Credit Consumer Contracts and Leases PDF

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Contents Consumer Lease - ss 60-68.................................................................................................................... Chattel lease as CCC - ss 16, 60.......................................................................................................... Hire purch...

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CONSUMER CREDIT CONTRACTS Contents Consumer Lease - ss 60-68....................................................................................................................3 Chattel lease as CCC - ss 16, 60..........................................................................................................3 Hire purchase agreement..................................................................................................................3 Consumer Credit Contracts....................................................................................................................4 Credit Contracts.................................................................................................................................4 S 11 requirements in turn:.............................................................................................................4 Lender Responsibility Principles.............................................................................................................4 General principles..............................................................................................................................4 Principles - before negotiation...........................................................................................................5 Advertising standards - new standards introduced from 1st October 2021 (rr 4AAAP-4AAAU CCCFR)...........................................................................................................................................5 Principles - during negotiation...........................................................................................................5 Reasonable inquiries (additional requirements: see rr 4AA, 4AO CCCFR from 1st October).........5 Principles - subsequent dealings........................................................................................................5 Registration - Creditor obligations.....................................................................................................5 CCCFA 2003 - Disclosure ss 17-26..........................................................................................................6 S 32 disclosure standards:.................................................................................................................6 S 17 initial disclosure.........................................................................................................................6 S 18-21 continuing disclosure............................................................................................................6 S 22, 23 variation disclosure..............................................................................................................6 S 24 request disclosure......................................................................................................................6 S 25, 26 guarantee disclosure............................................................................................................6 How disclosure is made - s 35............................................................................................................7 Disclosure must be made to the person whom it is to be made....................................................7 Disclosure may be made via post, fax, email etc - it is made when it is sent to the address they were given.....................................................................................................................................7 Onus of proving disclosure lies with the creditor...........................................................................7 Cost of Credit.........................................................................................................................................7 Interest charges - ss 36-40.................................................................................................................7 High cost loans – ss 45A-L..................................................................................................................7 Rate cap - s 45H.................................................................................................................................8 Default interest rate...........................................................................................................................8 Creditor Requirements - Fees................................................................................................................9 Fees - ss 41-44...................................................................................................................................9

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CONSUMER CREDIT CONTRACTS Payments...........................................................................................................................................9 Debtors Rights.......................................................................................................................................9 Termination of CCCs...........................................................................................................................9 Cancellation.......................................................................................................................................9 Prepayment.....................................................................................................................................10 Unforeseen Hardship ss 55-59.........................................................................................................10 Restrictions - s 57.........................................................................................................................11 Creditor obligation - s 57A...........................................................................................................11 Remedies and Enforcement.................................................................................................................11 Remedies: statutory damages - ss 88-92.........................................................................................11 Ss 91, 92 - reducing damages...........................................................................................................11 A) incentives for compliance with the Act...................................................................................11 B) compliance programme - s 84.................................................................................................11 C) extent/ reason for the breach..................................................................................................12 D) extent to which anyone has been prejudiced by the breach...................................................12 Orders - ss 93-95..............................................................................................................................12 S 94 - list of orders.......................................................................................................................12 Injunctions - ss 96-98.......................................................................................................................12 Prohibited enforcement - s 99-102..................................................................................................12 Offences - ss 103-105.......................................................................................................................13 Pecuniary penalties - ss 107A-107E.................................................................................................13 Prohibition - s 108............................................................................................................................13 Oppressive Credit Contracts................................................................................................................13 Oppressive contracts - ss 117-131...................................................................................................13 Meaning of oppressive - s 118.........................................................................................................13 Grounds for reopening - ss 120-121................................................................................................14 Guidelines for reopening - s 124......................................................................................................15 Guidelines for reopening - s 124......................................................................................................16 Other guidelines..............................................................................................................................17

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CONSUMER CREDIT CONTRACTS

Consumer Lease - ss 60-68 

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Consumer lease s 60 Natural person, PDH purpose, lease part of lessor's business and Term of lease for 1 year or more or option to purchase goods (this is so it is a consumer lease) Presumption s 61 - presumed to be a consumer lease and lessor must rebut it if they want to say it is not Declaration s 62 - lessor can sign declaration when entering contract to say it is not a consumer lease Disclosure ss 63-67 Initial disclosure s 64 Variation disclosure s 65 Request disclosure s 67 Less that needs to be disclosed to a lessor than to a debtor Termination s 68 Amount payable s 68 No cancellation possibility

Chattel lease as CCC - ss 16, 60  

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Operating lease - lessor transfers chattel and receives regular payments (standard car rental agreement) + risks of ownership remain with the lessor + no element of financing Financing lease - lessor transfers chattel and receives regular payments + risk of ownership transferred to lessee + lessee option to renew lease or purchase chattel Financing lease tend to be treated as CCC It is not easy to distinguish between these two types Consumer lease s 60(1) + lease as CCC s 16(1) = natural person, PDH purpose, lease part of lessor's business. Difference: Consumer lease - term or lease is one year or more or option to purchase Lease as CCC - amount payable is more than cash price or there is an option to purchase at the end and the o2p is substantially below the estimated value of the goods S 16(3) - if requirements of s 16 met --> treat it as CCC S 60(2) - if requirements of s 16 met --> not CL S 16 has priority over s 60 Treated as CCC if the amount payable is more than the cash price (amount payable means what is payable under the agreement, it does not include the option to purchase) Process: o S 7? o S 16? o S 60

Hire purchase agreement  

Deferred payment sale Helby v Matthews - true hire purchase Possibility to terminate Lease rather than sale 3

CONSUMER CREDIT CONTRACTS 

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Lee v Butler - conditional purchase agreement No possibility to terminate Sales agreement CCCFA 2003 True HPA: lease but s 16 --> CCC Conditional purchase agreement: deferred payment sale ss 7, 11 --> CCC

Consumer Credit Contracts Credit Contracts 

CCCFA s 7(1) - definition, contract under which credit is or may be provided

S 11 requirements in turn: 1. Natural person 2. Domestic purposes - wholly or predominately for pdh purposes, more than 50% of the loan must go towards pdh purposes + it is determined at the time the CC is entered  s 13 CC is presumed to be a CCC  S 14(1) declaration - credit to be used for business purpose means CCCFA doesn't apply  S 14(2) creditor's knowledge - not effective if creditor knew it was for pdh purpose 3. Interest charges or credit fees or security interest - Can be 1 of the 3 4. Part of creditors business to provide credit - doesn't have to be primary business

Lender Responsibility Principles 

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General principles - s 9C  Lenders must exercise care, diligence and skill of a responsible lender with potential borrowers CCC Finance Regulations - very detailed principles Responsible Lending Code ss 9E-9F  S 9E(2) - states this code is not binding, it is just a guideline  Adhering to the code is seen as evidence of you acting responsible as a creditor

General principles 1. Ensuring compliance 2. Assisting in making informed decisions - keep terms and conditions in plain language and not misleading or confusing + uphold advertising standards + disclosure of key contract features 3. Legal advice - (cl 7.5 RLC) lenders must advise that if there are multiple borrowers, they should each seek their own legal advice

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CONSUMER CREDIT CONTRACTS 4. Level of assistance - (cl 7.9 RLC) code distinguishes between vulnerable borrower and well-informed borrower by level of understanding, pressure for need of loan or language barriers

Principles - before negotiation Advertising standards - new standards introduced from 1st October 2021 (rr 4AAAP-4AAAU CCCFR)   

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Advertising payments - Total amount of payments if ascertainable or annual interest rate Advertising interest rates and credit fees - Annual interest rate or range of rate + Each mandatory credit fee and its amount if ascertainable Prohibited advertising practices - things creditor cannot promise  Not to inquire into debtor's circumstances  Creditor to ignore debtor's circumstances  Can't claim the loan is approved before inquiries into debtor's circumstances Publication requirements  Lender uses standard form contract terms s 9J - they must publicise, so it is easily accessible  Cost of borrowing s 9K - this needs to be published, which is credit fees, default fees and interest charges

Principles - during negotiation Reasonable inquiries (additional requirements: see rr 4AA, 4AO CCCFR from 1st October) 

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Borrower's requirements and objectives  Lender must collect and assess information around the borrowers requirements and objectives Likelihood of substantial hardship  Whether borrower will rely entirely on income to pay loan, if not then they must make further inquiries  Otherwise, if part reliance on income - lender must look at level of income/expenses and make a judgment call on whether the borrower can repay loan without suffering hardship Record keeping requirements s 9CA (from 1st October)  Must keep records of inquiries to make available to commerce commission and borrower

Principles - subsequent dealings   

Assist in making informed decisions Treat the borrower reasonably and ethically Abstain from oppressiveness

Registration - Creditor obligations  

The Act requires registration to the Financial Service Providers Register under the Financial Service Providers (Registration and Dispute Resolution) Act 2008 Certification - ss 131A-131T CCCFA Must be 'fit and proper' s 131G Case Examples: Marsich v ComCom (Disregard of lender responsibility) 5

CONSUMER CREDIT CONTRACTS Decided they were not subject to the act and did not end up adhering to it Since they were adamant, the court declared them not 'fit and proper' to act as a creditor because they were going to continue to ignore the responsibilities ComCom v Takarunga Mngmt Ltd (Lack of industry skills) Court declared the director not 'fit and proper' because the director was incompetent in holding documentation because the creditor did not have the skills ComCom v Yang (taking advantage of trust) This creditor preyed on vulnerable borrowers in their own community

CCCFA 2003 - Disclosure ss 17-26 S 32 disclosure standards: Disclosure must be in writing Contain key information required by the Act (Key Information contained in Sch 1) S 34 - or can use the 'model form' from Sch 2 CCCFR 2004 (contains key information) Express required information clearly and concisely Not be likely to deceive or mislead a reasonable person

S 17 initial disclosure Must be done at the time the contract is entered into Contain all key information in Sch 1 - entire list Copy of all other terms that might not be part of key information Must be done before entering the contract or at the same time

S 18-21 continuing disclosure Like credit card statements Periodical disclosure statements (s 18) Ongoing update for the debtor (s 19) - detailed list of transactions, opening and closing balance Frequency (s 18(2)) - CCC at least every 6 months, Revolving Credit Contract 45 days Exceptions (s 21) - if information accessible on website but needs consent from debtor

S 22, 23 variation disclosure This is where the terms of the contract change mid contract - can happen when:  Bilateral variation (s 22) - agreement between both parties, full particulars of change be disclosed before changes take effects  S 22(3) - changes within 5 working days if the changes are reduction of obligation of debtor or release of security interest (advantages to debtor)  S 23 - change by exercise of power (creditor uses power)  Contractual right to unilaterally change terms of contract - interest rates, payment time  Must disclose full particulars and within 5 working days or at change time

S 24 request disclosure Debtor can request information - creditor can change reasonable fee but it must be written in the contract and information provided within 15 working days (either from receiving fee or if no fee, from receiving request)

S 25, 26 guarantee disclosure Disclosure to all guarantors - in this context it is where a third party guarantees the payment of the debt (additional security) + they must have all key information before entering in the contract but not required to continuing disclosure, can request disclosure (s 24) 6

CONSUMER CREDIT CONTRACTS How disclosure is made - s 35 Disclosure must be made to the person whom it is to be made National Australia Finance Ltd v Fahey (disclosure to an agent is like disclosure to a principal) Investors wanted to invest in racehorse, but they allocated a person to raise funds from a bank and race the horse Bank made the required disclosure to the person, but he did not pass it onto the investors - court decided the person hired was like an agent

Disclosure may be made via post, fax, email etc - it is made when it is sent to the address they were given IFC Securities Ltd v Sewell Company took out loan, it was guarantee by directors and employees Disclosure was sent to the company address which directors saw but the employees did not But because in loan agreement the address provided was the company address that is all the creditor needed to do The rest is an internal problem In terms of address: s 35(1)(b) - last known place of residence or address specified by debtor

Onus of proving disclosure lies with the creditor Mardon & Stephens Groupd Ltd v Zenn Holdings and Neate Lawyer was used to disclose to customers, the lawyer used records that they always disclose but could not show they did to the specific client - it was not enough of proof to generally make disclosure, must be substantial and specific per person

Cost of Credit Interest charges - ss 36-40 

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S 37 - annual interest rate Must be displayed as this so people can compare costs but can be charged in shorter period S 38 - interest must be charged in arrears Must get profit after they have extended the loan so at the end of the month S 40 - default interest rates Higher rate if in arrears with payments - defaulting on a contract Only applicable to arrears amount - only charged on the amount that is overdue not the entire amount These are only meant to be a compensation for the loss the creditor has because you defaulted on payment - not meant to be a penalty Acceleration clause s 40(2A) - if a debtor defaults on a payment, then this clause can accelerate all other payments to be due immediately

High cost loans – ss 45A-L 

High-cost loan My Pay Day Loan v Lepou 7

CONSUMER CREDIT CONTRACTS

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Interest rate was more than 500% pa, court looked at whether this was a gross imbalance Court de...