Business Frequently Asked Questions
Leasing
The Code provides for a maximum civil penalty of $500,000 and for criminal
penalties up to $10,000 if a credit provider or lessor is found to have breached
a key requirement of the Code.
Under the Code, any credit arrangement between yourself and a debtor must
follow these steps:
- A Precontractual statement and an Information statement is given to the debtor
- A written contract either signed by the credit provider and the debtor, or signed by the credit provider and accepted by the debtor or another authorised person drawing down the credit or satisfying other offer conditions.
- Regular account statements are sent to the debtor
- Any changes to the contract, advertising relating to
the contract, or enforcement proceedings must follow the terms set out in
the Code.
Before you enter a contract, you need to provide the debtor with a Precontractual statement and an Information statement. These statements can form part of the actual credit contract or be provided separately. Both documents should be clearly understandable and be in not less than 10 point type.
It is an offence to
pressure a debtor into signing a contract or to visit a debtor's house to sign a
contract without prior invitation.
The first page of the Precontractual statement must disclose the following in
table form:
- The amount of credit to be provided.
If the amount is not ascertainable then the maximum amount of credit to be provided*
- The annual percentage rate or rates*
- Details of any interest free period*
- The total amount of interest if the contract is to be paid out within 7 years*
- The number, amount and frequency of repayments
- Any credit fees and charges.*
The rest of the Precontractual statement should disclose:
- The credit provider's name
- To whom the credit is to be paid*
- Details of any changes that can be made under the contract*
- The frequency of account statements
- Any default rate of interest
- Whether enforcement expenses would be paid by the debtor in the event of a breach
- Details of any mortgage or guarantee that may apply
- Details of any commission to be paid
- Details of insurance financed under the contract.*
Please note:
- If a number of documents are provided, each document must state that it does not
contain all of the required information.
- If you are a supplier of goods (including land
sales) and allow your customers to pay by instalments then you will also
need to provide a clear description of the goods and their price.
* Failure to provide these details can lead to a civil penalty of up to $500,000 plus compensation for any loss suffered by the debtor or guarantor.
You must provide the Information Statement as set out in Form 2 of the Regulations to the Code, which explains the debtor's rights and obligations under the Consumer Credit Code. The Regulations are available from your local Government printer.
You may also wish to give your debtors details of the
comparison rate. This gives the debtor information which allows them to
compare the cost of credit against similar credit products. The calculation of
this rate and their accompanying warnings are also set out in the Regulations.
The credit contract should be clearly understandable and be in not less than 10 point type. It should include:
- the credit provider's name
- to whom the credit is to be paid*
- the amount of credit to be provided.
If the amount is not ascertainable then the maximum amount of credit to be provided*
- the annual percentage rate or rates*
- details of any interest free period*
- the total amount of interest if the contract is to be paid out within 7 years*
- the number, amount and frequency of repayments
- any credit fees and charges*
- details of any changes that can be made under the contract*
- the frequency of account statements
- any default rate of interest and how it is calculated (eg. from a published reference rate)
- whether enforcement expenses would be paid by the debtor in the event of a breach
- details of any mortgage or guarantee that may apply
- details of any commission to be paid
- details of insurance financed under the contract.*
* Failure to provide these details can lead
to a civil penalty of up to $500,000 plus compensation for any loss suffered by
the debtor or guarantor.
Once the contract is completed you need to:
- provide a copy of the signed contract to the debtor within 14 days
- send regular account statements:-
- at least every 40 days for continuing credit contracts accessed by a card
- between 40 days to 3 months for other continuing credit contracts
- no longer than every 6 months for any other credit
contract.
Note: Statements are not required in some circumstances. See Section 31 (3)
of the Code for more details.
Your account statements must include:-
- the opening and closing balances of the statement period
- the dates on which the statement period begins and ends
- details of each amount of credit provided during the statement period
- the name of the supplier in any credit card purchases
- interest charges including when they were charged
- any fees and charges
- the annual percentage rate including any changes during the statement period
- payments and transfers to and from other accounts
- the minimum payment owed and the due date
- insurance payments made including the name of the insurer and any commission paid
- any corrections to previous accounts.
A debtor or guarantor is entitled to ask for details of:
- the current balance of their account
- any amounts credited or debited during a specific period
- any overdue payments and the due date
- any amount payable and the date it became due.
Your reply must:
- be in writing if requested in writing
- be given within 14 days or 30 days if it relates to
information over a year old.
Note: A reply need not be provided if you have already given the information within the last 3 months.
Failure to provide a
proper reply statement can lead to court action
If you place an advertisement which refers to the cost of any credit available, it must contain:
- the annual percentage rate or rates
- a statement detailing any fees or charges that may
apply.
It is an offence to make false or misleading representation of
the credit contract or any material relating to it. If a debtor loses any money
as a result of false or misleading representation then you will be liable to
refund them this money.
Before you can take enforcement action you must:
- give written warning to the debtor, guarantor or mortgagor of the breach and allow the
debtor 30 days to remedy the problem
- before taking action against a guarantor, you must obtain judgement against the debtor
from a Tribunal/Court and allow the debtor 30 days to pay.
- obtain a court order before repossessing mortgaged
goods if the amount outstanding is less than 25% or up to $10,000 (whichever
is less) of the total credit provided.
Note: A debtor, mortgagor or guarantor can
negotiate with the credit provider for a postponement of enforcement
proceedings. If that is unsuccessful and the amount of the loan is $125,000 or
less, they can apply to the Credit Tribunal/Court for a postponement.
If there is a business link between a credit provider and a supplier of goods
and services, the Code gives a debtor the right to claim damages from the credit
provider if the supplier breaches the contract or misrepresents the deal. The
credit provider is also entitled to seek reimbursement from the supplier.
If a debtor is unable to meet repayments because of temporary hardship, such as illness or unemployment, they are obliged to meet with you first before proceeding with any Tribunal/Court action. This provides an opportunity to try and accommodate their difficulties without having to automatically proceed to a Tribunal/Court hearing. If you are unable to reach agreement, the Code gives power to a court to order changes to be made if the credit commitment meets or is below the hardship threshold. Please refer to the hardship threshold section of What's New for the relevant amount.
A Tribunal/Court can also order changes to be made to a contract, mortgage or guarantee if it is considered unjust. One major new change under the Code, is the obligation for credit providers not to enter into contracts where they know the debtor is unable to pay without substantial hardship.
If a debtor, mortgagor or guarantor considers their contract to be unjust
they may approach a Credit Tribunal/Court to have it changed so they can better
meet their repayments. If you are unable or unwilling to make any changes, the
debtor can apply to a court to have the contract re-opened.
Yes. Part 10 of the Code which regulates consumer leases provides that the lease must be in the form of a written document signed by the lessee and contain the relevant information required by the Code (see below). You must give the lessee a copy of the lease within 14 days of entering into the contract together with an information statement as set out in Form 11 of the Regulations to the Code, which explains the lessee's rights and obligations under the Code.
(NB You should note that if your customers have a right
or obligation to purchase the goods under the agreement, then Part 10 does not
apply - rather the Code's general provisions relating to credit transactions
apply - see above).
The lease must contain:
- a clear description or identification of the goods hired
- the amount of any deposit or any other thing of value needed before goods are hired
- the amount of any stamp duty or other Government charges to be paid
- any fees or charges not included in the normal rental charge
- the amount of each rental payment
- the date when the first rental payment is due
- when rental payments are due - the regular day or specific dates
- the number of rental payments due
- the total amount of rent to be paid
- a statement of the conditions on which a lease can be terminated
- a statement of any liabilities incurred if a lease
is terminated.
If you want to enter residential property to take possession of them then you
are subject to the same restrictions which apply to mortgagees under credit
contracts governed by the Code (see above). You must also give 30 days written
notice of an intention to repossess the goods except in certain circumstances as
set out in the Code.
If a lessee experiences hardship due to illness, unemployment or other reasonable cause they may ask you to change the terms of their lease in a way that would allow them to meet their obligations to you. For transactions where the lessee's commitment is equal to or less than the hardship threshold the lessee may apply to a Credit Tribunal/court to have the lease changed in the event that you refuse the change. Please refer to the hardship threshold section of What's New for the relevant amount. Under the Code a Credit Tribunal/court can also rule on any transactions which are considered to be unjust.
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