Consumer Credit Laws

Information verified correct on September 26th, 2016
justice served credit laws

Consumer credit laws were put into place to protect consumers and ensure they are provided with sufficient information about their financial products, loans and credit facilities to make informed choices.

It also helps to make sure that customers are more aware of their financial obligations, repayments and any potential fees they may be charged.

Understanding How Consumer Credit Laws Help You

Consumer credit laws were put into place to ensure that borrowers are given sufficient information to make informed choices regarding their credit products. They also force your creditors to keep you informed about any changes to your credit contracts, your obligations, repayments and any intended actions the credit provider intends to take in relation to your loan.

The consumer credit laws are very specific regarding the information that needs to be disclosed when you apply for credit through a lender, credit provider or financial institution.

What You Should Be Told

Before you sign a credit contract for any kind of finance, it’s important that you are supplied with the exact amount of credit you will be provided, along with the percentage rate you will be charged on the amount you borrow.

You should also receive detailed information regarding how your interest charges will be calculated and what other fees and charges, if any, will be applied to your accounts.

A part of this same disclosure includes being informed about how your charges will be debited to your account. In most cases, this could mean they’ll be capitalised onto your outstanding balance, which means your interest charges may increase your debt balances to a point where they may exceed your available credit limit. If your credit provider has given you clear information about this particular aspect of your credit contract, then it becomes your own responsibility to monitor and maintain your credit balance so that it does not exceed your approved credit limit when your interest charges are added.

As part of your contractual agreement, you should also have a full awareness of any potential fees and charges that could be charged to your account if your contractual obligations should change. These include penalty fees, default interest rates, late payment fees and administration fees that could be charged should you fall behind in your repayments.

Changes to your contract must be supplied to you, which include any interest rate and repayment changes that may affect your financial situation.

However, if you do experience a period of financial hardship and you find that you can’t keep up with the minimum repayment obligations required of you, then you may apply to have your contract amended to ease financial stress. If your lender won’t alter your contract appropriately, then you may find that the Consumer Credit Code will protect you to the point where a Court may order these changes to be made for you. You will need to verify the reasons for your specific temporary financial hardship for this to happen.

Commissions Payable

The consumer credit laws state clearly that if a commission is to be paid to an individual, business or company for referring you as a customer to that finance provider, then the amount of commission must be disclosed on your credit contract.

This law was introduced to stop the ‘cowboy’ element that once pervaded the ranks of mortgage brokers and finance brokers who would recommend financial products that weren’t always favourable to the borrower.

executive handing moneyTypes of Credit Covered by Consumer Credit Laws

The Uniform Consumer Credit Code (UCCC) is the same within all Australian states and territories, with the exception of Western Australia, which maintains only minor differences that relate to slightly stricter financial licensing laws for finance brokers and advisers.

The Code relates to all forms of credit that can be taken out for use in personal or household use. This means that business, company or investment loans may fall outside the protection of the Consumer Credit Code. However, in the event that a person borrows money for business use against a personal home asset on which an existing debt is in place, then the consumer credit laws will still apply, as long as no more than 50% of the total debt is used for business purposes.

If you’ve borrowed money on a personal loan, mortgage or credit card for personal use, then you will be covered by the consumer credit laws.

Types of Credit Excluded by the Consumer Credit Code

The consumer credit laws are valid for almost all forms of borrowing for personal use, with some specific exemptions. These include short term credit which is designed to be repaid within a period of 8 weeks or less, or where the total amount of fees and charges accrued are not more than 5% of the total amount of credit. The interest rate must not be higher than 24% p.a. in this instance.

You may also find that the UCCC does not apply to employee loans, where favourable terms, such as discounted interest rates, reduced fees and other benefits may apply.

Accounts using unauthorised overdrafts will be exempted from the consumer credit laws, as the borrower does not have a contractual agreement with the lender for the amount in arrears on the account in question.

A small loophole in the UCCC also means that continuing credit products on which there is no interest payable, such as long-term interest free loans, but where you may still be charged account fees, administration fees and other charges may also be exempted from cover under the consumer credit laws.

Some pawnbrokers and short-term finance lenders may entice you into signing unjust finance agreements. If you feel that the credit agreement you’ve entered into is unjust then you are covered by the consumer credit laws. A Court may rule that the contract into which you’ve entered is unjust and, as such, may be changed upon the ruling of the Court.

Complying With the Consumer Credit Laws

While the consumer credit laws sound involved and confusing, it’s important to understand that lenders, banks and credit providers within Australia are obliged to abide by the rules set out within the Uniform Consumer Credit Code.

These laws are put in place to protect borrowers from unfair practices and to make sure that borrowers are fully informed about their obligations, their repayment amounts and the costs that may be associated with borrowing money.

If you suspect that you may have entered into a credit contract that is unjust or in some way not compliant with the laws set out in the UCCC, then be aware that credit providers can face very steep fines. The maximum penalty for breach of the Code can be up to $500,000, so most credit providers and lenders understand the seriousness of making sure they abide by their duty of care to their customers.

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6 Responses to Consumer Credit Laws

  1. Default Gravatar
    Leigh | November 5, 2011

    If I use a credit card to make a purchase, is the bank a party to the transaction? In other words, if a trader fails to honour a warranty do I have recourse from the bank?

  2. Default Gravatar
    Rob | November 4, 2011

    What are the rules on unauthorised credit card transactions?

  3. Default Gravatar
    Jennifer | October 12, 2011

    When making a purchase over the phone or online with your credit card, whereby you provide the merchant with your credit card number, what rules apply to the further use of that card by the merchant ie, if you have not specifically authorised it for further charges the merchant may deem applicable?

  4. Default Gravatar
    wayne | September 29, 2011

    verifying a credit card holder on transactions that are done via ‘phone or email?

    what is the correct and legal way of verifying a card holder. We use a disclosure form and ask our clients to fill in the card details and sign it. BUT we are now informed that the same result is quite legal to do with a “verbal” authority. Please help

    • Default Gravatar
      Adrian | October 10, 2012

      Hi Wayne. Thanks for your question. From what I’ve experienced lately as a consumer, it appears that over the phone verification is common. For some reason sellers seem to be going for BPay instead of taking credit card details over email. I guess this is for fraud prevention?

      I’m happy for anyone who knows more about this to jump in and contribute!

      Please note that this is not to be taken as legal advice.

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