The Financial Sector Reform Bill 2022, introduced into Parliament last week, amends the Credit Act with the aim of enhancing consumer protection for people taking out small amount credit contracts and consumer leases. It’s about time.
The amendments are based on the recommendation of the Review of Small Amount Credit Contracts, which was completed in 2016. The Coalition government released a draft bill in 2017, which included a number of the review’s recommendations, but it was not legislated.
Labor’s bill picks up the review’s key recommendations.
Small amount credit contracts are loans of up to A$2000, where the term of the contract is between 16 days and 12 months. They are covered by the general consumer protections in the Credit Act, including responsible lending obligations.
But providers of SACCs are not subject to the 48 per cent annual interest rate that applies more broadly.
Under current rules, SACC lenders can charge a maximum establishment fee of 20 per cent and a maximum monthly fee of 4 per cent of the value of the loan. In the event of default, a consumer cannot be charged more than twice the adjusted credit amount, including the amount already repaid.
Consumer leases are currently not classified as credit contracts and the obligations in the Credit Act that cover credit contracts do not automatically apply to them.
The bill makes a number of changes to the rules covering small amount credit contracts, including:• updating the mechanism for restricting the repayments that are allowed under a contract (the protected earnings amount);• requiring SACCs to have equal payments and equal repayment intervals over the life of the loan;• prohibiting the lender from charging monthly fees in respect of the residual term of a loan where it is repaid early;• prohibiting licensees from making unsolicited communications to consumers;• requiring licensees to document in writing their assessment that a SACC is not unsuitable for a consumer; and• requiring licensees to give information to consumers about SACCs in accordance with ASIC requirements.
The bill also repeals the rebuttable presumption provision, which rules that a SACC is unsuitable if the consumer has entered into two or more small amount credit contracts in the past 90 days or the consumer is in default under a SACC.
The government accepted the SACC Review’s view that the rebuttable presumption provision has been ineffective in addressing the harm caused by repeat borrowing and should be replaced by an updated protected earnings provision.
Under the current law the protected earnings amount rule says that if a consumer receives at least 50 per cent of their gross income from social security payments, 80 per cent of their income is protected and cannot be used to repay a SACC.
The bill replaces this rule with a general provision that prohibits licensees from entering into a SACC if the repayments under the contract would not meet the requirements prescribed by regulations.
The government envisages that the regulation-making power can be used to ensure all consumers are covered by a protected earnings amount and that different