Credit provider’s obligations

An individual or company that provides credit to consumers, must be aware of the obligations under the National Consumer Credit Protection Act 2009 (Cth) (the NCCP Act) and National Credit Code (the NCC) (which is contained in Schedule 1 of the NCCP Act) and know if they apply to them and their credit activities.

What is a credit contract?

Under section 3(1) of the NCC, credit is defined as credit provided if under a contract:

(a) payment of a debt owed by one person (the debtor) to another (the credit provider) is deferred; or
(b) one person (the debtor) incurs a deferred debt to another (the credit provider).

Examples of credit meeting this definition are credit cards, loans or leases.

Types of credit contracts covered by NCC

The NCC applies to credit contracts, where:

• the credit provider charges for providing the credit;
• the credit is obtained by an individual or a strata corporation;
• the credit provided has been provided either wholly or predominantly:
• for personal, domestic or household purposes; or
• to purchase, renovate or improve a residential investment or to refinance credit that has been previously provided for this purposes.

Types of credit not covered by the NCC

However, the NCC does not cover all types of credit contracts, these include:

• short term credit contracts;
• credit without prior agreement;
• continuing credit contracts with certain account charges;
• joint credit and debit facilities;
• insurance premiums by instalments;
• pawnbroker credit;
• trustee estates;
• employee loans; and
• margin loans.

Credit provider’s obligations

If an individual or a business engages in ‘credit activities’, they will generally need to hold an Australian credit licence. The credit licence will state the types of credit activities the credit provider is allowed to engage in.

Under the NCCP Act, credit providers have legal obligations to:

• comply with the NCCP Act and all relevant legislation.
• meet their responsible lending obligations.
• ensure that they disclose all the relevant information to the consumer.
• ensure that all conflicts of interest are dealt with appropriately and are reported.
• ensure that they are competent to engage in credit activities and are adequately trained.
• have in place a dispute resolution system.

Credit providers must ensure that they are compliant with all the abovementioned obligations under the NCCP Act.

Breaches of the NCCP Act

The Australian Securities and Investments Commissions (ASIC) has the power to bring civil or criminal proceedings against a credit provider that fails to comply with its legal obligations under the NCCP Act. These proceedings may result in:

• large fines;
• imprisonment for any criminal behaviour; or
• revoking a licence.

As the penalties for violating the NCCP Act are severe, credit providers must be familiar with their obligations and must ensure they are compliant with their legal obligations. If you are concerned about your company’s compliance with the NCC or NCCP Act please contact Nicholson Ryan Lawyers on 03 9460 0400 or admin@nrlawyers.com.au for further information.