Transcript to view Consumer Credit presentation

Law Reforms:
Consumer Credit and Tenancy Law
New Credit Laws
Presentation for State Conference 2010
Katherine Lane and Susan Winfield
Consumer Credit Legal Centre (NSW) Inc
May 2010
This presentation is for information only.You must seek legal
advice in relation to any particular circumstances.
Consumer Credit
Legal Centre (NSW)
Referrals to other face-to-face financial counselling services
Financial Counsellors and solicitors available for advice and casework assistance,
co-operative approach to both
Casework including negotiations, written legal advice and representation in EDR
schemes, courts and tribunals in credit, debt, banking & insurance
Web-based resources for the public and other caseworkers
Education resources, presentations and media
Advocacy and reform
Credit and Debt Hotline
1800 808 488
Financial Counsellors line
Insurance Law Service (National)
1300 663 464
Mortgage Hardship Service – casework, intake
via Credit and Debt Hotline
Over 15,000 calls last financial year
About 4900 referrals to financial counsellors in
the last financial year
Overview
1. New Regulator – ASIC
2. Licensing and compulsory EDR
3. New legislation – The National Consumer Credit
Protection Act 2009 (and regulations) (“NCCP Act”)
commences 1 July 2010
4. Uniform Consumer Credit Code (“UCCC”) adopted as
a schedule to the with substantial amendment and now
called the National Credit Code (“NCC”)
Note: New caseworker manual under development –
CCLC and NSW Legal Aid
What loans are covered by the
NCCP and NCC?
• Loans for personal, domestic, household purposes
such as home loans, credit cards, motor vehicles loans
and personal loans (same as UCCC)
• Loans for investment in residential property and
refinances of such loans (new)
• Consumer leases are covered under the NCC but
treated differently to loans (same as UCCC)
• Pawnbroking is only covered by the unjust contract
provisions (definition has been tightened)
NSW legislation
• The NSW credit legislation (applying the UCCC in this
state) will be repealed 1 July 2010
• The finance broker provisions will remain in force until
1 January 2011
• The maximum interest rate provisions (interest rate
‘cap’ will remain in force until 30 June 2011 (Check)
National Credit Code
• Largely the same as the UCCC but with some
significant amendments.
• Most section numbers have changed.
• Some amendments were agreed to by the states prior to
the transfer to the Federal Government and the
remainder were introduced by the Federal Government.
TOPICS
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Licensing
External Dispute Resolution (“EDR”)
Responsible Lending
Hardship Variations
Licensing
All industry participants who undertake “credit activities”
must apply for an Australian Credit License
(“ACL”) to continue in business, or be appointed as a
Credit Representative of another licensee.
In effect this includes lenders, brokers (credit
assistants), and mortgage managers, among others.
Exemptions from licensing
• Debt collectors licensed under a State regime and
collecting as agents for an ACL holder (by contrast, debt
collectors who purchase debts must be licensed)
• Financial counsellors
• Solicitors (in the ordinary course of legal business – not
if lending/broking)
• Point of sale retailers (e.g. Harvey Norman, car yards)
• Debt agreement administrators
• Treasury are still considering the position of
securitisation entities such as Perpetual Trustees and
lenders who are no longer making new loans (e.g. RHG)
External Dispute Resolution
• All ACL holders and Credit Representatives will need to
be members of an EDR scheme (in practice FOS or
COSL)
• The underlying principle of the new regime is that the
majority of disputes will go to EDR rather than Court
• Both schemes now allow disputes to be referred to them
after legal proceedings have been commenced (up
to filing of defence and cross-claim only)
• The CTTT will no longer have jurisdiction over
credit matters.
External Dispute Resolution
Why EDR?
• Free alternative to court
• No possibility of a costs order
• Accessible – complaints can be made by unrepresented
consumers or lay advocates
• No physical appearance necessary – largely paper &
telephone based
There are limitations on the amount that can be
claimed/disputed and the types of disputes that will be
considered
Responsible Lending
• The NCCP
obligations.
has
created
“responsible
lending”
• These obligations apply to brokers and lenders (and
any other intermediary interfacing with the consumer
or making lending decisions).
• They apply to loans and consumer leases.
• Timetable for compliance staggered (July 2010 for
brokers and non-bank lenders, January 2011 for banks,
mutuals and registered finance companies)
Responsible Lending
• ACL holders must make available to consumers a Credit
Guide about the licensee;
• Credit service providers (brokers) must provide the
consumer with a quote prior to providing credit
assistance; and
• The requirement to assess whether a loan is “not
unsuitable”.
Responsible Lending
Lenders and brokers must:
• Make reasonable enquiries about the borrower’s
financial circumstances
• Make reasonable enquiries about the borrower’s
needs and requirements
• Take reasonable steps to verify the above information
Responsible Lending
Brokers and lenders must not suggest, recommend or
approve a loan or lease unless they have conducted the
above assessment and concluded that the loan is “not
unsuitable”.
A loan must be assessed as “unsuitable” if:
•The consumer will not be able to pay, or not without
substantial hardship; and /or
•The loan does not meet the consumer’s needs and
requirements.
Responsible Lending
There is a presumption that, if the consumer could
only comply with the terms of a loan by selling their
principle residence, then the consumer could only
comply with substantial hardship.
Note: this must be foreseeable at the time of the
assessment, not as a result of a later, unplanned
occurrence such as illness or unemployment.
Responsible Lending
It is also an offence to suggest a borrower remains
in an unsuitable loan.
There is a defence if:
1.There is no other suitable loan
2.The licensee informs the consumer of their
rights to apply for a hardship variation or
postponement of enforcement
Responsible Lending
• Meaning of reasonable enquiries, reasonable
verification, substantial hardship etc will be
determined by the EDR schemes and ultimately the
courts
• ASIC has given some guidance in Regulatory Guide
209 Credit licensing: Responsible lending conduct
• In reality, any complaint should plead both the
responsible lending provisions and unjust contract
under section 76 (UCCC s70)
Remedies
A consumer can apply for compensation and other
remedies for unlicensed conduct, including dealing
with an unlicensed entity in the lending chain, breaches
of the responsible lending provisions, and other breaches
of the NCCP Act.
Remedies include, for example:
•Compensation for loss or damage
•An order declaring the whole or part of any contract
void
•An order varying the contract or refusing to
enforce any or all of the terms
Hardship Variations
The Hardship variations of the NCC (UCCC sections
66-68) are now in sections 72-74.
The options you can apply for remain unchanged
from s66:
• reduce repayments and extend the term
• postpone repayment (with no extension)
• postpone repayments and extend the term
Hardship Variations
The changes include:
• A new hardship threshold for contracts entered 1 July
2010 or later of $500,000 (the old floating threshold
will continue to apply for existing contracts)
• An obligation for credit providers to respond to
applications for hardship or a postponement of
enforcement within 21 days
Hardship Variations
The response must indicate whether or not the credit
provider agrees to the change and if not• The name of the EDR scheme to which the credit
provider belongs
• The consumer’s rights in relation to using the
scheme, and
• The credit provider’s reasons for rejecting the
application.
Hardship Variations
If the lender refuses an application for a hardship
variation the borrower can complain to the lender’s EDR
scheme. Both schemes now have the power to
determine the substance of a hardship variation
under the NCC (substitute the decision of the EDR
scheme for the lender’s decision)
Hardship Variations
• The CTTT will no longer be available for hardship
variation applications
• A hardship variation can be pleaded as a cross-claim in
legal proceedings to enforce a debt (there are risks
and costs implications)
• A hardship variation can be made using the new opt-in,
“small claims procedure” in the Local Court or
Federal Magistrates Court – this is a complete unknown
– EDR is preferable
Hardship Variations
Practical tips
• Must have a realistic plan to get back on track
• Can ask for time to sell an asset with reduced repayments
in the interim as a hardship variation
• Can ask for other solutions (not just section 72) but may
not be able to enforce
• Can complain about failure to comply with a relevant Code
of Practice
• EDR scheme will look at Code breaches – usually looking
at process as opposed to making final decision on
arrangement
• Refunds of enforcement costs and default interest
should be sought when inappropriately applied to a
borrower who has requested hardship assistance.