BILLS DIGEST NO. 71, 2011–12, 9 November 2011

Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011

Paula Pyburne
Law and Bills Digest Section

Date introduced:  21 September 2011

House:  House of Representatives

Portfolio:  Treasury

Commencement:  Sections 1–3 on the day of Royal Assent; Schedule 7 on the day after Royal Assent; Schedules 1–3 and 5–6 on 1 July 2012[1]; and Schedule 4 on 1 July 2013.

Links: The links to the Bill, its Explanatory Memorandum and second reading speech can be found on the Bill's home page, or through http://www.aph.gov.au/bills/. When Bills have been passed and have received Royal Assent, they become Acts, which can be found at the ComLaw website at http://www.comlaw.gov.au/.

Purpose

The purpose of the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011 (the Bill) is to amend the National Consumer Credit Protection Act 2009 (NCCP Act) and the National Consumer Credit Code (the Code) to:

•       enhance access to the hardship provisions in the Code

•       introduce a protection against negative equity for holders of reverse mortgages

•       introduce a cap on costs for small amount credit contracts so that up-front fees are no more than 10 per cent of the amount of the credit the borrower receives and two per cent each month for the life of the loan

•       introduce a cap on all loans so that the annual cost rate cannot exceed 48 per cent, and

•       amend the Code to ensure greater consistency between the treatment of consumer leases and credit contracts.

Background

At its meeting of 3 July 2008, the Council of Australian Governments (COAG) agreed that the Commonwealth would take over responsibility for the Regulation of trustee companies, mortgage broking, margin lending and non-deposit lending institutions as well as certain areas of consumer credit.[2]  The rationale for the decision was the need to ensure that ‘consumers were better protected in their dealings with credit products and credit providers’.[3]

At its subsequent meeting on 2 October 2008, which occurred amidst the then global financial crisis, COAG endorsed an implementation plan to strengthen the Australian Financial Services and Credit Regulation Framework.[4]  It was agreed that there would be a phased approach, beginning with the transfer of responsibility for trustee companies and existing key Credit Regulation, including the Uniform Consumer Credit Code, as the first phase. This was the genesis of the National Consumer Credit Protection Act 2009.[5] The states and territories subsequently passed legislation giving effect to that phase of the reform agenda.[6]

The Regulation of remaining areas of consumer credit, including pay-day lending (for example, pawnbrokers), credit cards, store credit, investment and small business lending, and personal loans comprised phase two of the credit reforms.  The implementation of phase two of the credit reforms was discussed and agreed by COAG at its meeting of 19 April 2010.[7]  Legislation containing new requirements for home loans and credit cards was enacted in July 2011.[8]

This Bill contains the final elements of the Government’s planned consumer credit protection reforms.

Committee consideration

Joint Committee on Corporations and Financial Services

On 22 September 2011 the House of Representatives referred the Bill for inquiry and report to the Parliamentary Joint Committee on Corporations and Financial Services (the Joint Committee).  The Joint Committee is due to report on 10 November 2011.[9]  At the time of writing this Bills Digest, the Joint Committee had not published its report.

Senate Economics Committee

In addition, the Bill has been referred to the Economics Legislation Committee for inquiry and report by 23 November 2011.[10] Similarly, at the time of writing this Bills Digest, the Economics Committee had not published its report.

Treasury consultation

The terms of this Bill and the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 were informed by a number of the responses to the Treasury’s National Credit Reform green paper which was published in July 2010.[11]

The contents of submissions which are relevant to this Bill and the position of major interest groups are discussed below.[12]

Financial implications

The Bill does not impose any financial obligation on the Commonwealth.  According to the Explanatory Memorandum, there will be a limited financial impact on persons engaging in credit activities as the changes largely target misconduct.[13]

Main issues and key provisions

Schedule 1—enhancements

Summary of proposed enhancements

Schedule 1 to the Bill contains a number of enhancements to the Code and NCCP Act including:

•       improved access by debtors to the hardship provisions

•       improved remedies for unfair or dishonest conduct by credit service providers

•       requirement that credit providers assess whether a credit contract or consumer lease is ‘unsuitable for the person’ before entering into the contract or consumer lease

•       a prohibition on representations by a licensee as to whether their actions in providing a credit service are ‘independent’, ‘impartial’, or ‘unbiased’, and

•       a prohibition on representations by a licensee that the licensee is a ‘financial counsellor’ or that the service provided was ‘financial counselling’.

Hardship provisions

Broadly, the Code applies to the provision of credit, subject to listed exceptions, if, when the credit contract is entered into:

•       the debtor is a natural person (or a strata corporation)

•       the credit is provided wholly or predominantly for personal, domestic or household purposes, to purchase, renovate or improve residential property for investment purposes (or to refinance credit that has been provided for that purpose)[14]

•       a charge is made for providing the credit, and

•       the credit provider provides the credit in the course of a business of providing credit.

Part 1 of Schedule 1 to the Bill amends the Code in relation to hardship applications by debtors.  At present, hardship applications are made in accordance with the terms of section 72 of the Code which contains the general principle that a debtor who is unable reasonably, because of illness, unemployment or other reasonable cause, to meet his or her obligations under a credit contract and who reasonably expects to be able to discharge those obligations if the terms of the contract were changed, may apply to the credit provider for such a change.  The types of changes referred to are extending the period of the contract and reducing the amount of each payment due, delivering breaks in payments, or a combination of both.

According to the Credit Ombudsman Service, lenders often also agree to a range of other remedies such as reversing default fees, default interest and enforcement costs waiving all or part of the arrears, or allowing the borrower time to sell the property. That being the case, the Credit Ombudsman Service considered that the types of variations available under subsection 72(2) do not provide sufficient flexibility to amend credit contracts when consumers find themselves in financial hardship.[15]

Item 1 of Schedule 1 to the Bill repeals and replaces section 72 with a new general requirement so that a debtor may give a credit provider a ‘hardship notice’—orally or in writing—of their inability to meet their obligations under a credit contract.  This significantly broadens the circumstances in which a debtor may claim hardship.  Proposed subsection 72(2) requires a credit provider to respond to the hardship notice by, in turn, giving the debtor notice, in the prescribed form, within 21 days, of its willingness, or otherwise, to negotiate a change in the credit contract.  In the event that the credit provider is not willing to negotiate a change, the notice under proposed paragraph 72(2)(b) must specify its reasons for that decision, provide the name of the approved external dispute resolution scheme of which it is a member and the debtor’s rights under that scheme.

In circumstances where a credit provider gives notice of a willingness to negotiate with a debtor, but subsequently decides not to change the credit contract, proposed subsection 72(3) operates so that the credit provider may give another notice within 21 days of giving the first notice, of its unwillingness to negotiate a change, in the terms outlined above.

A credit provider who enters into an agreement with a debtor (in response to a hardship notice) must, under proposed subsection 73(1) provide an additional written notice to the debtor setting out the particulars of the changes to the credit contract, within 30 days of reaching that agreement.

Where a credit provider does not enter into an agreement with a debtor (in response to a hardship notice) items 3 and 4 amend section 74 so that the debtor may apply to the court to change the terms of the credit contract. In that case, the court may make orders to change the credit contract, or the court may refuse to change the credit contract.

Item 6 inserts proposed section 89A which sets out the effect of a hardship notice on enforcement proceedings. The section applies only where:

•       the credit provider is required to give a default notice under section 88 before beginning enforcement proceedings

•       the debtor gives the credit provider a hardship notice (called the ‘current hardship notice’)‑whether a default notice has been given or not, and

•       whether or not the debtor has given, within the four months prior to giving the current hardship notice, any other hardship notices.

In that case, proposed subsection 89A(2) prohibits the credit provider from commencing enforcement proceedings unless a notice has been given to the debtor in the terms required by paragraph 72(2)(b), outlining the credit provider’s reasons for not agreeing to negotiate a change to the credit contract, and 14 days has elapsed since the giving of that notice.

However, proposed subsection 89A(3) allows the credit provider to take possession of mortgaged goods despite having been given a current hardship notice, if the credit provider reasonably believes that the goods may be removed or disposed of, or that it is necessary to do so to protect the goods.

Items 7–9 amend section 94 of the Code to make the postponement request provisions more accessible—in particular by removing the limitation that the maximum amount of the credit contract to which the postponement provisions may apply is $500 000; and by applying to the operation of an acceleration clause.[16]

Comments

Abacus Australian Mutuals questioned the efficacy of the revised procedures contained in the hardship provisions on the ground that they remove the existing requirement for a debtor to apply for hardship relief, thus giving the credit provider the ability to prescribe an application process which would normally include the provision of specified information about the debtor’s financial circumstances.  They foresee that, in practice, the debtor will not provide the information needed, either at all or within a reasonable time, for an assessment of whether hardship relief can be agreed. In such cases the credit provider will have little alternative but to refuse to negotiate a hardship change even if it would have been prepared to do so had it been in possession of the information needed to make an assessment.[17] The result may be that debtors are unnecessarily forced to access external dispute resolution schemes.

Abacus has suggested an amendment to the Bill so that the 21 days by which the credit provider must formally respond to a hardship notice would commence from the day the debtor has provided the credit provider with relevant financial information.  However, to do so would have a consequential effect—that is, to further delay the time when enforcement proceedings can commence.

Other proposed enhancements

Chapter 4 of the NCCP Act sets out the powers of the court to grant remedies in certain circumstances.  Item 10 inserts proposed section 180A which expands the circumstances in which the courts can grant remedies to include unfair or dishonest conduct by ‘credit service’ providers.[18] Under that section, the court may make one or a number of orders where the court is satisfied that a person who provided a credit service to a consumer engaged in unfair or dishonest conduct which resulted in one or more of the following:

•       the consumer entered into a credit contract, consumer lease, mortgage or guarantee that they would not have entered into in the absence of the conduct

•       the consumer entered into a credit contract, consumer lease, mortgage or guarantee whose terms were different than they would have been, if not for the conduct, and

•       the consumer became liable to pay fees, costs or changes to the credit service provider, or someone else.

Relevant to the making of these orders, proposed subsections 180A(3) and 180A(4) set out how to determine whether conduct was unfair or dishonest.  Proposed subsection 180A(4) contains a list of circumstances to be considered.  Proposed subsection 180A(3) requires the court to have regard to the extent to which one, or more, of those indicators are present in the conduct complained of. In addition, the court must consider that it is more likely that the conduct was unfair or dishonest based on the number of the circumstances listed and their effect on the consumer.

Items 12–16 and 17–21 relate to representations about a person’s eligibility to enter into a credit contract and a consumer lease respectively.  Items 14–16 amend section 128 of the NCCP Act so that a credit provider is prohibited from representing to a consumer that they are eligible to enter into a credit contract, or to have a credit limit increased, unless the credit provider has assessed whether that would be ‘unsuitable for the person’.  Similarly, item 19 repeals and replaces section 151 of the NCCP Act so that a licensee must make an assessment about whether a consumer lease is ‘unsuitable for the person’ before entering into the consumer lease.  The penalty for failing to comply with the obligation to assess ‘unsuitability’ either in section 128, or proposed section 151, is a fine of $220 000.[19]

Importantly, item 11 of Schedule 2 to the Bill inserts proposed subsections 179(6) and 179(7) into the NCCP Act. These subsections will apply where a credit provider has contravened the obligation to assess the ‘unsuitability’ of a credit contract, under section 128, before entering into that contract.  If all of the following are satisfied:

•       the contract is secured by a mortgage over the debtor’s principle place of residence

•       the contract is not a reverse mortgage,

•       the court is satisfied that, had an assessment been made in accordance with section 128, a reverse mortgage would not have been unsuitable for the debtor, and

•       the debtor (or ASIC on behalf of the debtor) has made an application to the court for an order.

Then, the court may make an order allowing the debtor to reside in the dwelling in order to prevent or reduce the loss or damage that would be suffered by the debtor in vacating the place.

Item 25 inserts proposed Part 3–6A into the NCCP Act which will set out miscellaneous rules requiring responsible lending conduct when engaging in credit activities.  In particular, proposed section 160B will prohibit a licensee from claiming that the licensee as an individual, or the licensee’s actions in providing the credit service, are ‘independent’, ‘impartial’, or ‘unbiased’. Similarly proposed section 160C will prohibit a licensee from representing to a consumer that the licensee as an individual is a ‘financial counsellor’, or the licensee’s actions in providing a service are ‘financial counselling’.  Consistent with the amendments outlined above, the penalty for failing to comply with the requirements of these sections is a fine of $220 000.

Schedule 2—reverse mortgages

Reverse mortgages operate when a consumer borrows money against the equity in their home and the principal and interest is not repaid until the home is sold—usually when the consumer dies or voluntarily vacates the home.[20]

Summary of proposed enhancements

Schedule 2 to the Bill contains a ‘no negative equity guarantee’ protection.  This means that credit providers cannot require or accept repayment of the loan for an amount which exceeds the market value of the mortgaged property.

In addition:

•       licensees must provide detailed information to consumers about the costs of a reverse mortgage

•       limit the types of conduct which will constitute a default under a reverse mortgage contract

•       disclose the way in which non‑title holding residents will be treated under a reverse mortgage contract, and

•       require credit providers to take reasonable steps to contact the debtor in person, to make sure they understand they are in default and have an opportunity to rectify the default.

Background

In November 2005, the Australian Securities and Investments Commission (ASIC) released a report examining reverse mortgages and other similar products citing the experience in the United Kingdom and the United States, where:

... there was heavy promotion of reverse mortgages to retirees in the 1980s. However, when prices moved against consumers and their debt exceeded the value of their properties, many were evicted.[21]

Clearly, taking out a reverse mortgage has some pitfalls. 

The interest burden can eat away at the home equity, particularly if interest rates rise. If the debt increases so that it exceeds the home value, the borrower is said to have ‘negative equity’ in their property.  In a worst case scenario, borrowers could find themselves evicted, their house sold, and still owing money.

Consumers may also encounter:

• Insufficient equity left to move into aged care accommodation of their choice or need.
• Having Centrelink age pension entitlements reduced.
• Problems if one partner dies with the property in his or her name because the surviving               partner may have to pay the outstanding debt to continue to live in the home.

Some reverse mortgages also have wide-ranging clauses, such as not submitting paperwork on time, which once breached, allow the lender to demand payment of the entire balance and charge penalty rates until repaid.[22]

Subsequently, ASIC reported on the results of its own survey of borrowers who had taken out reverse mortgages stating:

...  our survey, and ASIC’s broader work on reverse mortgages, suggests several factors that can inhibit good decision-making by consumers when assessing these products, which may lead to future problems.  To reduce the risk of these problems arising, we recommend improving:

• the structure and operation of these products
• the information available to consumers, and
• consumers’ access to financial advice.[23]

The Australian Labor Party (ALP) promised new rules on reverse mortgages to protect seniors as part of its 2010 election campaign.[24]  Explaining the measure, the Prime Minister, Julia Gillard stated:

Many older Australians are living in quite valuable assets, the home that they worked hard to pay off is now worth money as a result of rising property prices and many older Australians would like to access that wealth to support them in their senior years. But many also fear getting ripped‐off through the process so we will better regulate reverse mortgages so people don’t have to worry about the rip‐offs.[25]

The need for consumers to exercise great care in entering to a reverse mortgage (or other equity release product) was echoed in a recent report which stated:

If more Australian retirees are going to start using equity release products in future, they'll need to understand their options, know what questions to ask and, if they get on board, make sure they're prepared for the ride. Many borrowers in the past have found the going too rough and have tried to bail out, with costly and detrimentally life-changing results.

Not fully understanding what the products involve seems to be the main cause for grief, according to Wendy Schilg, chief executive of the National Information Centre on Retirement Incomes. "These people have signed a contract and the details were there in black and white but they just didn't understand it or it wasn't fully explained to them," Schilg says. "They had no idea how it was going to work. They get a couple of years in and realise what's happening to the equity in their home and they panic."[26]

The amendments in Schedule 2 to the Bill are intended to address this situation.

Key provisions

Item 2 of Schedule 2 to the Bill inserts proposed section 13A into the Code which defines a ‘reverse mortgage[27]’ as an arrangement involving a credit contract and a mortgage over a dwelling or land securing a debtor’s obligations under the credit contract in circumstances where the debtor’s total liability may exceed the maximum amount of credit provided under the contract.[28]

Item 10 of Schedule 2 to the Bill inserts proposed Part 3–2D into the NCCP Act setting out the rules which will apply to licensees providing reverse mortgages.  In order to fulfil the need of consumers to be fully informed of the cost of their reverse mortgage, proposed sections 133DB–133DE contain requirements that licensees provide the following:

•       written projections that relate to the value of the dwelling or land which will be the reverse mortgaged property, and the amount of the consumer’s indebtedness over time—before the person enters into the reverse mortgage

•       a ‘reverse mortgage information statement’ if a licensee provides credit contracts for reverse mortgages, on the licensee’s website[29], and

•       a ‘reverse mortgage information statement’ , in the form prescribed by the Regulations, upon request from a consumer.

These sections contain both civil penalties and criminal penalties.  Where a licensee does not comply with a requirement the civil penalty is a maximum amount of $220 000 (2000 penalty units).  In addition, there are criminal penalties of $5500 (50 penalty units) for engaging in conduct which breaches a requirement—although defences are available.  The inclusion of these civil and criminal penalties is important because existing section 179 allows the court to make orders against a person who contravenes these provisions in order to compensate a person who has suffered loss or damage as a result.

One of the problems arising from reverse mortgages is that residents in the consumer’s home who do not sign up to the relevant credit contract may not have any rights in relation to the property. This can arise as an issue if the homeowner dies or moves to aged care accommodation.[30]  Item 12 of Schedule 2 to the Bill inserts proposed subsection 17(15A) into the Code.  Where a credit contract for a reverse mortgage makes provision for a person, other than the debtor, to occupy the reverse mortgaged property, the subsection operates to allow the debtor to nominate a person who is to be allowed to occupy the property (and also to revoke that nomination). The nominated person has the same rights to occupy the property as the debtor has, or would have, apart from the death of the debtor or vacation of the property by the debtor.  Where a credit contract for a reverse mortgage does not include a ‘tenancy protection provision’, proposed section 18B requires the credit provider to tell a person in writing, before the person enters into the credit contract.[31]

In 2005, ASIC found that, although the specific terms and conditions vary across products, most reverse mortgage contracts oblige the consumer to:

•       maintain insurance for the property

•       pay all outgoings

•       maintain the property to the standard required by the provider

•       not leave the property vacant for more than six to 12 months (depending on the contract)

•       not allow new non-approved residents to reside in the property, and

•       not sell, lease or renovate the property without the provider’s prior approval.[32]

The danger to the consumer is that, in the event that they do not fulfil these conditions—to the satisfaction of the mortgage provider—demand may be made to repay the whole of the mortgage amount on the grounds that they have breached the terms and conditions of the mortgage.  In response to this danger, item 13 of Schedule 2 to the Bill inserts proposed sections 18A-18C.  In particular, proposed section 18A prohibits a credit provider from entering into a contract for a reverse mortgage where certain events would provide the basis for beginning enforcement proceedings.  Those events include where the debtor:

•       fails to inform the credit provider that another person occupies the reverse mortgaged property

•       fails to provide evidence that they, or a nominated person, occupy the reverse mortgaged property

•       leave the reverse mortgaged property unoccupied while it is the debtor’s principal place of residence

•       fails to pay a cost to a person other than the credit provider (for example, rates to a local council)

•       fails to comply with a provision of the credit contract if the contract does not make it clear how the debtor is to comply with that provision

•       breaches another credit contract with the credit provider, and

•       does, or omits to do, some act that is prescribed by the Regulations.

Items 19 and 20 take the existing Division 1 of Part 5 of the Code and split it into three separate parts by inserting the new heading Subdivision A—Paying out a contract.  That Subdivision which will contain all of existing sections 82–86.  Item 20 inserts the new heading for Subdivision B—ending of reverse mortgage by credit provider receiving value of reverse mortgaged property.  The new Subdivision B will contain proposed sections 86A–86F.  The new heading for Subdivision C—Notice of first direct debit default is inserted immediately after 86F.  That Subdivision will contain existing section 87.

It is new Subdivision B which contains a statutory ‘no negative equity’ guarantee, so that a debtor cannot be required to pay more than the market value of any property that is mortgaged to a credit provider.  It does this by providing a formula in proposed subsection 86A(2) for working out the ‘adjusted market value’ of the mortgaged property.  A credit provider must accept an amount which is equal to the adjusted market value of the reverse mortgaged property in discharge of the debtor’s obligations under the credit contract, even if that amount is less than the debtor’s accrued liability under the credit contract—and the credit provider must not, according to proposed section 86D, demand or accept any further payments.

In recognition that many debtors under a reverse mortgage will be elderly, and so be especially vulnerable, item 21 of Schedule 2 to the Bill, amends section 88 of the Code to require that, before enforcement proceedings can commence in relation to a credit contract for a reverse mortgage, the credit provider must contact the debtor, or a lawyer representing the debtor, or a person with a power of attorney in relation to the debtor’s financial affairs by telephone or in person.  The purpose of the contact is to confirm or make reasonable efforts to confirm, that the debtor has received the default notice and has been informed of the consequences of failure to remedy the default.[33]

Comments

These reforms—particularly the prevention of negative equity—have been welcomed.[34] For example, the National Information Centre on Retirement Investments Inc expressed the view that a ‘no negative equity guarantee needs to be a compulsory component for every equity release product’.[35]

Schedule 3—small amount credit contracts

Item 1 of Schedule 3 to the Bill inserts the definition of ‘small amount credit contract’ into the NCCP Act as follows:

•       the contract is not a continuing credit contract

•       the credit provider under the contract is not an authorised deposit-taking institution (ADI)

•       the debtor’s obligations under the contract are not secured by a mortgage

•       the credit limit of the contract is $2000 (or such other amount as is prescribed by the Regulations) or less

•       the term of the contract is two years (or such other number of years as is prescribed by the Regulations) or less, and

•       the contract meets any other requirements prescribed by the Regulations.

Summary of proposed enhancements

Schedule 3 to the Bill introduces new requirements to disclose to consumers any alternatives to the small amount credit contract, and prohibitions on repeat and multiple borrowing.[36]

Background

The United Kingdom (UK) Office of Fair Trading published the final report of its Review of High Cost Credit (the UK Review) in June 2010.[37]  The UK Review was launched because of concerns in the UK that consumers of high-cost credit, including many on low incomes, suffer from a lack of options when seeking credit, that the price they pay for credit is too high, and that the recession had limited suppliers’ willingness to lend money.[38] 

In Australia, ‘small amount credit contracts’ take the following forms:

•       ‘pay-day’ loans marketed to ‘tide the borrower over’ until payday, often of two to four weeks duration and are designed to meet unexpected expenses. They are best suited for temporary cash flow problems, and

•       ‘micro’ loans being loans with a duration of two months to two years. They are generally for amounts of $500 or more and are used to meet larger expenses such as replacing whitegoods, car registration, rental bonds, dental expenses and unexpected travel.[39]

According to St Lukes Anglicare, the following groups use ‘payday’ lenders:

•       more women than men (55 per cent vs. 45 per cent)

•       44 per cent of all borrowers have children under 18—not all children are still dependent; couples with children (30 per cent); single parents with dependents 10 per cent ( 88 per cent women)

•       18-45 age are the most likely population group to borrow

•       fastest growing group the casual or part time employed (28 per cent of borrowers)

•       45 per cent of borrowers are full time employed

•       85 per cent low income households ( $31 000 or less per year), and

•       approximately 25 per cent of borrowers are below or just below the poverty line for singles ($19 775).[40]

The Redfern Legal Centre describes the position as follows:

Many people who enter into short-term, small amount credit contracts (or payday loans), are people on low incomes who are unable to afford to repay their loans even at the time of entering into the contract, and are susceptible to unscrupulous or irresponsible practices of some payday lenders. Such practices can include: credit contracts that do not provide for the due date for payment to coincide with the borrower’s payday, providing access to further finance in order to meet repayment obligations, and “rolling over” one payday loan into another. These practices lead to further indebtedness on the part of the borrower and make it unlikely that the borrower will be able to repay their debt.[41]

Relevant to the enhancements in Schedule 3 to the Bill:

Those who borrow at high cost from alternative credit providers can find themselves entrenched in a cycle of over-indebtedness, unable to save or ‘get ahead’, and unable to improve their positions so that they might access more affordable, mainstream credit products ... Related to this are problems of over-indebtedness that arise due to ‘repeat borrowings’ which clearly have an impact on a consumer’s purchasing power and ability to acquire assets.[42]

Key provisions

Chapter 3 of the NCCP Act deals with responsible lending conduct.  All of the amendments in Schedule 3 to the Bill relate to responsible lending conduct for small amount credit contracts.

Item 3 inserts proposed sections 124A–124C. Proposed section 124A imposes a requirement on a licensee who enters into small amount credit contracts to ensure that their website complies with any relevant Regulations.  Proposed section 124B prohibits a licensee from offering concurrent small amount credit contracts if the licensee knows, or is reckless as to whether, the consumer is a debtor under another small amount credit contract.[43] Proposed section 124C prohibits a licensee from providing an increase to the credit limit of a small amount credit contract.

Consistent with the drafting of the other ‘requirement’ provisions of this Bill, a failure to comply with these requirements will attract a civil penalty of $220 000 (being 2000 penalty units).  The civil standard of proof is ‘on the balance of probability’.  In addition, a person commits a criminal offence (with a penalty of 50 penalty units) if the person is subject to the requirement, and engages in conduct which contravenes the requirement.  The criminal standard of proof is higher—‘beyond reasonable doubt’.

Item 4 inserts new Part 3–2C, containing proposed sections 133C–133CD in the same terms which will apply to licensees who are credit providers.

Comments

Whilst submitters from consumer advocates supported these amendments, some credit providers did not.  In particular, there was criticism of the offences created by proposed sections 133CB and 133CC on the grounds that:

Banning refinances harms the consumer because it is fundamentally in the consumer’s best interest to retain the ability to refinance with cheaper credit. Additionally, a ban on refinances is onerous and burdensome without comprehensive credit reporting.

The “reckless” provisions in the proposed bill put credit providers in an impossible situation because the definition of “recklessness” would be up to a judge based on the facts of the case, rather than clearly-specified criteria.

Credit providers cannot operate in an environment where they are subject to criminal liability for something they have no means of knowing with any certainty, that is, whether the consumer is hiding another loan with a different lender.[44]

Schedule 4—caps on costs of small amount credit contracts

There are advantages arising from the provision of credit by small amount credit contracts.  In particular, these services can help meet the needs of people who do not have ready access to mainstream financial services because they are financially excluded, or have only limited access to a small number of financial services.  A study into payday loans found that:

A repeated theme that emerged from the responses of all consumers interviewed was the high standard of customer service provided by payday lenders. Payday lenders have been quite explicit about this in their own literature. The commitment to customer service is taken quite seriously, and in this area it is clear that payday lenders have some lessons for mainstream financial services providers.

The importance of this to consumers cannot be overstated. Visually payday lenders mimic mainstream financial providers, and this heightens feelings amongst consumers that they are active participants in a commercial economy.

Further visits to payday lenders also involved a ‘personalised’ level of service. Consumers spoke favourably of their interactions with payday lending staff, and generally had pleasant recollections of their visits. For most consumers there was no stigma attached to visiting a payday lender. They are viewed as a legitimate means of accessing credit.[45]

The major disadvantage is that they are characterised by high interest rates and charges.[46]

Summary of proposed enhancements

The amendments in Schedule 4 to the Bill include:

•       setting a cap on small amount credit contracts

•       setting a cap on all other credit contracts so that the annual cost rate (including credit fees and charges and interest charges) cannot exceed 48 per cent

•       introducing penalties for credit providers who breach the cap, and

•       provisions to address specific avoidance practices that have developed in response to the operation of similar caps currently in force in some Australian states and the Australian Capital Territory.

Key provisions

The Code currently sets out prohibited monetary obligations in section 23.  Schedule 4 to the Bill inserts new provisions which relate expressly to small amount credit contracts.  Specifically item 4 inserts proposed section 23A into the Code to prohibit small amount credit contracts from imposing monetary liability on a debtor in respect of certain interest charges, fees or charges prohibited by the Code, or amounts exceeding the amount permitted by the Code.

Any such provision will be a ‘void provision’ and a debtor may recover any amounts paid to a credit provider under the void provision.  Item 6 inserts proposed subsection 24(1A) into the Code to create a criminal offence, subject to a penalty of 100 penalty units, where a credit provider contravenes the prohibition.

Item 12 inserts proposed section 31A which specifies the fees and charges which are permitted by the Code in respect of small amount credit contracts, being:

•       an establishment fee which reflects a credit provider’s reasonable costs in determining a loan application—not to exceed 10 per cent of the ‘adjusted credit amount’ under the contract[47]

•       a monthly fee or charge that is payable from the day the contract is entered into—not to exceed two per cent of the ‘adjusted credit amount’ under the contract

•       a fee or charge that is payable in the event of a default under the contract, and

•       a government fee, charge or duty payable in relation to the contract.

Item 15 of Schedule 4 to the Bill inserts proposed Division 5A into Part 2 of the Code to limit the amount that may be recovered if there is a default under a small amount credit contract to an amount that is twice the ‘adjusted credit amount’ under the contract.

Item 13 inserts proposed Division 4A into Part 2 of the Code in order to limit the annual cost rate of certain credit contracts.  Proposed section 32A prohibits a credit provider from entering into a credit contract if the ‘annual cost rate’ of the contract exceeds 48 per cent.  In addition, proposed subsection 32A(2) prohibits a person from providing credit assistance to a consumer by suggesting that the consumer apply, or assisting the consumer to apply, for a particular credit contract if the person knows, or is reckless as to whether, the annual cost rate of the contract exceeds 48 per cent. The section creates criminal offences in the event of a contravention—with penalties of 50 penalty units.  Proposed section 32B contains the necessary formula for calculating the ‘annual cost rate’.

Comments

These amendments are, by far, the most hotly contested in the Bill.  It has been reported that ‘the $800 million short-term finance industry hardened its stance against a Gillard Government plan to limit the interest rates on "pay-day" loans’.[48]

Industry supporters warn that over-regulation, or regulation which involves capping, may result in a failure to be able to maintain current competition and availability in the market, which in turn could result in demand driving business offshore or into black markets without government regulation (a situation currently occurring in the online gaming industry).  They argue that to address concerns about process, public policy should be concerned with eliminating barriers to entry and promoting competition rather than limiting or otherwise restricting the industry and its availability.[49]

In oral evidence to the Joint Committee, Phillip Smiles of Financiers Association of Australia, stated that the effect of the Bill would be to abolish commercial lenders—that 28 per cent of the short‑term, small-amount, payday lenders will go, under the proposed legislation.[50]  Other oral submissions were that the proposed caps are not an appropriate reflection of the real costs of establishing small loans.[51]

According to research conducted in the United Kingdom, there are reasons why banning payday loans (either through an outright ban or by interest rate caps) may not help consumers.  For example:

•       payday loans may be cheaper than other short-term sources of finance, such as unauthorised overdrafts

•       payday loans ease financial problems and taking them away may deepen the financial problems of low-income borrowers, and

•       there is a risk that loan sharks could prosper if payday loans were no longer available. Many borrowers do not have access to a full range of alternative forms of credit, and payday borrowing is often the only option.  If payday lending is denied, illegal forms of credit may be the only alternative.[52]

According to the Consultative Group to Assist the Poor (CGAP):

Many countries have established interest rate ceilings to protect consumers from unscrupulous lenders.  Governments often also face political or cultural pressure to keep interest rates low. Despite good intentions, interest rate ceilings generally hurt the poor by making it hard for new microfinance institutions (MFIs) to emerge and existing ones to stay in business. In countries with interest rate caps, MFIs often withdraw from the market, grow more slowly, become less transparent about total loan costs, and/or reduce their work in rural and other costly markets. By forcing pro-poor financial institutions out of business, interest rate caps often drive clients back to the expensive informal market where they have no or little protection.[53]

Schedule 5—consumer leases             

A ‘consumer lease’ is a contract for the hire of goods by a natural person or strata corporation under which that person or corporation does not have a right or obligation to purchase the goods.[54]

According to the Brotherhood of St Laurence:

... vulnerable households commonly obtain essential items (including whitegoods, TVs) through consumer leasing companies such as Radio Rentals and Mr Rentals. Many Brotherhood clients access these services at a high overall cost, when they might be able to access fair and affordable options.[55]

The Micah Law Centre identified problems with instalment based rent/purchase contracts for household goods in its report entitled: A Loan in Lease Clothing.[56]  That report noted, in particular, that ‘rent to buy leases are very expensive, yet targeted by some companies towards the lower income and vulnerable consumer groups. Cash poor consumers who cannot afford a lump sum are seduced by the benefit of making periodic payments’.[57]

Summary of proposed enhancements

The amendments in Schedule 5 to the Bill include, but are not limited to:

•       the form of consumer lease documents

•       obligations on the lessor to provide statements of account

•       changes to obligations under a consumer lease

•       changes on the grounds of hardship and on the grounds that the consumer lease was unjust

•       the rights of the lessor with regard to repossessing the relevant goods

•       the liability of lessors for misrepresentations by suppliers of the leased goods, and

•       offences for false or misleading representations and for harassment in relation to consumer leases.

Key provisions

Item 14 of Schedule 5 to the Bill repeals and replaces subsection 173(1) of the Code to require consumer leases to be in the form of a written lease document, signed by both the parties to the agreement, and containing a range of information—unless, in accordance with proposed section 173A, the Regulations authorise other ways of making a consumer lease that do not involve a written document.

Item 18 inserts proposed Divisions 4, 5, 6 and 7 into Part 11 (relating to consumer leases) of the Code.  The new Divisions contain significant protections, in particular:

•       that Regulations may specify those consumer lease fees and charges or classes of consumer lease fees and charges that are prohibited: proposed section 175A

•       a lessor must give to a lessee periodic statements of account containing information prescribed by Regulations—at least annually: proposed section 175C

•       in the event that there is a dispute between a lessor and a lessee about the amount owing under a consumer lease, the lessor must give to the lessee a written notice explaining in detail how the lessee’s liability arises; and cannot begin enforcement proceedings for a default arising from the disputed liability until 30 days, starting on the day that the written explanation was given, have elapsed: proposed section 175G, and

•       where the parties to an existing consumer lease agree to change its terms, the lessor must give to the lessee a written notice setting out the particulars of the change within 30 days of the date of the agreement: proposed section 177A.

Proposed Subdivision B of Division 7 introduces a range of provisions relating to changes on the grounds of hardship and unjust transactions.  Those provisions mimic the amended section 72 which is inserted by item 1 of Schedule 1 to this Bill and existing sections 73–77 and 79–81 of the Code which relate to credit contracts, mortgages and guarantees (with some minor omissions which relate only to mortgages).  This means that persons who enter into consumer leases will benefit from a suite of protections that are unavailable under the existing NCCP Act.

Item 20 inserts proposed Division 8 into the Code to deal with repossession, termination and enforcement of consumer leases.  Item 22 inserts into that Division, proposed section 178A which will give a lessee the right to terminate a consumer lease in the event that the goods hired have not been provided—although fees or charges incurred before the termination which are payable under the consumer lease will still have to be paid.

Item 24 inserts proposed sections 179A–179W into the Code.  In particular:

•       the provisions require a lessor to give a written statement of the amount required to terminate a consumer lease on a specific date—and empower the court to determine the amount payable if the lessor does not provide a written statement on request: proposed sections 179A and 179B respectively

•       proposed sections 179D and 179E are in the same terms as sections 88 and 89 in relation to the form of default notices and the rights to remedy defaults, and

•       proposed section 179F is in the same terms as proposed section 89A which is inserted by item 6 of Schedule 1 to the Bill to set out the effect of hardship notices on enforcement.

Item 25 of Schedule 5 to the Bill inserts the definition of ‘acceleration clause’ into subsection 204(1) of the Code.[58]  Proposed section 179G (inserted by item 24) provides that certain requirements are to be met before a lessor can enforce an ‘acceleration clause’ contained in a consumer lease.  The proposed section mirrors existing section 93 of the Code which relates to credit contracts, mortgages and guarantees to ensure consistency.  Essentially, the ‘acceleration clause’ of a consumer lease will operate only where all of the following are satisfied:

•       the lessee is in default under the lease

•       the lessor has given the lessee a default notice under proposed section 179D

•       the default notice contains an additional statement explaining the operation of the acceleration clause and the amount required to terminate the lease, and

•       the default has not been remedied within the period specified in the default notice (unless the lessor believes on reasonable grounds that the default is not capable of being remedied).

Proposed sections 179H–179L provide for the postponement of enforcement proceedings in respect of a consumer lease in the same terms as existing sections 94–97 of the Code which provide for postponement of enforcement proceedings in respect of credit contracts, mortgages and guarantees.

Proposed section 179S introduces the concepts of ‘linked lessor’ and ‘tied consumer lease’.  A ‘linked lessor’ means a lessor:

•       with whom the supplier has a contract, arrangement of understanding relating to the goods

•       to whom the supplier regularly refers persons for the purpose of providing a consumer lease

•       whose contract and application forms are made available to potential lessees by the supplier, or

•       with whom the supplier has a contract, arrangement or understanding under which contracts or applications for a consumer lease may be signed by persons at the supplier’s premises.

A ‘tied consumer lease’ is defined as a consumer lease where the subject goods are supplied by a supplier to the lessor who is a ‘linked lessor’ of that supplier.

Proposed section 179T operates so that a linked lessor is liable for any misrepresentations made by a supplier in respect of the goods hired under a tied consumer lease, the lease itself or the services supplied by the lessor that are incidental to the hire of the goods under the lease.

Comments

The Consumer CCLC strongly supports the proposed reforms to increase consumer protection in relation to leases noting that ‘a major problem in the past has been that leases have had significantly lower consumer protections leading to the use of this product by predatory lenders’.[59]

However, the Australian Finance Conference (AFC) questioned the need for these amendments—in particular the introduction of hardship and stay of enforcement proceedings provisions for consumer leases.  In addition AFC questioned the need for the issue of a statement of account other than in response to a request from a customer on the grounds that it will ‘add compliance costs with no real customer protection benefit’.[60]

Concluding comments

The amendments in the Bill are broadly welcomed by consumer advocates—especially the curbs on payday lending, improved access to hardship provisions and the protection against negative equity guarantee on reverse mortgages.  The submissions provide a clear picture of those members of society who are most affected by unscrupulous lending practices.

The Bill has been received less favourably by some lenders who are concerned that the introduction of caps on up-front fees and annual costs will drive many lenders out of the market.

It is, however, the submission from ANGLICARE Sydney which makes two additional points about the concerns that this Bill is endeavouring to address.

First, whilst the obligations which the Bill imposes on licensees who enter into small amount credit contracts—to disclose alternative programs to their consumers (such as NILS, Step UP, AddsUP)—are welcome, more is needed. In particular, borrowers who currently rely on those lenders need also to be ‘made aware of appropriate support services, including financial counselling, financial literacy courses, and as a last resort, emergency relief funding’. [61]

Second, those same microfinance programs and support services need to be supported ‘with appropriate funding to ensure they are available to vulnerable people in the longer term and develop more consistent and inherent viability’.[62]

Members, Senators and Parliamentary staff can obtain further information from the Parliamentary Library on (02) 6277 2434.

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ISSN 1328-8091

[1].               Date of commencement of Part 2 of Schedule 1 and Schedule 2 to the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011.

[2].               Council of Australian Governments, Communiqué, Sydney, 3 July 2008, p. 3, viewed 29 September 2011, http://www.coag.gov.au/coag_meeting_outcomes/2008-07-03/index.cfm

[3].               Ibid.

[4].               Council of Australian Governments, Communiqué, Perth, 2 October 2008, viewed 29 September 2011, http://www.coag.gov.au/coag_meeting_outcomes/2008-10-02/index.cfm

[5].               P Tan, National Consumer Credit Protection Bill 2009, Bills Digest, no. 30, 2009–10, Parliamentary Library, Canberra, 15 September 2009, viewed 29 September 2011, http://www.aph.gov.au/library/pubs/bd/2009-10/10bd030.pdf

[6].               For example: Credit (Commonwealth Powers) Act 2010 (Qld), Credit (Commonwealth Powers) Act 2010 (NSW) and Credit (Commonwealth Powers) Act 2010 (Vic).

[7].               Council of Australian Governments, Communiqué, Canberra, 19 April 2010, viewed 29 September 2011, http://www.coag.gov.au/coag_meeting_outcomes/2010-04-19/docs/communique_20_April_2010.pdf

[8].               J Murray, National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Bill 2011, Bills Digest, no. 140, 2010–11, Parliamentary Library, Canberra, 22 June 2011, viewed 29 September 2011, http://www.aph.gov.au/library/pubs/bd/2010-11/11bd140.pdf

[9].               Joint Committee on Corporations and Financial Services, Submission to the Senate Joint Committee, Inquiry into the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill, 3 November 2011, viewed 3 November 2011, http://www.aph.gov.au/Senate/committee/corporations_ctte/Consumer_Credit_Corporations_2011/index.htm

[10].               Senate Economics Committee, Submissions made to the Economics Committee and the final report, Inquiry into the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, 3 November 2011, viewed 3 November 2011, http://www.aph.gov.au/Senate/committee/economics_ctte/consumer_credit_enhancements_bill_2011/index.htm

[11].               Australian Government, ‘National Credit Reform: enhancing confidence and fairness in Australia’s credit law’, Treasury website, Commonwealth of Australia, Canberra, 7 July 2010, viewed 29 September 2011, http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1852

[12].               All of the submissions to the Treasury consultation are at: http://www.treasury.gov.au/consumercredit/content/consultation/submissions/submissions.asp?round=6&subName=National%20Credit%20Reform%20Green%20Paper

[13].               Explanatory Memorandum, Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, p. 4.

[14].               Subsection 72(3) provides that the ‘predominant purpose’ for which credit is provided is the purpose for which more than half of the credit is intended to be used, or if the credit is intended to be used to obtain goods or services for use for different purposes, the purpose for which the goods or services are intended to be most used.

[15].               Credit Ombudsman Service, Submission to Treasury Green Paper on National Credit Reform: enhancing confidence and fairness in Australia’s credit law, 6 August 2010, p. 3, viewed 19 October 2011, http://www.cosl.com.au/Resources/COSL/Files/Submission%20-%20Green%20Paper%20on%20Credit%20Reform.pdf

[16].               The term ‘acceleration clause’ is defined in section 92 of the Code as a term of a credit contract or mortgage providing that: (a) on the occurrence or non-occurrence of a particular event, the credit provider becomes entitled to immediate payment of all, or a part, of an amount under the contract that would not otherwise have been immediately payable, or (b) whether or not the occurrence or non-occurrence of a particular event, the credit provider has a discretion to require repayment of the amount of credit otherwise than by repayments fixed, or determined on a basis stated in the contract, but does not include any such term in a credit contract or mortgage that is an on demand facility. Note that item 25 of Schedule 5 to the Bill inserts a definition of ‘acceleration clause’ which will also refer to consumer leases in subsection 204(1) of the Code.

[17].               Abacus Australian Mutuals, Submission to Economics Committee, Inquiry into the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, 17 October 2011, pp. 2–3, viewed 21 October 2011, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=31523973-286c-4b02-861e-e66560987be4

[18].               According to section 7 of the NCCP Act a person provides a ‘credit service’ if the person provides ‘credit assistance’ to a consumer or ‘acts as an intermediary’. The term ‘credit assistance’ is defined in section 8 as including conduct such as suggesting that a consumer apply for a particular credit contract with a particular credit provider, suggesting that a consumer apply for an increase to the credit limit of a particular credit contract with a particular credit provider, or suggesting that the consumer apply for, or remain with, a particular consumer lease with a particular lessor.

[19].               The penalty is expressed as 2000 penalty units. Section 4AA of the Crimes Act 1914 provides that a penalty unit is $110.

[20].               Australian Securities and Investments Commission, Equity release products, Report no. 59, November 2005, p. 5, viewed 24 October 2011, http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Equity_release_report.pdf/$file/Equity_release_report.pdf

[21].               Ibid.

[22].               Government of Western Australia, ‘Better trading: seniors and reverse mortgages’, Department of Consumer and Employment Protection website, Issue 1, July 2007, viewed 25 October 2011, http://www.commerce.wa.gov.au/consumerprotection/PDF/Publications/bettertrading_001.pdf

[23].               Australian Securities and Investments Commission, All we have is the house: consumer experiences with reverse mortgages, Report no. 109, November 2007, p. 31, viewed 25 October 2011, http://www.asic.gov.au/asic/pdflib.nsf/LookupByFileName/Rep109_reverse_mortgages_Nov07.pdf/$file/Rep109_reverse_mortgages_Nov07.pdf

[24].               J Gillard (Prime Minister), Delivering for seniors, media release, 7 August 2010, viewed 24 October 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2FNNKX6%22

[25].               J Gillard (Prime Minister), Delivering for seniors, transcript of press conference, Brisbane, 7 August 2010, viewed 24 October 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressrel%2F0OKX6%22

[26].               J Hayes, ‘Living on a pension without the pain: equity release products can be a minefield for the uninitiated’, The Australian, 23 February 2011, p. 6, viewed 25 October 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2F572971%22

[27].               Item 1 of Schedule 2 to the Bill inserts the definition of ‘reverse mortgage’ into the definitions section of the NCCP Act to make clear that the term has the same meaning as in proposed section 13A of the Code.

[28].               Proposed subsection 13A(3) also allows for Regulations to prescribe any prerequisites for an arrangement to be a reverse mortgage.

[29].               Item 4 of Schedule 2 to the Bill inserts the definition of ‘reverse mortgage information statement’ into subsection 5(1) of the NCCP Act. The term means a document relating to reverse mortgage that complies with the Regulations.

[30].               Australian Securities and Investments Commission, Equity release products, op. cit., p. 8.

[31].               Item 13 of Schedule 2 to the Bill inserts proposed section 18B.

[32].               Australian Securities and Investments Commission, Equity release products, op. cit., p. 16.

[33].               The provisions of proposed section 89A which is inserted by item 6 of Schedule 1 to the Bill and relates to the effect of hardship notices on enforcement, will also apply in these circumstances.

[34].               Good Shepherd Youth and Family Service, Submission to National Credit Reform Green Paper, August 2010, p. 8, viewed 31 October 2011, http://www.treasury.gov.au/consumercredit/content/consultation/submissions/downloads/reform_green_paper/Good_Shepherd_Youth_and_Family_Service.pdf

[35].               National Information Centre on Retirement Investments Inc, Submission to National Credit Reform Green Paper, July 2010, p. 8, viewed 31 October 2011, http://www.treasury.gov.au/consumercredit/content/consultation/submissions/downloads/reform_green_paper/National_Information_Centre_on_Retirement_Investments_Inc.pdf

[36].               Information about the use of credit by Australian households is contained in A Ellison and R Forster, The dynamics of low income credit use: a research study of low income households in Australia, undated, viewed 27 October 2011, http://www.policis.com/pdf/International/Policis%20dynamics%20of%20low%20income%20credit%20use%20FINAL%2020080326.pdf

[37].               Office of Fair Trading, Review of high cost credit, Final report, United Kingdom, June 2010, viewed 25 October 2011, http://www.oft.gov.uk/shared_oft/reports/consumer_credit/High-cost-credit-review/OFT1232.pdf

[38].               Ibid., p. 4.

[39].               National Australia Bank, ‘Do you really want to hurt me? Exploring the costs of fringe lending—a report on the NAB small loans pilot’, NAB website, March 2010, viewed 25 October 2011, http://www.nab.com.au/wps/wcm/connect/2a98098041f1c0eb8f048f8f77f90bd6/final_small_loan_pilot_2010.pdf?MOD=AJPERES&CACHEID=2a98098041f1c0eb8f048f8f77f90bd6

[40].               St Luke’s Anglicare, Submission to Parliamentary Joint Committee on Corporations and Financial Services, Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, undated, p. 8, viewed 31 October 2011, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=b38a02cc-b5ce-444d-b848-fb0f64074dd1

[41].               Redfern Legal Centre, Submission to Senate Economics Legislation Committee, Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, 7 September 2011, p. 6, viewed 31 October 2011, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=1cfb5ee0-157a-4c23-8c30-4bc1a71eaf80

[42].               National Australia Bank, ‘Do you really want to hurt me? Exploring the costs of fringe lending—a report on the NAB small loans pilot’, op. cit. Further information is available on the ‘Debt Trap’ website which can be viewed at: http://debttrap.org.au/

[43].               The meaning of ‘reckless’ is set out in section 5.4 of the Criminal Code Act 1995. A person is reckless with respect to a circumstance if they are aware of a substantial risk that the circumstance exists or will exist; and having regard to the known circumstances, it is unjustifiable to take the risk. The question whether taking a risk is unjustifiable is one of fact.

[44].               Dollars Direct, Submission to Parliamentary Joint Committee on Corporations and Financial Services, Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, 14 October 2011, p. 3, viewed 31 October 2011, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=a486846c-bea4-4b9c-a7b0-efc35c2c53d7

[45].               D Wilson, Payday Lending in Victoria—a research report, Consumer Law Centre of Victoria, 2002, p. 76, viewed 31 October 2011, http://www.consumer.vic.gov.au/CA256902000FE154/Lookup/CAV_Credit_Research/$file/payday.pdf

[46].               S Bagwell, ‘Bankrupt mum backs protections for borrowers’, ABC news online, 21 September 2011, viewed 27 October 2011, http://www.abc.net.au/news/2011-09-21/bankrupt-mother-backs-protections-for-borrowers/2909578

[47].               Item 20 of Schedule 4 to the Bill inserts the definition of ‘adjusted credit amount’ in relation to a small amount credit contract into subsection 204(1) of the Code.

[48].               D Crowe, ‘Payday lenders take fight to PM’, Australian Financial Review, 25 October 2011, p. 11, viewed 31 October 2011, http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22media%2Fpressclp%2F1176818%22

[49].               S Corones, D McGill and R Durrant, ‘Phase two of the National Credit Reforms examining the Regulation of payday lenders’, Queensland University of Technology website, Brisbane, March 2011, p. 5, viewed 31 October 2011, http://www.ljrc.law.qut.edu.au/files/PhaseIICreditReforms-regulationofPaydayLending.pdf

[50].               P Smiles, ‘Evidence to Parliamentary Joint Committee on Corporations and Financial Services: Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011’, Joint Committee Hansard, 24 October 2011, p. 18, viewed 1 November 2011, http://www.aph.gov.au/hansard/joint/commttee/j398.pdf

[51].               P Baril, ibid., p. 20.

[52].               M Burton, ‘Keeping the plates spinning: perceptions of pay day loans in Great Britain’, Consumer Focus website, United Kingdom, August 2010, viewed 31 October 2011, http://www.consumerfocus.org.uk/assets/1/files/2010/08/Keeping-the-plates-spinning.pdf

[53].               Consultative Group to Assist the Poor, The impact of interest rate ceilings on microfinance, Donor brief, no. 18, May 2004, viewed 27 October 2011, http://www.cgap.org/gm/document-1.9.2376/DonorBrief_18.pdf

[54].               Section 169, National Credit Code.

[55].               Brotherhood of St Laurence, Submission to the Treasury’s National Credit Reform green paper, August 2010, p. 7, viewed 27 October 2011, http://www.treasury.gov.au/consumercredit/content/consultation/submissions/downloads/reform_green_paper/Brotherhood_of_St_Laurence.pdf

[56].               Micah Law Centre, A loan in lease clothing, Melbourne, 2007, viewed 27 October 2011, http://www.consumer.vic.gov.au/CA256902000FE154/Lookup/CAV_Credit_Grant_Resources/$file/credit_grant_resources_micah_law_centre_consumer_leases_project.pdf

[57].               Ibid., p. 6.

[58].               See comments in footnote 16.

[59].               Consumer Credit Legal Centre (NSW) Inc, Submission to Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, October 2011, p. 10, viewed 31 October 2011, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=f77a3b51-bc1e-4c21-99f4-1fc4cd4958eb

[60].               Australian Finance Conference, Supplementary Submission to Senate Economics Legislation Committee, Inquiry into the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, 23 October 2011, p. 6 viewed 1 November 2011, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=ab7c0d40-f208-46fa-9dfd-9da5d37d5285

[61].               ANGLICARE Sydney, Submission to Parliamentary Joint Committee on Corporations and Financial Services, Inquiry into the Consumer Credit and Corporations Legislation Amendment (Enhancements) Bill 2011, October 2011, p. 6, viewed 31 October 2011, https://senate.aph.gov.au/submissions/comittees/viewdocument.aspx?id=93c6e56a-71e9-4369-ac69-c657ca455e1a

[62].               Ibid.