NAB has responded to customer complaints and the potential effect of the proposed unfair contract terms provisions of the Australian Consumer Law by announcing that on 1 October 2009 it will abolish the fees known by customers as overdrawn account fees on all NAB personal transaction and savings accounts. The fee is currently $30 per overdrawn event.

Under common law, to be valid a penalty imposed by a contract for a breach must be a genuine pre-estimate of the loss likely to be suffered by the party as a result of the breach, and should not be an arbitrary sum. However, under the unfair contract terms provision of the Trade Practices Amendment (Australian Consumer Law) Bill 2009 the relevant consideration is whether the term is unfair.

It’s that time of the year when organisations are calling for nominations for candidates for directors.

Many organisations now have a statutory and constitution requirement that their directors not be not “fit and proper” (Sorry about the double negative).

But being assessed as fit and proper does not mean that all candidates are equal with equal skills or attributes that will make them a valued director.

The New South Wales Supreme Court is currently determining the penalties to be imposed on former directors and executives of James Hardie following the decision in April that they were guilty of their duties of care and diligence (see summary of April decision here and Business Day summary of penalty submissions here).

Paying attention to detail, commitment to devoting the required time and diligence in listening, reading and participating in board meetings should not be underestimated in the mix of the attributes needed to make a good director. Of course, financial, legal, marketing and other skills also contribute to a successful board.

Once the minimum fit and proper standards have been met, boards need to devise processes to ensure they get the mix of candidates needed to successfully contribute to the board, if elected.

While the National Consumer Credit Protection Bill has specific responsible lending obligations in terms of (unsuitability) assessment and disclosure (provision of a credit guide) which will require the development of policies and procedures and the training of staff before 1 January 2011, the impact of responsible lending will ultimately be more than procedural.

It will be a conduct obligation under the Australian Credit License held by a credit provider on which a credit provider must report compliance annually.

A significant breach could result in a fine or even loss of the licence to provide consumer credit.

[UPDATE 24 July: Note also that  section 133 also imposes a  maximum 2 years imprisonment for breaching the prohibition on entering, or increasing the credit limit of,  unsuitable credit contracts in addition to a monetary penalty.]

The Mutual Banking Code of Practice contains sections on responsible lending and credit limit increase offers as follows:

6. Responsible lending practices

(6.1) We will always act as a responsible lender.

(6.2) We will base our lending decisions, including decisions to extend existing credit facilities, on a careful and prudent assessment of your financial position. We will periodically review our credit assessment procedures and criteria for the products we issue.

(6.3) We will generally only lend amounts to you that we believe, on the information available to us, you can reasonably afford to repay. However, different criteria will apply in the case of some products, such as bridging finance arrangements and reverse mortgage loans (if we offer these).

(6.4) We expect you to provide honest and accurate information to us when applying for a loan or the extension of a credit facility. However, where it is prudent to do so, we will also undertake our own independent checks.

(6.5) We will promote the responsible use of credit to our members and customers using a range of approaches.

7. Credit limit increase offers

(7.1) If we issue a credit card or other revolving credit facility, we will act responsibly in setting and increasing the amount of credit we make available to you. We will not send you an unsolicited offer to increase your credit limit if you have a recent poor repayment history, or we are aware of other circumstances that make it imprudent for us to extend further credit to you.

(7.2) We will ensure any unsolicited offer we make to you to increase your credit limit on a credit card or other revolving credit facility that we issue includes information on:

• the new minimum payment required

• options for lowering existing or new credit limits

• not accepting the offer if you: cannot afford further credit; you are currently having difficulties meeting your repayments; or your financial circumstances are likely to deteriorate in the near future, and

• how to tell us if you do not wish to receive offers to increase your credit limit in the future.

If the Bill is passed, the responsible lending provisions will prescribe specific obligations in respect of credit assessments and verification of information.

You can now subscribe to Langes National Credit Code updates by email. You will be notified whenever a new item is published by us here.

Our latest article is a summary of the changes to the existing Consumer Credit Code by the National Credit Code from 1 January 2010 .

Subscribe to National Consumer Credit Reform by Email

Draft ASIC Regulatory Guide 104 makes it clear that ASIC will require credit licensees to lodge an annual compliance certificate, most likely similar to FS 71 for your AFS Licence.

Now is the time to review your compliance framework: credit compliance should be linked into your overall risk management system and audit and assurance program.

We will be discussing credit compliance under the new system in detail at our new site here and at our seminars in August (information here).

The new threshold is $345,290 (up from $342,870). The next change will be on 10 August 2009.

Further information is available at Hardship Threshold.

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