NSW interest rate cap to remain in place

The New South Wales Government has introduced legislation to keep the state's interest rate cap in force. The cap was due to expire in July.

Those states that set maximum annual percentage rates for lenders retained that power after they handed their other consumer credit powers to the Commonwealth last year.

A decision on whether to have a rate cap as part of the national consumer credit regime is still up for consideration, as the Commonwealth works through phase two of the reforms. Victoria, Queensland and the Australian Capital Territory also have caps.

The NSW cap, which is set at 48 per cent and is inclusive of all charges and fees paid to brokers, has been in place since 1994.

It was due to expire in July as it was assumed that phase two of the national regime would be in place by then. It is now unlikely the phase two legislation will be in place before the end of the year.

The NSW Minister for Fair Trading, Anthony Roberts, introduced a bill to extend the cap last week - the Credit (Commonwealth Powers) Amendment (Maximum Annual Percentage Rate) Bill 2011.

Roberts said: "The Government proposes to extend the operation of the maximum annual percentage rate in order to maintain consumer protection and certainty in NSW until assured that the Commonwealth's regulatory and enforcement measures in respect of short-term small amount lending are appropriate and adequate."

Lenders who provide small amounts on short terms have been arguing against the inclusion of a rate cap in the national law. But the NSW Government's move might tip the balance in favour of a national cap.