Business Checklist
Leases
Introduction
If you provide money to purchase goods, services or land, or to lease
goods then you are providing credit.
The Consumer Credit Code applies if you charge for the credit
you provide and your customers are individuals or residential strata corporations
who use it mostly for personal, household or domestic purposes.
The following checklist is a handy way to check your requirements under
the Code.
The checklist sets out your obligations at all stages of the contract's
life including what you need to do before you give the contract to your
customers, what must be included in the contract, what must be included
in account statements, advertising restrictions and what to do to enforce
or change the contract.
It is important to remember that this is only a broad guide covering common
credit and lease contracts. Your business may be excluded from some of these
requirements or have further obligations under the Code. For example, it
does not cover linked credit or differing mortgage arrangements.
It is therefore important that you obtain a copy of the Code and Regulations
from your local Government printers/Government bookshops and consult with
your solicitor or accountant to ensure that your contract fully complies
with the Code.
If you provide credit or lease goods with a right or obligation to purchase
then you need to look at the Credit part of the checklist.
If you charge to hire goods for any period over four months and there
is no right or obligation to purchase then you need to look at the Leases
section.
Credit
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 is signed by you and the debtor
- 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 the contract is made
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.
Precontractual Statement
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.
Information Statement
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 (please see the back for a list of addresses).
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 Contract
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.
After the contract is made
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.
Further Information
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
Contract Changes
It is possible to change the contract if both parties agree to the changes.
In most cases, you will need to confirm these changes in writing within
20 days of the agreement as well as provide the debtor with any information
required by the regulations.
If your contract allows for changes to be made by you without consultation
with the debtor you must:
- give the debtor 20 days written notice of any changes which increase
the amount, frequency or calculation of repayments
- give written notification of any changes to the annual percentage rate
or reference rate not later than the day the change takes
effect
- give 30 days written notice of an increase to credit fees or charges.
Enforcement Proceedings
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.
Advertising
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.
Hardship provisions
If a debtor experiences any personal hardship, caused by circumstances
such as illness or unemployment, they may ask you to change the terms of
their contract so they can still meet their credit obligations. Borrowers have a right to apply
for changes where the credit amount does not exceed a set amount. Please refer to the Hardship Threshold section of What's New for the relevant amount.
Re-opening a contract
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.
Leases
Under the Code, any lease arrangement between yourself and a lessee
must follow these steps:
- a written lease document is signed by you and the lessee
- an Information Statement is given to the lessee
- any changes to the lease or repossession proceedings must follow the
terms set out in the Code
Any consumer leasing arrangement between yourself and a lessee must be
in the form of a written document. The lease document should be clearly
expressed and not less than 10 point type.
Remember, if your customers have a right or obligation to purchase the
goods then you should refer to the Credit part of the checklist.
The Lease Document
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.
After the lease is made
Once the lease is made you need to:
- provide a copy of the signed lease to the lessee within 14 days
- provide a copy of the information statement as set out in Form 11 of
the Regulations to the Code, which explains the lessee's rights and obligations
under the Consumer Credit Code.
Repossession Proceedings
Before you can repossess goods you must give 30 days written notice to
the lessee of:-
- your intention to repossess goods.
You are not required to give notice if:-
- the lease says you can take possession of the goods on a specified date
at the end of the lease
- you have reasonable grounds to believe the lessee has disposed of the
goods or intends to dispose of the goods
- you have been unable to contact the lessee despite reasonable attempts
- the lessee is unable to meet future repayments
- the Court allows you to do so.
Hardship provisions
If a lessee experiences any personal hardship caused by circumstances such as illness or unemployment, they may ask you to change the terms of their lease so they can still meet their rental obligations. If you decide to refuse any changes on a lease where the lessee's commitment is $125,000 or less, the lessee may apply to the Credit Tribunal/Court to have the lease changed.
The court also has power to rule on any transactions that are considered unjust under the Code.
Disclaimer
This checklist is a general guide to some of the most important features
of the Consumer Credit Code. It does not replace the actual Code or regulations
and may not include everything relevant to your credit transactions. If
you feel you are affected by the Code you should obtain a full copy of the
Code and regulations and seek independent legal advice as soon as possible.
Glossary
What is a debtor?
A debtor is an individual or strata corporation who owes money to a credit
provider or arranges money through a finance broker.
What is a lessee?
A lessee is an individual or strata corporation who pays money for the
temporary use of goods.
What is a reference rate?
The reference rate is the rate published by financial institutions to advertise
the interest that is applied to different types of credit contract. The
Benchmark Lending Rate, The Variable Home Loan Rate and the Fixed Term Loan
Rate are all examples of reference rates.
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