National Consumer Credit Protection Amendment Regulation 2012 (no. 5) was made on 3 April 2013. We provide a summary of the ‘final’ position and a link to the prescribed precedent documents.
The regulation sets out rules for the new hardship provisions contained in the so called NCCP Enhancement Act. These provisions commenced on 1 March 2013. The new regulations can be accessed here.
How do the new hardship provisions differ from the previous regime?
The changes apply to credit contracts made on or after 1 March 2013 and provide as follows.
Click here to view table.
The new procedures can best be explained by a diagram here.
Financiers can use the new procedures for both old and new contracts – sothey do not need to maintain two sets of procedures. There is no expressprovision in the regulations to this effect, but as noted in ASIC Information Sheet 105, under the existing law the 21 days to reply to a hardship request commences after the borrower has provided sufficient information for thefinancier to make an informed decision. Accordingly, the key difference between the old and new procedures is the trigger for a hardship application.
What do the regulations provide?
Until 1 March 2014:
- For simple arrangements (90 days or less) which are agreed to, nonotice is required of the hardship decision or the variation to the creditcontract. For example, there is no need for any written notice orvariation for arrangements such as paying a few instalments a few weekslate. (Remember, the Act requires both a notice of the decision re hardship and a notice of any change to the credit contract (but thesecan be contained in the one notice), and so these regulations are changing that requirement).
- For non-simple arrangements, no notice is required of the hardship decision, but notice of variation to the credit contract is required (the effect of this is that financiers will generally use their existing hardship approval document).
- A hardship decision notice is required if the lender does not agree to thechange. This will be similar (if not identical) to the existing decline notice.
Until 1 December 2013, the old or new Direct Debit Default and s88 Noticeafter Default can be used.
This arrangement is reflected in the table below.
Click here to view table.
The new Direct Debit Default and s88 Notice after Default notices have been
prescribed. These can be used for all contracts (old and new). The new
notices and links to PDF versions are below:
- Click here for Form 11A – Direct Debit Default Notice - Loans
- Click here for Form 18 – Direct Debit Default Notice - Leases
- Click here for Form 12A – Notice after Default – Loans
- Click here for Form 18A – Notice after Default – Leases
What triggers a hardship claim?
As noted above, hardship notices can be given orally or in writing by debtors simply stating that they are unable to meet their obligations. A borrower does not have to specifically apply for hardship relief. There is concern this wide provision may trigger multiple hardship applications.
Is a hardship claim triggered every time there is default? The answer is no, because there must be a statement either orally or in writing by the borrower that they are unable to meet their obligations. Despite this limitation, the scope is still very wide. For example, if a courtesy call is made both before and after the issue of a s88 notice, and if the borrowers state that they are unable to pay, is a hardship application triggered each time? Gadens can assist you develop guidelines to handle this issue.
Despite the convenience of using the same procedures for ‘old’ and ‘new’ loans, it might be worth retaining the old trigger for hardship for loans made before 1 March 2013. Under the ‘old’ procedures, under which a specific application had to be made seeking specific changes.
Update your procedures
Remember, ASIC expects licensees to document their procedures, and so licensees need to update their internal procedures to reflect the new rules.