Consider what must be done before 12 June 2023 8 min read
The National Consumer Credit Protection Amendment (Financial Sector Reform) Regulations 2023 (the Proposed Regulations) seek to amend the National Consumer Credit Protection Regulations 2010, and give effect to the Federal Government's response to the 2016 review of the small amount credit contract (SACC) and consumer lease laws. The changes are designed to ensure that consumers of SACCs and consumer leases are not left unable to meet their basic needs and other financial commitments (as many consumers of these products are financially vulnerable).
To help you get ready, we explain the key aspects of the Proposed Regulations that will affect licensees who assist with or provide SACCs and consumer leases.
Key takeaways
- If made, the Proposed Regulations will commence on 12 June 2023, to align with the commencement date of the SACCs and consumer lease changes in the National Consumer Credit Protection Act 2009 (Cth) (the NCCP Act) made by the Financial Sector Reform Act 2022 (Cth) (the FSR Act).
- The Proposed Regulations will require impacted licensees to:
- obtain and verify additional financial information;
- comply with the protected earnings cap for SACCs and consumer leases for household goods;
- make additional disclosures for consumer leases for household goods;
- incorporate the prescribed calculation of the 'base price' of goods hired under consumer leases;
- only impose early termination charges in certain situations for consumer leases;
- observe the anti-avoidance measures targeted at avoidance purposes relating to SACCs, consumer leases and product intervention orders; and
- take note of the new prescribed civil penalties subject to the infringement notice regime under the NCCP Act.
Background
The Federal Government released the Proposed Regulations for consultation on 20 February 2023.
SACCs are unsecured loans to consumers of up to $2000, where the term of the contract is between 16 days and 12 months, and the credit provider is not an authorised deposit taking institution. Consumer leases are contracts for the hire of goods by a consumer where they do not have a right or obligation to purchase the goods.
Practical impacts for SACCs and consumer leases
content
Heading level 4
content
Heading level 5
Anti-avoidance measures
From 12 June 2023, amendments introduced by the FSR Act take effect to prohibit a person, either alone or with others, from entering into a scheme, beginning to carry out a scheme or to carry out a scheme if it would be reasonable to conclude it has an 'avoidance purpose'. An 'avoidance purpose' includes: to prevent a contract from being a SACC or a consumer lease, to avoid the application of the NCCP Act to a SACC or a consumer lease, or to avoid the application of a product intervention order (PIO).
The Proposed Regulations introduce additional matters for a court to take into account in determining whether it is reasonable to conclude that a scheme has an avoidance purpose. These include:
- whether the scheme, or contract offered to consumers as part of the scheme, is exempt from the credit licensing regime under the National Credit Code (the Code) provisions because there is no charge for the provision of credit under s5(1)(c) of the Code, the credit is short term credit under s6(1), or there is only an account charge payable for the credit under s6(5);
- whether the scheme involves unreasonably high costs or fees, fees that are disproportionate to the amount of credit offered, or fees that make the consumer liable for other fees under the contract;
- whether the scheme is unnecessarily complex, including where the consumer must pay fees to multiple persons, if the scheme involves multiple contracts, or requiring the consumer to pay fees and charges or default fees to a person who has not provided credit or financial accommodation under the scheme;
- whether the scheme provides adequate dispute resolution procedures that satisfy ASIC's standards under ASIC's Regulatory Guide 271: Internal dispute resolution; and
- whether the scheme is designed to avoid PIOs, including where those involved in it make minor changes to avoid the application of one, or where those involved are not technically in breach of the PIO but continue to engage in the harmful conduct ASIC sought to address.
ontent
Next steps
The consultation on the Exposure Draft will close on 20 March 2023, so you can still have your say.
Licensees should also consider what changes must be implemented before 12 June 2023 to comply with the new SACC and consumer lease requirements.
If you require assistance, please contact any of the people below.