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2019
THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA
SENATE
NATIONAL CONSUMER CREDIT PROTECTION AMENDMENT (SMALL
AMOUNT CREDIT CONTRACT AND CONSUMER LEASE REFORMS) BILL 2019
EXPLANATORY MEMORANDUM
(Circulated by authority of Senators Griff and McAllister)
National Consumer Credit Protection Amendment (Small Amount Credit Contract and
Consumer Lease Reforms) Bill 2019
OUTLINE
This Bill amends the regulatory framework for Small Amount Credit Contracts ('SACC')
(commonly known as payday loans) and consumer leases (known as rent-to-buy schemes).
The Bill would implement the recommendations of the Independent Review of the Small
Amount Credit Contract Laws ('the Review').
The Bill replicates word for word the Government's Exposure Draft legislation, released on
23 October 2017.
The Review was established in 2015 to examine and report on the effectiveness of the law
relating to SACCs and to make recommendations on whether any of the provisions applicable
to SACCs should be extended to consumer leases. The Review recommended the changes to
the law contained in this Bill in March 2016 with the Government accepting the majority of
these recommendations in November 2016.
This Explanatory Memorandum draws on the Exposure Draft Explanatory Memorandum
released by the Government on 23 October 2017. Additional details about this legislation are
available in the Exposure Draft Explanatory Memorandum, which is available on the
Treasury website.1
The Bill would make amendments to the National Consumer Credit Protection Act 2009 (the
'Credit Act') including the National Credit Code, which is contained in Schedule 1 to the
Credit Act (referred to as 'the code').
This Bill would:
- introduce a cap on the total payments that can be made under a consumer lease;
- require small amount credit contracts (SACCs) to have equal repayments and equal
payment intervals;
- remove the ability for SACC providers to charge monthly fees in respect of the
residual term of a loan where a consumer fully repays the loan early;
1
https://treasury.gov.au/consultation/c2017-t229374/
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- prevent lessors and credit assistance providers from undertaking door-to-door selling
of consumer leases at residential homes;
- introduce broad anti-avoidance protections to prevent SACC loan and consumer lease
providers from circumventing the rules and protections contained in the Credit Act
and the Code; and
- strengthen penalties to increase incentives for SACC providers and lessors to comply
with the law.
Two changes that were also promised by the Government require regulations to implement.
This Bill would make changes to the Credit Act to facilitate the making of these regulations
by:
- amending the credit regulations to implement the Review's recommendation that the
protected earnings amount for SACCs will be reduced from 20 per cent of a
consumer's gross income in relation to Centrelink recipients, to 10 per cent of a
consumer's net income for each payment period. SACC providers would be prevented
from issuing loans where this would mean that the repayments of all of the customer's
SACCs would exceed this proportion of their income; and
- amending the credit regulations to implement a new similar protected earnings
amount for consumer leases for household goods. Lessors would be prevented from
entering into a lease contract where this would mean that the repayments under all of
the customer's consumer lease contracts would exceed 10 per cent of their net income
for each payment period.
Consultation
Significant consultation has already been undertaken on these reforms. As detailed in
paragraphs 6.19 to 6.24 of the Government's Exposure Draft Explanatory Memorandum:
- the panel conducting the Independent Review of the Small Amount Credit Contract
Laws undertook a comprehensive consultation process in preparing its final report;
- the panel released an initial consultation paper on 17 September 2015 and received
more than 40 submissions. During the first consultation period, the panel held four
stakeholder roundtables that included a range of industry participants (from larger
providers to smaller entities) as well as consumer groups;
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- the panel released an interim report on 22 December 2015. The interim report set out
the panel's initial observations in key areas and canvassed potential policy options.
The consultation on the interim report was an opportunity for stakeholders to
comment on the observations and provide additional information;
- during the second consultation period, the panel held a series of separate meetings
with a wide variety of stakeholders. This too included both small and large industry
participants as well as consumer groups;
- in its meeting with stakeholders, the panel also met with some consumers who
provided first-hand insights into their experiences in using SACCs and consumer
leases; and
- following the release of the final report, the Government undertook one month of
public consultation to inform the Government's response to the Review.
NOTES ON CLAUSES
Clause 2: Commencement
The provisions in this Bill will commence 12 months after the day it receives the
Royal Assent.
Clause 3 - Schedules
Reforms that apply specifically to Small Amount Credit Contracts (SACCs)
This Bill makes a number of reforms that would apply to SACCs.
Protected Earnings Amount for SACCs
The Bill enables the regulations to set a protected earnings amount on SACC repayments for
all consumers, and not just for specified classes of consumers. SACC providers are prevented
from offering to enter into or entering into credit contracts where the repayments under the
contract would breach the requirements in the regulations. SACC providers will be prevented
from requiring or accepting payments that fail to meet these requirements.
The Government has stated that, pursuant to this power, it is intended that amendments will
be made to the credit regulations implementing the Review's recommendation that the
protected earnings amount be reduced from 20 per cent of a consumer's gross income in
relation to Centrelink recipients, to 10 per cent of a consumer's net income.
[Schedule 1, items 19 and 21, subsections 133CC(1), 133CD(1) and (2)]
Removing rebuttable presumptions in relation to unsuitability of SACCs
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This Bill removes the rebuttable presumption that a SACC is unsuitable if the consumer
entered into two or more SACCs in the last 90 days, or is in default under a SACC. The
Review found that this requirement was ineffective and should be replaced with the
strengthened protected earnings amount requirement described above.
[Schedule 1, items 5, 7, 13 and 15, subsections 118(3A), 123(3A), 131(3A) and 133(3A)]
Equal Repayments and Repayment Intervals for SACCs
SACCs will be required to have equal repayments and equal repayment intervals over the life
of the loan, subject to certain limited exceptions. This reform addresses a concern that some
SACC providers are artificially extending the life of SACC loans by 'front-loading'
repayments early in the loan, followed by lower repayments in the later months of the
contract. This practice enables the SACC provider to receive additional monthly fees with no
benefit to the consumer.
[Schedule 1, item 21, section 133CE]
Prohibition on fees where balance repaid early
This Bill prohibits SACC providers from charging or requiring payment of an 'unexpired
permitted monthly fee' where the consumer fully repays the balance of a SACC before the
end of the original term of the loan. This Bill also ensures that a debtor or guarantor has the
right to pay out a SACC early.
[Schedule 1, items 42, 44, 45 and 66, subsections 31C(1)-(4), 82(2) and (3) and 204(1) of the Code]
Preventing unsolicited SACC invitations
This Bill will prevent licensees from making an unsolicited SACC invitation to a person who
is a current customer with a SACC provider, or has had a SACC over the last two years. It
also applies these prohibitions to credit assistance providers. This prohibition is not intended
to capture general advertising.
The Bill also provides for regulations for the purposes of determining whether a
communication is a third party unsolicited SACC invitation.
[Schedule 1, items 1, 3, 10, 16 and 22, subsection 5(1), section 124C, subsections 133CF(1)-(6) and paragraph
133CG(1)(b), the guide to Part 3-1, the guide to Part 3-2C]
Consequences for breaches
The Bill also provides for consequences for the breaches of the above requirements including
civil penalties and criminal penalties. Strict liability offences are included given the need for
deterrence and the significant consequences that breaches of these requirements can have for
customers.
The Bill also includes loss of charge provisions. This means that customers are not liable for
certain fees and charges under the SACC where the requirements have been breached, and
that these fees and charges can be recovered as a debt from the SACC provider.
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[Schedule 1, items 20, 21, 22, 40, 41, 42 and 46 subsections 5(1), 133CC(3), 133CD(1)-(3), 133CE(1), (6), (7),
133CF(1)-(4) and 133CG(1)-(3) of the Credit Act and subsections 23A(1), 31A(1), 31C(1)-(4) and 111(1) of
the Code]
Reforms that apply specifically to consumer leases
This Bill includes a number of reforms that apply to consumer leases.
The new cap on costs and anti-avoidance measures in this Bill apply to all consumer leases
regulated under the Credit Act.
The other consumer lease reforms apply only to consumer leases for household goods.
A 'consumer lease for household goods' is defined as a consumer lease where any of the
goods under the lease are 'household goods'. 'Household goods' are defined as goods of a
kind ordinarily acquired for domestic or household use.
[Schedule 1, items 1 and 64, subsection 5(1) of the Credit Act and subsection 204(1) of the Code]
Caps on costs under consumer leases
This Bill would impose a cap on the total payments that can be made under a consumer lease.
Currently, there is no cap on the total amounts of payments that can be made under a
consumer lease.
The permitted cap is the sum of the base price of the goods hired under the lease and 0.04
multiplied by the base price for each whole month of the consumer lease, to a maximum of
48 months.
Leases with an indefinite term are effectively capped at an equivalent level (the sum of the
base price of the goods hired under the lease and 1.92 multiplied by the base price).
Exceptions are made for specified delivery fees, installation fees and enforcement expenses.
[Schedule 1, items 58, 64 and 65, section 175AA and subsection 204(1) of the Code]
Requirement to obtain bank account statements
This Bill introduces a requirement that licensees that are lessors under consumer leases in
respect of household goods must, in verifying the consumer's financial situation, obtain and
consider 90 days of statements for a bank account into which income of the consumer is
deposited. This requirement does not limit the existing obligation on the lessor to take
reasonable steps to verify the consumer's financial situation under the general responsible
lending obligations. This obligation is also applied to licensees that provide credit assistance
in relation to consumer leases for household goods.
[Schedule 1, items 26 and 32, subsections 140(1A) and (1B), 153(1A) and (1B)]
Affordability of consumer leases: protected earnings amount
This Bill facilitates the making of regulations to establish a protected earnings amount for
consumer leases, consistent with the new protected earning amount for SACCs.
The Government has stated that, pursuant to this regulation-making power, a new protected
earnings amount will be introduced for consumer leases for household goods, whereby
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lessors cannot enter into a contract that would have the effect of a consumer paying more
than 10 per cent of their net income in rental payments under consumer leases for household
goods.
[Schedule 1, items 30 and 34, guide to Part 3-4, sections 156A, 156B]
Door-to-door selling of consumer leases
This Bill introduces a prohibition on the door-to-door selling of consumer leases for
household goods, or by someone who provides credit assistance, unless there is a prior
arrangement with a person who resides at the property.
[Schedule 1, items 62 and 64, subsections 179VA(1) and 204(1) of the Code]
Base Price Disclosure
This Bill requires lessors to disclose, in relation to consumer leases for household goods, the
base price of the goods hired under the lease and the difference between the base price and
the total amount payable under the lease. ASIC will also have the power to prescribe by
legislative instrument additional information that lessors are required to disclose and the form
the disclosure must take.
[Schedule 1, items 54, 55, and 57, section 174 of the Code]
Consequences for Breaches
For breaches of the cost cap, protected earnings, door to door sales requirement, and base
price disclosure requirements, the Bill also provides for new civil penalties and criminal
penalties. A strict liability offence is included for breaches of the door to door selling
requirement given the need for deterrence and the significant consequences that breaches of
these requirements can have for customers.
The Bill also includes loss of charge provisions for breaches of the cost cap, protected
earnings, and door to door sales requirements. This means that, where one of these
requirements has been breached, the lessee is not liable for fees and charges above the base
price of the goods, and that these fees and charges can be recovered as a debt.
[Schedule 1, items 34, 47, 48, 49, 55, 56, 58, 62, 63, 66, subsections 156A(2), 156A(3), 156B(1), 156B(2),
156B(3), 174(3), 174(1A), 175AA(1), 175AB(1), 175AB(2), 175AC(1), 175AC(2), sections 179VA and 179VB,
and subsection 179W(1) of the Act, subsections 111(1A), 114(1B), 114(4), and 204(1) of the Code]
Reforms applying to both SACCs and consumer leases
The Bill also includes reforms that apply to both SACCs and consumer leases.
The reforms include:
- restrictions on the use or disclosure of account statements that are received in
connection with a SACC or consumer leases for household goods; and
[Schedule 1, items 1, 35, 36, subsection 5(1), the guide to Part 3-6A, sections 160F and 160G]
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- requirements on providers of SACCs and leases for household goods and credit
assistance providers to document their assessment that a SACC or consumer lease for
household goods is not unsuitable for a consumer, and to provide a copy of this to the
customer. ASIC will have the power to prescribe form and content requirements for
these assessments.
[Schedule 1, items 2, 4, 6, 11, 12, 14, 23, 25, 27, 29, 31, 33, section 116A, subsection 120(1A), section
129A, subsection 132A(2A), section 139A, subsection 143(1A), section 152A, subsection 155(2A), and
the guides to Part 3-1, Part 3-2, Part 3-3, and Part 3-4]
Civil and criminal penalties are provided for breaches of these requirements. These include strict liability offences, given the
need to deter breaches of these requirements and the significance of breaches for customers. [Schedule 1, item 12, 25,
36, subsections 129A(3) and (4), and sections 139A and 160H]
The Bill also makes changes to:
- improve and extend the existing requirements for warning statements to be displayed
in relation to SACCs. The Bill will require SACC providers, credit assistance
providers and lessors of consumer leases for household goods to provide consumers
with information in accordance with requirements specified in a legislative instrument
to assist them in making a decision whether to enter into a consumer lease for
household goods.
This will provide ASIC with greater flexibility in prescribing these requirements and
extends these statements to consumer leases for household goods; and
[Schedule 1, item 9, 17, 18, 24, 28, 30, 34, sections 124B, 133CB, 147A, 156C, and the guides to part
3-3 and part 3-4]
- explicitly identify family violence as a reasonable cause of financial hardship for the
purposes of the hardship provisions under the Code.
[Schedule 1, items 43 and 59, paragraph (a) of the note to subsection 72(3) of the Code and paragraph
(a) of the note to subsection 177B(3) of the Code]
Anti-Avoidance Measures
The Bill also introduces three anti-avoidance measures, which are:
- a prohibition on business model avoidance schemes that are designed to prevent a
contract being a SACC or consumer lease regulated under the Credit Act;
- a prohibition on internal avoidance schemes that are designed to avoid the application
of a provision of the Credit Act that applies only to a SACC or consumer lease; and
- the regulation of indefinite-term consumer leases under the Credit Act, subject to
constitutional limitations.
The measures are intended to provide a systematic response to avoidance practices, rather
than individual responses being developed that address a specific practice after it has come
into use in the credit market.
[Schedule 1, items 37, 38, 50, 51, 52, 53, 58, 60, 61, 63, 64, the Guide to Part 7-1,Division 1A, and sections
323A, 323B, 323C, and 323D of the Act, subsections 171(1) and (1A), section 172A, subsection 175AA(3),
section 179 and subsection 204(1) of the Code]
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STATEMENT OF COMPATIBILITY WITH HUMAN RIGHTS
Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011
National Consumer Credit Protection Amendment (Small Amount Credit Contract and
Consumer Lease Reforms) Bill 2019
This Bill is compatible with the human rights and freedoms recognised or declared in the
international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny)
Act 2011.
Overview of the Bill
This Bill replicates Exposure Draft legislation released by the Government on
23 October 2017. It strengthens the regulation of Small Amount Credit Contracts (SACC)
and consumer leases.
This Bill would:
- introduce a cap on the total payments that can be made under a consumer lease.
Currently, there is no cap on the total amounts of payments that can be made under a
consumer lease;
- require SACCs to have equal repayments and equal payment intervals;
- remove the ability for SACC providers to charge monthly fees in respect of the
residual term of a loan where a consumer fully repays the loan early;
- preventing lessors and credit assistance providers from undertaking door-to-door
selling of leases at residential homes;
- introduce broad anti-avoidance protections to prevent SACC loan and consumer lease
providers from circumventing the rules and protections contained in the Credit Act
and the Code; and
- strengthen penalties to increase incentives for SACC providers and lessors to comply
with the law.
The Bill would also facilitate the making of regulations establishing a protected earnings
amount for all consumers of SACCs and also for consumer leases.
This would prevent SACC providers or consumer lease providers from entering into SACCs
or consumer lease contracts where meeting the obligations under these leases would mean
that a customer has to devote in excess of a specified proportion of their income to SACCs or
consumer leases respectively.
Human rights implications
Consistent with the Government's draft legislation, this Bill imposes strict liability offences
on SACC providers and consumer lease providers for some breaches of the new
requirements.
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The imposition of strict liability for these offences is appropriate because of the potentially
serious financial impact a contravention may have on an affected consumer. Requiring fault
to be demonstrated as part of the offence would undermine deterrence and increase the
likelihood of contraventions that could impact negatively on vulnerable consumers.
Conclusion
This Bill is compatible with human rights because it does not raise any human rights issues.
Senator Griff
Senator McAllister
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