Retailers are increasingly offering ‘interest-free’ deals under arrangements with third party credit providers (e.g. GE Money is the provider for Harvey Norman).
From the customer’s perspective, an ‘interest-free’ deal offers the opportunity to purchase goods on terms that are perceived to be more favourable than paying cash upfront. In practice, the customer receives a loan for the amount of the purchase price (less any deposit) and does not incur any interest costs during the ‘interest-free’ period. However, the retailer will pay the credit provider a ‘subvention fee’ which covers the interest payment the credit provider forgoes during the ‘interest-free’ period. Where a retailer offers ‘interest-free’ sales terms, several issues need to be considered.
Consumer credit requirements
Companies that offer credit to consumers must comply with the requirements set out in the National Consumer Credit Protection Act 2009. The credit provider must be licensed and must comply with various disclosure obligations.
Licensed credit providers must ensure they make proper disclosure of all relevant matters, in accordance with the National Credit Code. Generally a retailer will be exempt from the requirement to obtain a credit licence because they can rely on the ‘supplier of goods or services’ exception which exempts retailers that offer ‘interest-free’ payment terms through ‘linked credit providers’ (i.e. credit providers which have an arrangement with the retailer to offer credit terms to the retailer’s customers). Alternatively, the retailer may be a ‘representative’ of the licensed credit provider and offer the ‘interest-free’ deals on behalf of the credit provider. Whether or not the retailer is a ‘representative’ will depend on the terms and conditions of the agreement between the credit provider and the retailer.
Misleading & deceptive conduct
ASIC’s MoneySmart website warns consumers that "interest-free doesn’t mean cost-free - there are hidden fees and charges that could trip you up." For the retailer, the greatest compliance risk concerns disclosure of the purchase price. If the cost of the goods has been increased to include the subvention payment the retailer will pay to the credit provider, the retailer needs to be careful that it does not mislead the customer as to the cash price of the goods. For example, Harvey Norman’s term and conditions relating to ‘interest-free’ deals state that the facility for approved customers applies on advertised or ticketed price.
Third line forcing
Third line forcing occurs where a company offers to sell goods or services on condition that the customer acquires other goods or services from another company. A company engaging in third line forcing will breach the Competition and Consumer Act 2010 (Cth). The risk with ‘interest-free’ deals is that a retailer offers goods ‘interest-free’ on condition the customer obtains finance through a particular credit provider. The credit provider likewise is offering finance on condition the goods are acquired from the specific retailer. Retailers and credit provider should consider lodging a Notification of Exclusive Dealing under section 93(1) of the Competition and Consumer Act 2010 (Cth) to protect against the risk of contravening the Act. Protection from legal action begins 14 days after the notification is lodged, but may be revoked by ACCC at any time if the likely benefit to the public from the notified conduct would not outweigh the likely detriment to the public resulting from the conduct.