Instalment Contracts and the Uniform Consumer Credit Code

The Justice Legislation Amendment Bill 2008 (pdf) has been introduced into the Queensland Parliament to amend the Consumer Credit Code (the Code) to ensure particular contracts for the sale of land or goods by instalments (known as ‘terms sale of land contracts’, ‘conditional sale agreements’ and ‘tiny terms contracts’) are credit contracts under the Code.

A terms sale of land (a sale on ‘vendor’s terms’ or a ‘wrap loan’) is a sale of land under which the purchase price is payable by instalments. The vendor lets the purchaser into possession but retains title until conveyance following the final payment.

A conditional sale agreement (or ‘Romalpa agreement’) is a sale of goods under which the purchase price is payable by instalments. The seller delivers the goods to the buyer but retains title until the final payment.

Tiny terms contracts are contracts where the cost of credit is incorporated into the cash price and the transaction is represented as a sale of goods by instalment (without any credit charges).

Technical amendments have also been drafted to capture contracts containing instalment payments that exceed the cash price of the goods, which are related to the contract for the actual sale of the goods.

Once the amendments are passed by the Queensland Parliament, industry will be provided with at least 6 months before they are commenced.

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Consumer credit interest rate cap for Queensland

The Consumer Credit (Queensland) and Other Acts Amendment Bill 2008 (pdf) has been introduced into Queensland Parliament.

The Biil, if passed, will introduce the concept of a maximum annual percentage rate for consumer credit contracts. In calculating the rate, fees and charges will be taken into account.

The Regulations are expected to prescribe a 48 per cent per annum annual percentage rate cap on consumer loans. It is also expected that credit fees or charges arising from the establishment or maintenance of a temporary credit facility by an ADI will not be included in the calculation.

There are currently no caps on interest rates in Queensland and lenders can charge high interest rates, fees and charges on loans. Victoria, New South Wales and the Australian Capital Territory currently have interest rate caps to control the cost of consumer credit.

Credit providers who charge above the legislated maximum will be required to pay back any amount over the cap and will face civil penalties of up to $500,000 for breaching the Consumer Credit Code. They will also face criminal penalties of $10,000 for individuals and $50,000 for corporations.

The cap will apply to new loans made after the Act commences as well as to existing credit contracts which are extended or under which interest rates are increased or new fees or charges imposed after the Act commences.

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Daylight saving ends
Western Australia ends daylight saving on 30 March, 2008.

Australian Capital Territory, New South Wales, Victoria, Tasmania and South Australia end daylight saving on 6 April 2008.

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First Home Saver Accounts

The Government has confirmed its intention to establish First Home Saver Accounts from 1 July 2008 to assist Australians to save for their first home.

The account may be opened by individuals aged 18 and over who:

• has not previously purchased or built a first home in Australia to live in;
• does not have or has not previously had an account; and
• makes an initial contribution of at least $1,000.

Individual contributions of up to $10,000 (indexed) may be made into an account each year. These contributions may be made by the account holder or another party, such as an employer, on behalf of the account holder.

Contributions have to be made from after-tax income. Contributions will not be subject to tax when contributed to an account.

The Government will make an additional contribution which will be paid directly into the account. The contribution level (based on a maximum benefit of $5,000 of individual contributions) will be either 15 per cent, or the account holder's marginal income tax rate less 15 per cent, whichever is greater.

There will be conditions on withdrawals.

The Government is seeking comments and submissions by 7 March 2008 to assist in settling the final administrative and legislative features of First Home Saver Accounts.

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Government to facilitate bank account switching

Following a meeting with the Council of Financial Regulators on 8 February 2008, the Treasurer has announced a package of 4 measures to promote competition in the retail banking market by making it easier for customers to switch accounts between banks.

The measures are:

• A listing and switching service that requires banks to provide their customers with accurate information on all direct debits and credits to take to a new bank for easier transferral, if they switch. Banks will also be required to assist new customers to re-establish their direct debits and credits;
• One single consumer complaints hotline 1300 300 630 providing a first contact point for all consumer complaints about basic banking products – to be provided and maintained by the Australian Securities and Investments Commission (ASIC);
• Comprehensive consumer education resources , including a detailed and informative web site providing advice on how to switch, and the costs and benefits of doing so, through the www.understandingmoney.gov.au site; and
• An ASIC-led industry review of the fairness of entry, exit and early termination fees that apply to mortgage accounts and providing better information to consumers to inform their switching decisions.

The Government has expressed its desire that the ASIC review would be " shining a light on fees...(and) putting downward pressure on them".

Implementation will begin immediately, and all aspects of the switching package will be finalised by November 2008.

Initially the listing and switching service will be operational in an interim form that involves banks providing written advice and support until IT systems allow full implementation by November 2008.

The Reserve Bank of Australia (RBA) will oversee the Industry initiatives.

Separately the Australian Payments Clearing Association (APCA) has been reviewing ways to improve the switching of transaction accounts, particularly the movement of standing instructions (direct credits and debits) on accounts (see my November post here and APCA's January Press Release here (pdf)).

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AML update: education and training resources

From 12 December 2007, businesses which deliver services outlined under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (including financial services), need to have in place an anti-money laundering and counter-terrorism financing program.

To assist businesses, AUSTRAC has published an e-learning course and industry resources (including case studies for training purposes).

There are specific presentations for:

• Banking

• Financial Planners

• Gambling

• Mutual Societies

• Providers of Designated Remittance Services

• Superannuation

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National Finance Broking Scheme consultation package released

The Ministerial Council on Consumer Affairs (MCCA) has released a package (pdf) (including an exposure draft Bill) proposing finance broking legislation which is consistent nationally, and which extends to protections for small business clients. Its core feature will be the licensing of brokers.

All types of broking structures will be regulated: mortgage brokers, finance brokers, single line broking and single mobile operators, as well as aggregators and franchised organisations. While brokers of credit for small businesses are covered by the framework of the regulatory scheme, there will be differences in the requirements for disclosure and the contractual relationship, to take into account differences in the way brokers and businesses transact.

It will include all credit unless the applicant is a business entity which:
· Employs more than 100 people if it is a manufacturing business; or otherwise, 20 people; or
· The credit sought is more than $2 million

The definition of broker is similar to that in the Consumer Credit Administration Act 1995 (NSW), and will include those intermediaries who are suppliers of goods and services and who negotiate or obtain credit for purchasing those goods and services.

Brokers will be required to have professional indemnity insurance with coverage set out in the regulations. Applicants for licenses will be required to have attained prescribed educational standards.

The closing date for submissions is 15 February 2008.

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Austrac AML deadline approaches

From 12 December 2007, businesses which deliver services outlined under the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (including financial services), need to have in place an anti-money laundering and counter-terrorism financing program.

As part of this program, businesses must establish and document procedures to collect and verify information about the identity of a customer.

In addition to the new obligations, businesses are required to complete a Compliance Report.

The report covers the reporting period from 13 December 2006 to 31 December 2007 and must be submitted to AUSTRAC by 31 March 2008.

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