What consumer credit and e-banking regulations exist in Australia?
Consumers in Australia are legally protected in a number of ways when they engage in retail, credit or banking transactions.
Consumer credit in Australia is regulated by the National Credit Code (NCC). The NCC provides a consumer protection framework for consumer credit transactions, and applies when someone charges a natural person or strata corporation for credit which is used for personal, domestic or household purposes, or for the purchase, renovation or improvement of residential property for investment purposes. The credit must be provided in the course of carrying on a business of providing credit in Australia. This generally means that the NCC applies to home loans, credit cards and personal loans offered to natural persons.
Licensing regime for credit activities
The National Consumer Credit Protection Act 2009 (Cth) (NCCP Act) establishes a licensing regime for entities engaging in credit activities, including responsible lending obligations. The primary responsible lending obligation is to conduct an assessment that the credit contract (or increase to a credit contract) is not “unsuitable” for the consumer. A contract will be unsuitable if:
- it does not meet the consumer’s requirements and objectives; or
- the consumer will be unable to meet the repayments, either at all or only with substantial hardship.
Undertaking the unsuitability assessment involves an assessment of the consumer’s financial situation (by making reasonable inquiries about their financial situation, and taking reasonable steps to verify their situation) and making reasonable inquiries about the consumer’s requirements and objectives.
There are also other general obligations under the NCCP Act, and importantly, the definition of ‘credit activity’ is very broad. If credit regulated by the NCC is provided, the provider of that credit will be captured by the NCCP Act. Even if a person does not provide the actual lending, but is involved in the lending process (e.g. brokers) when the credit is NCC-regulated, that person is also captured.
Unfair contract terms
Under the unfair contract terms regime, a consumer contract or small business contract relating to a financial service or a financial product is void if it is unfair where the contract is a standard form contract.
A term of a consumer contract or small business contract will be unfair if:
- it would cause a significant imbalance in the parties’ rights and obligations arising under the contract; and
- it is not reasonably necessary in order to protect the legitimate interests of the party who would be advantaged by the term; and
- it would cause detriment (whether financial or otherwise) to a party if it were to be relied on.
Certain contractual terms (such as the main subject matter of a contract) are exempt from the unfair contract terms regime.
There are also prohibitions in Australian legislation from engaging in unconscionable conduct in connection with financial services, including credit, and engaging in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.
The ePayments Code (Code) is a voluntary code administered by ASIC which regulates electronic payments, including EFTPOS, credit card transactions, online payments, telephone banking, direct debits, internet and mobile banking, BPAY and those made using an ATM. Virtually all banks, credit unions and building societies subscribe to the Code. It is important to be aware of the Code when dealing with products that provide for electronic payments (most if not all products will likely provide for electronic payments).
If a person subscribes to the Code and then breaches it, a customer may complain to that person. If the customer is not happy with the response it receives, they may complain to an external dispute resolution scheme (the Financial Ombudsman Service or the Credit and Investments Ombudsman, depending on the scheme of which the person is a member).