of debts and rights under credit contracts (this will assist securitised loans);
• The requirement for credit providers to perform the credit assistance obligations (eg a separate credit assistance guide) when providing credit assistance in relation to their own proprietary credit products has been removed;
• Responsible lending conduct requirements have been applied to consumer leases;
• Inclusion of a provision in the law that presumes that if a consumer will only be able to comply with the consumer's financial obligations under the contract by selling the consumer's principal place of residence, the consumer could only comply with those obligations with substantial hardship, unless the contrary is established;
• A prohibition on a credit assistant from securing their fees for providing credit assistance by taking a caveat has been included;
• The timeframe within which a written assessment requested by the consumer must be provided has been extended to seven business days, if the request is made within two years of the quote or contract date or 21 business days if the request is made thereafter. A consumer's right to request a copy of the assessment is limited to seven years after the date of the quote or contract;
• A lender will be required to give the debtor (and any guarantor) a notice within 10 business days of the first direct debit payment failing in relation to a direct debit instruction;
• The civil penalty infringement notice amount is reduced from 1/20th to 1/40th.;
• The criminal penalty is reduced to two years jail term and 100 penalty units. This reflects the different economic risks in credit matters compared to other financial products.

Langes is currently reviewing the draft bills in detail.

We will be discussing the legislation at our seminars in Brisbane, Sydney, Melbourne and Adelaide in August.(More information here).

Also see our new National Consumer Credit Reform website.

In one of his interviews last week Peter Costello said the hardest thing he had done as Treasurer was the introduction of the GST.

It is incredibly complicated and technical and there isn't a lot of case law.

In American Express International Inc v Commissioner of Taxation [2009] FCA 683, Amex asked the Federal Court to decide whether payments made by the holders of credit cards and charge cards to the issuers of such cards, following default by the holders, constitute consideration for a “financial supply” within the meaning of s 40-5 of the GST Act and r 40-5.09(1) of the A New Tax System (Goods and Services Tax) Regulations 1999 (Cth) (the GST Regulations).

The issue is important in the calculation of Amex's input tax credits.

The Court decided that "while the obligation to make Fee Payments to a card issuer would not arise unless there was the Credit Card Facility or Charge Card Facility in place between the card holder and the card issuer, the liability to make the Fee Payments arises because the card holder has failed to perform that card holder’s obligations under the Credit Card Terms and Conditions or the Charge Card Terms and Conditions, as the case may be. They are not consideration in connection with opening, keeping, operating, maintaining or closing the relevant facility. A card holder becomes liable to make the Fee Payment only because that card holder has failed to discharge, that is, has breached, the card holder’s contractual obligations under the relevant facility. "

The late payment fee was not consideration in connection with the provision, acquisition or disposal by the card issuer of an interest. Accordingly, the fee payments were not consideration in connection with a financial supply.

If you provide credit to Victorian residents (even if your business is based outside Victoria) you are affected by the Victorian Fair Trading and Other Acts Amendment Act 2009 which commenced operation on 11 June 2009.

In particular you need to review your fees to determine whether they are unfair under the new law.

The new unfair contract law (set out in Part 2B of Victoria’s Fair Trading Act 1999) pre-empts the Commonwealth’s unfair contract terms law which is due to apply nationally from 1 January 2010,

Consumer Affairs Victoria (“CAV”) has published Guidelines on unfair terms in consumer credit contracts.

What is the impact of the unfair contract terms provisions of the Victorian Fair Trading Act?

Whilst the Guidelines consider a range of fees, credit card terms and reverse mortgages, it identifies 2 fees in particular:

1. There is a risk that CAV may consider an early termination fee to be “unfair” if it exceeds the “average reasonable administrative costs” relating to termination; it cannot include “general overheads such as rent, salaries and advertising”. CAV particularly objects to such a fee when the lender has unilateral rights to vary a contract’s terms.

2. There is a risk that Consumer Affairs Victoria may consider default fees to be unfair if it exceeds a “genuine pre-estimate” of your “costs arising from the consumer’s breach”.

Whilst CAV’s Guidelines are only guidelines it is worth reviewing your fees to test how they were calculated and to assess the risk that a court may find them unfair.

The Consumer Credit Code has been amended to remove the sunset date of 30 June 2009 in relation to the mandatory comparison rate scheme.

Last year, COAG agreed that responsibility for the regulation of credit will be referred by the states and territories to the Commonwealth.

The Commonwealth laws will maintain comparison rates.

Mandatory comparison rates will therefore continue under the existing law until the Commonwealth law commences.

Currently Victoria, Tasmania, ACT, NT, Queensland and Western Australia have no mortgage duty.

South Australia will abolish mortgage duty on 1 July 2009.

After 1 July 2009 NSW will be the only state with mortgage duty.

In New South Wales, mortgage duty has already been abolished on owner occupied housing and investment housing. But the abolition of the remaining mortgage duty has been deferred until 1 July 2012.

The recent 2009-10 NSW Budget proposes removing the distinction between limited and unlimited mortgages and requiring production for up-stamping each time a further advance is made.

Changes are also proposed for the stamping of multi-jurisdiction mortgages in NSW.

The NSW Treasurer has announced the NSW New Home Buyers Supplement has been extended to 30 June 2010.

The Supplement is a grant of $3000 in addition to any Commonwealth grant for First Home Buyers. It is for building a new home or unit purchasing a newly constructed home or unit .

The new threshold is $342,870 (up from $322,850). The next change will be on 7 July 2009.

Further information is available at Hardship Threshold.

From 1 January 2010 the threshold will be fixed at $500,000.