Sara Pearson Roberta Grealish Solicitor Senior Solicitor Georgia - - PowerPoint PPT Presentation

Roberta Grealish

Senior Solicitor

Sara Pearson

Solicitor

Georgia Turco

Solicitor

• 1. What is credit & credit laws.
• 2. Responsible lending, SACCs

and Consumer Leases

• 3. Hardship including

defaulting, IDR & EDR

Responsible Lending

Chapter 3 of NCCPA sets out obligations for credit licensees Credit Assistance Providers (Part 3 -1) Credit Providers (Part 3 -2) Obligation to assess unsuitability (s. 128)

Assessment of Unsuitability

Provider must not suggest or provide credit unless within 90 days, has made an assessment that the credit contract will not be unsuitable for the consumer.

Reasonable inquiries about the consumer

1. Make reasonable inquiries about the consumer’s financial situation; (s 117(1)(b) and s 130(1)(b) NCCPA) 2. Make reasonable inquiries about the consumer’s requirements and/or objectives; (s 117(1)(a) and s 130(1)(a) NCCPA) 3. Take reasonable steps to verify the consumer’s financial situation; and (s 117(1)(c) and s 130(1)(c) NCCPA) 4. Make an assessment: Is the loan “unsuitable”?

Credit contract must be assessed as unsuitable if it is likely that:

• The consumer will not be able to

comply with their financial obligations under the contract; or

• The consumer could only comply with

substantial hardship; or

• The contract will not meet the

consumer’s requirements and

• bjectives.

(s 118 and 131 NCCPA)

Substantial Hardship

Substantial hardship is presumed if the consumer could only comply with their obligations by selling their principal residence (ss 118(3) & 133(3) NCCPA)

HEMS and declared expenses

Responsible Lending

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“In fact, the only way that one or more declared living expenses can be shown to be necessarily relevant to the issue of whether the consumer can afford to make the repayments is by identifying some living expenses which simply cannot be foregone or reduced beyond a certain point… I may eat Wagyu beef everyday washed down with the finest shiraz but, if I really want my new home, I can make do on much more modest fare. Knowing the amount I actually expend on food tells one nothing about what that conceptual minimum

• is. But it is that conceptual minimum which

drives the question of whether I can afford to make the repayments on the loan.”

Australian Securities and Investments Commission v Westpac Banking Corporation (Liability Trial) [2019] FCA 1244, Perram J at [76].

Remedies - Legislation

• Compensation (s178(1))
• Declare contract void (s179(2)(a))
• Vary contract (s179(2)(b))
• Refuse to enforce terms of the

contract (s179(2)(c))

• Direct licensee to refund any

amounts (s179(2)(d))

Alternatives to Court

Our approach:

• Internal dispute resolution department

(IDR)

• Customer Advocate
• Australian Financial Complaints Authority

(AFCA)

‘Benefit’

What happens if client obtains a benefit under an unsuitable contract? Benefit may include: – lower fees or interest rates on the new debt. – a credit contract that better suits the consumer’s requirements and objectives. – a period of lower or no interest. An issue for clients with credit card balance transfers – any loss?

Sally’s story

A separated mum with an adult son & dependent grand-daughter, Sally came to us with large debts with various lenders and was about to declare bankruptcy. Sally’s hardship stemmed from her unsuitable home loan, forcing her into a spiral of debt. We assisted her to establish breaches of responsible lending. She received a refund of all interest, fees, and charges, worth over $90,000. This left her debt free and with $50,000 cash in hand!

Small amount credit contracts (SACCs) Payday loans

What is a SACC?

Section 5 NCCPA: A credit contract is a small amount credit contract if: a) The contract is not a continuing contract b) The credit provider is not an ADI c) The credit limit is less than $2000 d) The term is at least 16 days but not longer than 1 year e) The debtors obligations are not secured

Problems with payday lending

• High establishment and monthly fees
• High default fees
• Smaller loans can increase quickly
• Cycle of repetitive borrowing
• Multiple debts with multiple lenders
• Debt spiral
• Target the vulnerable

Responsible lending (recap)

Responsible lending means that all consumer credit brokers and lenders must:

• Make reasonable inquiries

about the borrower’s financial situation and objectives and requirements

• Verify the financial information

the borrower provided to them

• Assess whether the loan would

be not unsuitable for the borrower

Chapter 3 of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) ; in particular ss 115 – 117 and 128 – 130.

Enhanced responsible lending for payday loans

Additional obligations for payday lenders:

• Obtain bank records for past 90 days (s.117 (1A) s.130(1A)

NCCPA)

• A payday loan will be presumed unsuitable where:

 The borrower is in default on another payday loan  The borrower has had 2 or more payday loans in the 3 month period before the assessment as to suitability (s.118(3A), s131 (3A) NCCPA)  The borrower receives at least half their income from Centrelink and the repayments of all the payday loans they have including this loan would exceed 20% of their income (NCCP Regulations 28S)

SACCs: caps on charges

• 20% establishment fee (s.31A (2) NCCPA)
• 4% monthly fee on the original

value of the loan (s. 31A (3) NCCPA)

• If there is a default, the maximum

amount recoverable is 200% of the amount borrowed (s.39B NCCPA)

(adjusted credit amount: amount of credit they receive in their hand)

SACCs Warning

Must display warning on premises and website, read over the phone

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Case Study: Ryan

• Remember presumptions: A SACC will

be unsuitable for the applicant if they have received 2 other SACCs in the 90 days preceding an application or in default under another SACC.

• CCLSWA obtained documents and did
• ur own assessments: Lenders had

failed to conduct assessments of suitability or to take reasonable steps to verify Ryan’s financial situation

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Consumer leases

Consumer leases are agreements for access to domestic goods, such as a fridge

• r washing machine, where consumers

are locked into an agreement to pay off the good over several years, often with an

• ffer to buy the good at the end of this

term

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Consumer leases: The current law

• S.169 National Credit Code

a consumer lease is a contract for the hire of goods by a natural person or corporation under which that person or corporation does not have a right or

• bligation to purchase the goods.
• Regulated under part 11 of the National Credit Code
• presumptions relation to consumer leases (s.172)
• form it must take (s.173)
• disclosures it must contain (s. 174)
• copy of lease (s.175)
• statements of account (s175C)
• Division 7, Subdivision B – Changes on the grounds
• f

hardship and unjust contracts.

Sale by instalments

• s.9 of NCC

(1) a contract for the hire of goods under which the hirer has a right or obligation to purchase the goods, is to be regarded as a sale of the goods by instalment if the charge that is or may be made for hiring the goods together with any

• ther amount payable under the contract

(including an amount to purchase the goods or exercise an option to do so) exceeds the cash price of the goods. (2) A debt is regarded as having been incurred, and credit provided in such circumstances

• Option/right to purchase the

goods may = ‘sale by instalments agreement’

• NCC s 9: ‘sale by instalments

agreement’ = may be regulated credit contract (subject to s.5 (1))

What does this mean for consumers?

• Lessors are required to comply

with provisions that are largely equivalent to the “responsible lending” provisions that apply to lenders

Responsible Lending

• 1. Make reasonable enquiries about

borrowers financial situation.

• 2. Make reasonable enquires about

borrowers objectives and requirements.

• 3. Verify the consumer’s situation
• 4. Obligation to assess unsuitability.

Problems with consumer leases

• No cap on fees
• Poor disclosure of cost
• Irresponsible lending
• Exploitation of Centrepay
• Consumers who access basic household

goods through consumer leases are paying

• n average three times the retail value of

those goods

Alternatives to consumer leases

• Save up
• Lay-by
• Personal loan
• No interest loan
• Centrelink advance

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Current redress available

• IDR
• EDR

Changes to the law

• An independent review of the

laws regulating payday loans and consumer leases was undertaken in 2015-2016.

• This resulted in 24

recommendations being made in a final report provided to the Government on 3 March 2016

(10 re: SACC’s , 8 re: Consumer Leases, 6 Combined)

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Recommendations

(Consumer Leases)

• Cap on payments
• Base Price
• Add-on features/services included
• 10% of income
• DHS- centrepay
• Maximum termination
• Prohibit unsolicited selling

Recommendations

(Payday lending)

• Affordability: 10% cap on protected earnings
• Suitability: rebuttable presumption
• Short term credit contracts: maintain ban
• Direct debit fees: incorporate into cap
• Equal repayments and sanction
• Early repayment: no 4% monthly fee
• Unsolicited offers: ban
• Referrals to other SACC providers: recommend against
• Default Fees: cap

“Stop the Debt Trap” campaign

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• It has been over 1000

days since the Government accepted the recommendations

• f its own review into

SACCs

• Stop the Debt Trap

Alliance formed. Campaigning for the Government to implement the reform that was promised.

Activity: Case Study

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Facts

• Widow, 7 dependant children
• Mortgage & other personal loans
• Income: Centrelink payments: $1,000 a fortnight.
• Nimbus loan of $560 . Fortnightly instalments of

$150 with a $112 establishment fee. Defaults + penalty fee. Now owes $760

• Coin Converters loan of $1155. Fortnightly

instalments of $250.

• Accio Loans for $600 including 20%

establishment fee. Fortnightly instalments of $150

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Case Study Answers

• Responsible lending obligations
• Consider income and expenses:
• Other loans (personal loans, mortgage)
• Dependants (7!)
• Income: Centrelink
• Consider additional presumptions:
• More than two loans
• Already in default
• at least 50% of income from Centrelink. Total number
• f repayments must not exceed 20% of the income

for that income cycle

• Warning notices
• IDR / AFCA

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Questions?

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Website www.cclswa.org.au