Commonwealth Numbered Regulations - Explanatory Statements
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NATIONAL CONSUMER CREDIT PROTECTION AMENDMENT REGULATIONS 2011 (NO. 6) (SLI NO 201 OF 2011)
EXPLANATORY STATEMENT
Select Legislative Instrument 2011 No. 201
Subject - National Consumer Credit Protection Act 2009
National Consumer Credit Protection Amendment Regulations 2011 (No. 6)
The National Consumer Credit Protection Act 2009 (the Credit Act) applies to the provision of credit for personal use, and related matters.
Section 329 of the Credit Act provides that the Governor-General may make regulations prescribing matters required or permitted by the Credit Act to be prescribed, or necessary or convenient to be prescribed for carrying out or giving effect to the Credit Act.
The National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011 (the Credit Cards Act) amended the Credit Act to introduce a number of reforms to the way in which credit cards are offered and used.
The Regulations amend the National Consumer Credit Protection Regulations 2010 (Principal Credit Regulations) to support the reforms introduced by the Credit Cards Act.
Specifically, the Regulations:
• prescribe the Key Facts Sheet for credit card application forms and the circumstances in which an application form may include an out-of-date Key Facts Sheet;
• refine the definition of credit limit increase invitation;
• introduce a requirement for credit providers to notify consumers when their account has exceeded its credit limit;
• define requirements for the giving and withdrawal of consents and agreements made under the Credit Cards Act; and
• require lenders to inform consumers about the implications of only making minimum repayments through a personalised minimum repayment warning on monthly statements.
Details of the Regulations are set out in the Attachment.
The Credit Act does not specify any conditions that need to be satisfied before the power to make the Regulations may be exercised.
The Regulations are a legislative instrument for the purposes of the Legislative Instruments Act 2003.
The Regulations commence on the commencement of Part 2 of Schedule 1 to the Credit Cards Act.
Consultation
These regulations support and provide greater detail on implementation of reforms under the National Consumer Credit Protection Amendment (Home Loans and Credit Cards) Act 2011. Targeted and detailed consultation with stakeholders has been undertaken to ensure these regulations are based on or operate consistently with industry practice.
Authority: Section 329 of the
National Consumer Credit Protection Act 2009
ATTACHMENT
Details of the National Consumer Credit Protection Amendment Regulations 2011 (No. 6)
Regulation 1 - Name of Regulations
This regulation provides that the name of the Regulations is the National Consumer Credit Protection Amendment Regulations 2011 (No. 6).
Regulation 2 - Commencement
The Regulations commence on the commencement of Part 2 of Schedule 1 to the Credit Cards Act.
Regulation 3 - Amendment of National Consumer Credit Protection Regulations 2010
This regulation provides that Schedule 1 amends the National Consumer Credit Protection Regulations 2010 (Principal Credit Regulations).
Schedule 1 - Amendment of National Consumer Credit Protection Regulations 2010
Item 1 inserts regulation 28JA which requires credit card credit providers to ask a potential customer about the credit limit they seek when applying for a credit card. The credit provider is not obligated to provide the full amount of the credit limit requested by the consumer but should not provide more. This is an additional step to meet responsible lending obligations under section 130 of the Credit Act.
Item 2 inserts a number of regulations into the Principal Credit Regulations to support the implementation of the reforms to the regulation of credit cards in the Credit Cards Act.
Division 3 of Part 3-2B of the Credit Act requires credit card application forms to include a Key Facts Sheet for Credit Cards (KFS). Regulation 28LFA provides that Schedule 6 sets out the format and content of the KFS including how the information contained in the KFS is to be prepared. Licensees may provide the KFS to the consumer on the application form itself, or on a separate page or sheet of paper. It would not be sufficient to refer the consumer to a source of the information, such as a reference to a website.
Subregulation 28LFA(2) allows a licensee to make available a KFS that does not refer to a specific term (or condition) made available to a class of consumers on the condition that the term makes the consumer better off than they would be under the term specified in the KFS. This would allow a licensee to make a special promotional offer to some customers with terms that are more advantageous than usual, but without having to issue a new set of KFSs and application forms.
Regulation 28LF describes the circumstances in which an application form may include an out-of-date KFS. Those circumstances are:
• where the KFS is no more than 3 months out of date; and
• where the application form is part of an advertisement published by a third party provided that:
- the KFS was up to date when the licensee approved the application form for publication; and
- the expected date of publication was less than 30 days after the approval was given.
Under Section 133BD of the Credit Act, a licensee may not enter into a credit card contract unless the consumer has been provided with up-to-date information in accordance with the regulations. Regulation 28LG provides that where the KFS contains information that has ceased to be up-to-date, a licensee must give the consumer the up-to-date KFS information no later than the time they give the customer the credit card.
Division 4 of Part 3-2B of the Credit Act prohibits a licensee from making credit limit increase invitations unless a consumer has provided their express consent to receiving it. Subsection 133BE(5) defines a credit limit increase invitation. Regulation 28LH provides further guidance to determine whether a written communication is covered by the definition in 133BE(5). Under regulation 28LH, a written communication is a credit limit increase invitation if it:
• includes a proposed credit limit higher than the consumer's existing credit limit; or
• suggests that a higher credit limit may benefit the consumer.
A written communication is not a credit limit increase invitation if it only provides generic information about credit limits.
This regulation gives further clarity to the definition in the Credit Act in determining whether a written communication is a credit limit increase invitation, but does not override that definition.
Regulation 28LI outlines the obligations of licensees in relation to consents given by consumers to receive credit limit increase invitations. In seeking a consumer's consent, a written communication provided by a licensee must:
• seek the consumer's consent only in relation to receiving credit limit increase invitations; and
• set out the matters in subsection 133BF(4) of the Credit Act in a way that is understandable to a reasonable person.
The written communication may be part of a document used for other purposes, such as an application form. The consent must be an express standalone consent in that if selected, the consent does not apply to any other kind of consent (such as a consent to receive online account statements).
Subregulation 28LI(2) provides that where a licensee has arranged to send out a credit limit increase invitation, and a customer withdraws their consent after the arrangements have been made, and it is unreasonable to stop the invitation from being sent, the withdrawal of the consent is to be treated as not applying to the current invitation.
Regulation 28LJ requires licensees who are credit providers on credit card contracts to take reasonable steps to notify consumers when their credit card balance has exceeded their credit limit. The notification must be made within 2 business days of when the balance on the credit card contract exceeds the credit limit. If a consumer has reduced their balance to less than the credit limit before the notification has been sent, the licensee is not required to notify the consumer. Notification need only be given once per statement period. The notification must include information about exceeding the credit limit sufficient to lead a reasonable consumer to check their balance.
Section 133BI of the Credit Act allows regulations to be made outlining requirements to be complied with before an overlimit fee may be charged. Under regulation 28LK if the licensee provides a form to obtain such consent, the form would be required to:
• allow the consumer to withdraw the consent;
• disclose any fee charged in relation to the consumer's consent;
• disclose any fee, charge or higher rate of interest charged on the overlimit transaction or balance;
• explain that the fee may increase at any time;
• explain that the fee, charge or higher rate of interest in relation to the overlimit transaction may be charged at any time in the statement period to which the transaction relates (even if the customer withdraws their consent after the overlimit transaction).
Regulation 28LL outlines record keeping requirements for consents and withdrawals of consents in relation to fees and charges or higher rates of interest for overlimit transactions. If a consumer has given their consent or withdrawn that consent, a licensee must keep a record of the current status of their consent and the date on which the consent or withdrawal was given. The record must be kept for the period during which the consent is in effect.
Division 6 of Part 3-2 of the Credit Act requires licensees to allocate repayments to balances as prescribed by the Division. Regulation 28LM prescribes requirements to be met before a licensee can agree to a request to allocate a repayment according to an agreement. Before entering into an agreement to apply payments against a particular amount, a licensee must advise the consumer that they:
• might pay more under the agreement than they would if the repayment were allocated to higher interest debts first; and
• may withdraw the request at any time.
Lenders may wish to include implications of withdrawing a request where the credit card contract requires the consumer to pay down a specific debt. For example, Bob purchases a $1,200 air conditioner on 12 month interest-free terms. The credit is available through a store credit card. Under the terms of the promotion Bob must pay $100 a month and pay off the debt in 12 months. Bob agrees to have repayments allocated to this payment first. The lender should disclose to Bob the implications of withdrawing the agreement if Bob subsequently decides to do so.
An agreement to apply a payment against a particular debt cannot be used to avoid the application of Section 133BQ of the Credit Act for normal daily use of the credit card, as the agreement should identify a particular amount to which the payment is applied. A particular amount is not normally identifiable before the credit card contract is entered into or credit is provided.
Regulation 25LN apply Divisions 5 and 6 of Part 3-2B (relating to the use of credit card in excess of the credit limit and order of application of payments made under credit cards contracts respectively) to credit card contracts entered into after commencement of the Credit Cards Act. An exemption applies to credit cards where a contract is formed from the first use by the consumer of the credit card or the activation of the credit card by the consumer. For those credit card contracts, Divisions 5 and 6 does not apply if the card was provided in the 90 days before commencement.
Item 3 inserts regulation 79B which introduces a requirement for credit providers to provide a minimum repayment warning on the front page of a credit card statement. The warning provides information on:
• the time it would take to pay off the closing balance if only minimum repayments are made and the total amount a consumer would pay over that time;
• an alternative repayment amount which would extinguish the closing balance within 2 years and the total amount a consumer would pay over that time;
• the saving the consumer would make if they repaid the closing balance within 2 years instead of making minimum repayments; and
• contact details that the consumer can use to contact the lender if they are in financial difficulty.
If the closing balance of the statement would be repaid by making minimum repayments in 2 years or less, then the disclosure of the alternative repayment amount is not required. If more than one interest rate applies to the balance, the licensee may elect to use the purchase rate (the rate which applies to the purchase of goods and services under the credit card contract) to the whole of the outstanding balance in calculating the information.
Items 4 and 5 make minor amendments to the notes to Key Facts Sheet for Home Loans. Item 4 clarifies that for home loans for which more than one discount period applies (e.g. a variable rate loan with a discount rate of 1 per cent per annum for the first year, 2 per cent per annum for the second and later years), a lender may replicate the relevant clause. Item 5 clarifies that the monthly and annual fees disclosed in the Key Facts Sheet for Home Loans are fees paid to the lender.
Item 6 inserts Schedule 6 which is the Key Facts Sheet for credit card contracts. Part 1 of Schedule 6 provides the model for the KFS. Part 2 provides information about preparing a KFS.
A credit provider may publish a KFS for more than one credit card in a table format as long as the consumer can clearly identify and select the KFS which pertains to the credit card for which they are applying.
Where a KFS is published online, the KFS must provide active links to the websites mentioned in the KFS.
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