On 18 September 2012, the Consumer Credit Legislation Amendment (Enhancements) Act 2012 (Enhancement Act) received assent.
The Enhancement Act amends the National Credit Code to change:
1. the way that borrowers can apply for hardship relief and postponement of
enforcement action; and
2. the steps that a lender must follow in responding to a request for hardship
relief or postponement of enforcement action.
A further change is the introduction of section 89A. Section 89A provides that if a borrower gives a hardship notice, a lender is prevented from commencing enforcement proceedings until it has responded to the notice and waited a further 14 days where:
1. the debtor has not given a hardship notice in the 4 months prior to the
current notice
2. the debtor has given a hardship notice(s) in the last 4 months, but the credit
provider reasonably believes that the basis on which the current hardship notice
has been given is materially different from the basis on which any previous
hardship notices was given.
So, what are the changes?
Current NCC |
Amended NCC |
Debtor makes "application" to vary the credit contract |
Debtor gives "hardship notice" |
No specific requirement as to form of hardship application |
Hardship notice can be given orally or in writing |
Application can only be made if debtor is unable reasonably, because of illness, unemployment or other reasonable cause, to meet the debtor’s obligations under a credit contract |
Lender need not agree to change the credit contract, if lender does not believe there is a reasonable cause for debtor’s inability to meet his or her obligations |
Debtor must reasonably expect to be able to discharge the debtor’s obligations if the terms of the contract are changed |
Lender need not agree to change the credit contract, if lender reasonably believes the debtor would not be able to meet his or her obligations under the contract if it were changed |
Application must seek to change the contract in one of 3 specific ways: extending term of loan, postponing payments or extending loan and postponing payments |
No restriction on types of variation that can be sought
Court may only make changes that do not reduce the amount ultimately payable under the contract |
Provisions only apply if original loan amount is below the relevant threshold |
No maximum threshold for giving hardship notice (threshold will still apply to credit contracts entered into prior to 1 March 2013) |
Lender must respond to application within 21 days |
Lender must respond to hardship notice within 21 days (unless further documents are sought) |
Lender must respond to hardship notice within 21 days (unless further documents are sought) |
Lender may make a request within 21 days of receiving hardship notice for further information to be provided within 21 days |
If lender requests further documents to assist in reviewing the application, lender may still need to respond within 21 days of receiving the initial hardship application |
If lender requests further information, the response to the hardship notice must be given either:
- within 21 days of receiving further information: or
- within 28 days of the request if information not received
|
$3,300 penalty if lender does not respond to application in time |
$220,000 ($1.1mill for corporations) penalty if lender does not respond to hardship notice in time |
Form of response to hardship application not prescribed |
Form of response to hardship notice may be prescribed by regulations (but the draft regulations do not do so) |
The changes will only apply to credit contracts entered into after 1 March 2013.
This has the undesirable effect of causing lenders to maintain two separate processes for dealing with requests for hardship relief or postponement of enforcement action.
A submission has been made on the draft regulations for the Enhancement Bill, requesting that a regulation is made permitting credit providers, at their option, to use the proposed new procedures for credit contracts entered prior to 1 March 2013.
Such a regulation would enable lenders to avoid:
1. unnecessary expense in maintaining two systems;
2. unintentional breaches arising from adopting the wrong system; and
3. the need for maintaining two systems well into the future.
The regulations are currently under consideration.
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