Corrs
March 2011
THE NATIONAL CONSUMER CREDIT PROTECTION AMENDMENT (CREDIT CARDS AND HOME LOANS) BILL 2011
Today the Treasury released for industry consultation an exposure draft of the National Consumer Credit Protection (Credit Cards and Home Loans) Bill 2011. The draft bill formalises
a number of the key credit card and home loan reforms announced by the Treasurer in December last year.
A consultation period of just 3 days has been allowed by Treasury for these important reforms. A consultation period of 3 weeks has been allowed for draft disclosure documents
proposed under the reforms.
Credit Cards
If the provisions of the draft bill relating to credit cards become
law, these reforms would:
• Require credit card application forms to include up-to-date Key Fact Sheets in accordance with regulations (a sample Key Fact Sheet has been released for consultation);
• Prohibit entry by a credit provider into a credit card contract unless the application is made using an application form which includes an up-to-date Key Fact Sheet (if the Key Fact Sheet is out of date, the applicant must have been provided with up-to-date information as prescribed);
• Prohibit credit providers from inviting cardholders in writing to increase credit limits without express consent (even if a customer is continuously incurring overdraft fees and the card issuers merely seeks to address this);
• Prohibit credit providers from approving the use of a credit card in excess of:
– a default buffer being the lesser of $500 and 10% of the credit limit; or
– the credit limit, if the account holder has elected not to have a default buffer;
• Prohibit the charging of fees or charges or a higher rate
of interest because the credit limit was exceeded;
• Require card issuers to apply payments received in
accordance with rules under which parts of the account
balance which are subject to higher interest rates are
repaid first. Provision is made for agreement to be reached
on other payment allocation arrangements, but the
account holder may withdraw from this at any time.
Regulations may be made which require the card issuer to
notify the account holder upon becoming aware that the credit
limit has been exceeded. However, it would not be permissible
to charge a fee for this notice which means the cost will be
subsidised by other customers.
Records of consents for credit limit increase invitations and
elections not to have a default buffer must be retained by
credit card issuers together with any withdrawal of these.
Standard Home Loans
The draft bill includes new rules relating to “Standard Home
Loans”. These are standard form credit contracts under
which credit is provided to purchase a residential property or
refinance credit wholly or predominantly for such purposes.
If the provisions of the draft bill relating to home loans become
law, these reforms would require credit providers to ensure
consumers who apply for or inquire about a standard home
loan can obtain a Key Fact Sheet for the loan including on any
web-site where an application can be made.
The contents of the Key Fact Sheet will be prescribed by
regulations and a sample has been released for consultation.
The regulations may require the Key Fact Sheets to be tailored
for individual customers using information provided by them.
If more information is required from a customer to generate
a Key Fact Sheet, the credit provider must tell the customer
what information is required.
SYDNEY
Governor Phillip Tower
1 Farrer Place
Sydney NSW 2000
Tel +61 2 9210 6500
Fax +61 2 9210 6611
MELBOURNE
Bourke Place
600 Bourke Street
Melbourne VIC 3000
Tel +61 3 9672 3000
Fax +61 3 9672 3010
BRISBANE
Waterfront Place
1 Eagle Street
Brisbane QLD 4000
Tel +61 7 3228 9333
Fax +61 7 3228 9444
PERTH
Woodside Plaza
240 St George’s Terrace
Perth WA 6000
Tel +61 8 9460 1666
Fax +61 8 9460 1667
PAGE 2
© Corrs Chambers Westgarth, 2011
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corrs in brief – march 2011
Overview of the National Consumer Credit Protection Amendment
(Credit Cards and Home Loans ) Bill 2011
prevent a meaningful product comparison. For example,
under a typical equity loan, the customer has a credit limit
and the principal need not be repaid over a fixed term. In this
case the cost of the product depends entirely upon how much
the borrower chooses to use it and it will not be possible to
calculate a comparison rate.
Even amortising loans have different repayment periods
(ranging from 15 to 50 years) and these can have a significant
impact on the total interest charges thereby complicating any
meaningful comparison. This is further complicated by the
fact that most loans are repaid well before the term thereby
rendering information about total repayments meaningless.
Most mortgage loans have variable interest rates which
means that any comparison will fail to take account of future
changes to the rates being compared. Also, many of the costs
associated with a mortgage loan are contingent on uncertain
events such as late payment or the use of a redraw facility and
these costs cannot be incorporated in a comparison unless a
range of assumptions are made. The need to disclose such
assumptions inevitably complicates the information being
provided and undermines its utility as a comparison tool.
For further information, please contact:
Andrew Galvin
Partner
Tel +61 2 9210 6439
Mob 0409 853 410
andrew.galvin@corrs.com.au
Michael Anastas
Senior Associate
Tel +61 7 3228 9843
Mob 0438 558 363
michael.anastas@corrs.com.au
Maria Walsh
Special Counsel
Tel +61 3 9672 3390
Mob 0419 878 122
maria.walsh@corrs.com.au
CONSIDERATIONS
Prohibition on allowing credit limits or default
buffers to be exceeded
The prohibition incorrectly assumes that all transactions are
routed to the card issuer for real time approval. For manual
transactions (using traditional “click-clack machines” or
transactions where communications are off-line, the issuer
has no opportunity to prevent the provision of further credit).
The prohibition will also prevent card issuers from actively
encouraging customers to increase their credit limits where
they are frequently having bill payments declined.
Prohibition on charging fees or default interest
for a credit limit being exceeded
This prohibition will even preclude a fee from being charged
for a default notice notwithstanding that the customer will be
in default and that it will be appropriate for a default notice to
be sent. This position will apply even though the credit limit
may have been exceeded as a result of manual or off-line
transactions which denied the card issuer any opportunity to
prevent the credit limit being exceeded.
Imposition of mandatory payment allocation rules
This is likely to generate resistance from the credit card industry
because it interferes with pricing considerations relevant to
differentiating product features and may require prohibitively
expensive changes to account management systems.
Requirement for a home loan key fact sheet
At the simplest level, a range of lump sum loan products
which amortise over a fixed term of say, 25 years, can be easily
compared by reference to the interest rates, the establishment
and ongoing fees and even key features (such as whether they
have a redraw facilities or “mortgage off-set” facility).
However, even the most basic of product innovations can