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STANDING COMMITTEE OF OFFICIALS OF CONSUMER AFFAIRS
CONSUMER CREDIT CODE
STATEMENT OF ENFORCEMENT POLICY
COMPARISON RATES FOR LOANS OFFERED FOR TERMS OTHER THAN THE
DESIGNATED TERM
The Consumer Credit (Queensland) Amendment Act 2002 inserts into the
Consumer Credit Code a new Part 9A, which provides for the mandatory disclosure
of comparison rates:
- in advertisements for fixed term credit which feature an annual percentage
rate, and
- in comparison rate schedules which are to be made available to consumers.
Section 146M of the Act provides that comparison rate schedules are required
to list comparison rates for the consumer credit product concerned, calculated
for each of the amounts of credit and terms prescribed for the purposes of that
section.
Section 146M(3) provides that, if credit for one of the prescribed amounts
is generally available, the comparison rate schedule is to list a comparison
rate for that amount and its corresponding term, whether or not the credit is
generally available for that term.
It has become apparent that this requirement could mislead consumers if it
results in an interest rate designed for a loan such as a car loan being used
to calculate a comparison rate for a prescribed amount and term which is intended
to represent a home loan. For example, the prescribed amounts and terms include
a category of $70,000 for 25 years, which is designed to represent a rural home
loan. Some credit providers, however, offer credit of $70,000, but only for
car loans, and at terms of around 5 years. In this case the interest rate is
likely to be different from the rate that would be charged if the loan were
offered for a home loan of 25 years. Using an interest rate designed for a car
loan to provide a comparison rate for a 25 year home loan may therefore be misleading
for consumers.
In response to this problem, the Standing Committee of Officials of Consumer
Affairs (SCOCA) has agreed that the Consumer Credit Regulation 1995 should
be amended to provide that, where a credit provider offers credit for any of
the prescribed amounts which have 25 year terms (all of which are intended to
represent categories of home loan), but the credit provider only offers that
amount of credit for a term of less than 25 years and for purposes other than
a home loan, the comparison rate schedule should provide a comparison rate which
is based on the term for which that amount of credit is actually offered rather
than the 25 year term. The schedule should state the term for which the comparison
rate is calculated.
Until this amendment is made SCOCA has endorsed the following agreed enforcement
approach by government consumer agencies in relation to this issue:
Where a credit provider offers credit for any of the prescribed amounts
which have 25 year terms, but the credit provider only offers that amount
for a term of less than 25 years and for purposes other than a home loan,
the comparison rate schedule should provide a comparison rate which is based
on the term for which that amount of credit is actually offered rather than
the 25 year term. The schedule should state the term for which the comparison
rate is calculated.
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