This fact sheet is for information only. It is recommended that you get legal advice about your situation.
THE CONSUMER CREDIT LAW PROVIDES IMPORTANT CONSUMER PROTECTIONS FOR YOU.
There are two laws that are relevant:
The old credit code
Before 1 July 2010, the old credit code (or what was then known as the Consumer Credit Code) applied to credit contracts. This was state-based legislation, enacted in each state.
The National Credit Act
The National Credit Act (or technically the National Consumer Credit Protection Act 2009 ) is national legislation. The National Credit Act includes a schedule known as the National Credit Code. All contracts that are covered by the Old Credit Code immediately before 1 July 2010 will be covered by the National Credit Code from 1 July 2010, but some of the Old Credit Code provisions will apply to these loans rather than the new provisions.
THE NATIONAL CREDIT ACT PROVIDES YOU IMPORTANT PROTECTIONS SUCH AS:
- Requiring certain information to be disclosed on the loan contract;
- The right to apply for a repayment arrangement on the grounds of financial hardship;
- A default notice giving at least 30 days to repay any arrears must be issued before court action or repossession;
- Procedures to be followed for the repossession of goods (which includes cars);
- Requirement to be in External Dispute Resolution.
The above is not a complete list and you should seek legal advice if you have a dispute or you are in financial hardship.
AS A GUIDE, THE NATIONAL CREDIT ACT WILL APPLY IF:
- There is a loan (“deferred debt”);
- The lender is in the business of providing loans;
- A charge is made for providing the credit (e.g. interest or fees);
- The loan is predominantly for personal, domestic or household purposes;
- The loan is for the refinance, purchase or improvement of an investment property (Only for loans granted on or after 1 July 2010);
- The debtor is a natural person ordinarily resident in Australia;
- The loan contract was signed on or after 1 November 1996. The exception is credit cards (and other continuing credit contracts) where the contract may have been signed at any time (even prior to 1 November 1996).
EXAMPLES OF LOANS THAT THE CREDIT ACT WOULD USUALLY APPLY TO ARE:
- Car loans
- Personal loans
- Home loans
- Consumer leases (eg. car leases and rental contracts for goods)
- Credit cards
- Investment property loan (for loans granted on or after 1 July 2010).
EXAMPLES OF LOANS THAT THE NATIONAL CREDIT ACT WOULD NOT APPLY TO ARE:
- Short term loans (under two months) with very low interest and fees as a percentage of the loan
- Insurance premiums paid by instalments
- Investment loans for shares
- Business leases
- Business loans
- Pawnbroking loans (although unjust transactions and unconscionable interest and charges provisions of the National Credit Code apply)
- Staff loans
- Overdrafts that have not been arranged in advance with the financial institution (personal or business)
- Charge cards (e.g. when the entire balance must be paid every month)
WHAT IF THE LOAN IS PARTLY FOR PERSONAL PURPOSES AND PARTLY FOR BUSINESS PURPOSES?
The National Credit Act says that credit is for a personal purpose if:
- More than half the credit (amount borrowed) is intended to be used for a personal purpose; or
- The goods or services obtained with the credit are to be used for personal purposes mostly (that is, more than they are to be used for business purposes).
Therefore a loan for a vehicle which is used five days per week for business purposes and for personal purposes on the weekend only is not likely to be covered, but would be covered if the business only needed the car two days per week and it was driven for personal purposes the rest of the time. Similarly, a loan for $400,000 that was used largely to buy a house but included a small amount of working capital for a small business would be covered.
WHAT IF THE BORROWER HAS SIGNED A BUSINESS PURPOSES DECLARATION?
It is not uncommon for lenders and their agents to ask borrowers to sign a “business/investment purposes declaration” to clarify that the National Credit Act does not apply. Such a declaration will be accepted as proof that the National Credit Act does not apply UNLESS the lender (or any other relevant person who obtained the declaration from the debtor) knew, or had reason to believe, that the credit was in fact for personal purposes (or largely personal purposes). “Any other relevant person” includes car dealers and finance brokers, among others. From 1 July 2010 lenders are required to make reasonable enquiries about the purpose of the loan.
If you are unsure about whether the National Credit Act applies, or which provisions cover your contract, get Legal Advice.
NEED SOME MORE HELP?
See our Getting help fact sheet for a list of additional resources.
Last updated: October 2018.