Credit and Debt Fundamentals

Transcription

1 Credit and Debt Fundamentals Susan Winfield Senior Solicitor Lynda Johns Senior Financial Counsellor Consumer Credit Legal Centre (NSW) Inc February 2014 This presentation is for information only. You must seek legal advice in relation to any particular circumstances.

2 Consumer Credit Legal Centre (NSW) Referrals to other face-to-face financial counselling services Financial Counsellors and solicitors available for advice and casework assistance, co-operative approach to both Casework including negotiations, written legal advice and representation in EDR schemes, courts and tribunals in credit, debt, banking & insurance Web-based resources for the public and other caseworkers Education resources, presentations and media Advocacy and reform

3 Credit and Debt Hotline Insurance Law Service (National) CLC Solicitors and Financial Counsellors Hotline

4 Today s goals Introduction to the credit law New legislation Responsible lending Unjustness External Dispute Resolution Schemes (EDR) Financial Counsellors Hardship Stages of enforcement and options

5 Handy References

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7 Introduction to the credit law Before 1 July 2010 Consumer Credit Code 1996 ( Credit Code ) State legislation. After 1 July 2010 National Consumer Credit Protection Act 2009 (NCCP) ( Credit Act ). National legislation, includes National Credit Code at Schedule 1 of the Act. National Credit Code. Transfer of Consumer Credit Code 1996 with changes. CLT 1, p3

8 As a guide, Credit law or Credit Code will apply if: There is a loan and interest or fees are charged. The loan is wholly or predominantly (more than 50%) for personal, household or domestic purposes. The loan is to purchase, renovate or improve residential property for investment purposes, or to refinance such a loan (only for loans granted on or after 1 July 2010). CLT 1, p 3-4

9 Does the credit law apply? (CLT 1,p 3-4) Mary has a mortgage with Westpac. She lives in the mortgaged property. Trish & Bill bought an investment property in 2008 with a loan from ANZ. Paul got a loan to purchase goods for his business. Trent has a car loan with Esanda. He uses the car to go to work. Salim has a car loan with Motor Finance Wizard (Kwik Finance) which does not charge any interest or fees.

10 Does the credit law apply? Gabby is leasing a computer from Rentsmart. Sam borrowed $10,000 from his brother to buy a car for personal use. Maryam entered into a loan with a pawnbroker. Tony purchases a ring from Goldmark by paying in installments to Certegy. The total amount he pays is equivalent to the ring s cash price. Kim obtained a personal loan in NZ for but is being pursued for the debt in Australia

11 Overview of rights and protections Apply to vary contract on basis of financial hardship. Challenge unjust contracts. Challenge unsuitable loans. Right to request documents. Credit providers must take certain steps before seizing goods/property and/or commencing court proceedings. Credit providers and other credit assistants must be in external dispute resolution EDR (giving consumers free access to dispute resolution). CLT 1-p3

12 Some recent developments New Regulator ASIC Licensing Compulsory External Dispute Resolution (EDR) Courts, not Consumer Trader Tenancy Tribunal Responsible lending Hardship threshold and response time Default notice Prohibited securities (CLT 1, p 43) CLT 1, p 6-7

13 From 1 July 2013: Cost caps 3 categories of loan permitted: 1. Small amount credit contracts for $2,000 or less, loan periods of between 16 days and 12 mths unsecured and not continuing credit contracts; 2. Medium amount credit contract: $2001 and $5,000, for loan periods of 16 days to 2 years; 3. All other consumer loans (plus loans for investment in residential property).

14 Permitted Charges 1. Small amount credit contracts 20% establishment fee plus flat rate of 4% of amount borrowed per month. Max amount recoverable including default charges (but not enforcement expenses) is 200% of the amount borrowed.

15 Permitted Charges cont: 2. Medium amount credit contracts 48% per annum plus up to $400 establishment fee. 3. Other consumer credit contracts 48% per annum (the old cap for all loans in NSW).

16 Responsible Lending Conduct From January 2011 Chapter 3 NCCP obligations on credit providers and other licensees to assess the suitability of a product before providing it to a consumer. S 130 NCCP 1. reasonable enquiries about the consumer s needs & objectives in relation to the credit contract; 2. make reasonable enquiries about the consumer s financial situation; and 3. take reasonable steps to verify the consumer s financial circumstances

17 Responsible Lending Conduct Relevant factors to consider: The potential impact upon the consumer of entering into an unsuitable credit contract The complexity of the credit contract The capacity of the consumer to understand the credit contract Whether the consumer is an existing customer of a credit provider or a new customer ASIC Regulatory Guide 209: Credit licensing: Responsible lending conduct

18 Small amount credit contracts The RL assessment must include obtaining, reviewing and considering bank account statements for the previous 90 day period If borrower already has another small amount credit contract & is in default under that contract: OR the borrower has already had 2 more other small amount contracts in the previous 90 days THEN it is presumed that the loan is unsuitable unless it is proved otherwise by the lender.

19 Small amount credit contracts Where a borrower under the small amount contract receives 50% or more of their income from Centrelink, then the lender must not provide a loan where the repayments would be greater than 20% of the borrower s income.

20 * This statement is an Australian Government requirement under the National Consumer Credit Protection Act Warning about Borrowing Do you really need a loan today?* It can be expensive to borrow small amounts of money and borrowing may not solve your money problems. Check your options before you borrow:

21 For information about other options for managing bills and debts, ring from anywhere in Australia to talk to a free & independent financial counsellor Talk to your electricity, gas, phone or water provider to see if you can work out a pmt plan If you are on government benefits, ask if you can receive an advance from Centrelink: Ph: The Government s MoneySmart website shows you how small amount loans work and suggests other options that may help you.

22 Responsible Lending Conduct & Suitability S 131 NCCP a lender must assess that a credit contract will be unsuitable if The consumer will be unable to comply with the consumer's financial obligations under the contract, or could only comply with substantial hardship OR the contract will not meet the consumer's requirements or objectives

23 What if the loan is unsuitable? Court: declare part or all of the contract to be void; varying the contract; refusing to enforce terms; request refund of money or property to be returned; payment for loss/damage EDR: Refund money, order compensation, require the return of goods, cars, property Time Limits: six years from the date of the breach. More than 6 years? Argument may be made under unjust contracts provision

24 Unjustness S 76 (8) NCC: Unjust includes unconscionable, harsh or oppressive Factors to be considered Relative bargaining positions of the parties Whether the consumer is able to reasonably protect their own interests, because of their age, physical or mental condition Unfair tactics/pressure used on consumer Could the consumer have repaid the loan without substantial hardship?

25 Working out a remedy If the consumer receives a benefit, they (almost always) need to repay the benefit Example: Johnny buys a new Maserati and gets a loan from Quick, Fast Loans to pay for the car. He cannot afford to make any of the repayments. He received the benefit of having a car, so will have to pay the amount borrowed. If unjust fees, interest etc could be waived

26 Working out a Remedy The consumer should be put back in the position they should have been in but for the unjust transaction Example: Johnny bought the Maserati and the loan to pay for it was arranged by Quick, Fast Loans. He could not afford the car loan, and was mislead about the features of the car. He should not have obtained the loan. Remedy: Car to be surrendered; car payments made are then offset against the use of the car. No shortfall payable.

27 External Dispute Resolution (EDR) Free for consumers Independent All enforcement stops (including court proceedings) while EDR deals with dispute Encourages negotiation, opportunity to achieve a fair and reasonable outcome EDR can decide on hardship variations under the credit law Court is still an option for consumer if they do not accept the decision of EDR No physical appearance necessary, it s largely paper and telephone based CLT 1, p15

28 Two EDR schemes FOS (Financial Ombudsman Service) Call COSL (Credit Ombudsman Service Limited) Call (websites are useful to search for members of the schemes, and for lodging complaints on-line)

29 Client s change of circumstances? Financial counsellors Request documents Hardship variations

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31 Credit Law & Financial Hardship Consumers can apply for hardship variation (HV) to their credit contracts ( CLT Sec1, P23) Credit provider must respond in writing within 21 days If credit provider won t agree, apply to External Dispute Resolution (EDR) Financial Ombudsman Service (FOS) Credit Ombudsman Service (COSL) If EDR unsuccessful can be enforced in court

32 Hardship provisions prior to I March Now superseded Consumer s financial situation used to have to be due to: illness, unemployment or other reasonable cause There used to be only 3 options for contract to be varied; which were Extend loan term and reduce amount of each payment Postpone a repayment Extend term of loan and postpone repayment Repayment must be affordable and sustainable

33 Hardship provisions since 1 March Recent Changes 2013 Notify lender, orally or in writing that you are experiencing hardship and that you will be unable to meet your obligations under the credit contract. You do NOT have to be ill or unemployed to make an application. No requirement that the amount of credit is under $500K Lender must respond within 21 days

34 How to ask for a Financial Hardship Agreement (CLT S1,P28) Client could apply direct to lender s hardship team; avoid collections If disputed, write to lender s Internal Dispute Resolution (IDR) contact for relevant IDR scheme ( and -Sample letters on CCLC website Assess client s capacity to pay before offer repayment arrangement need money plan; assets and liabilities; list of all creditors and curent arrangements Mention Section 72 (hardship var n) of Credit Law and any applicable Code of Practice (see S3 of CLT for Codes)

35 When to go to External Dispute Resolution (EDR) When credit provider (CP) rejects request for financial hardship When CP is threatening legal action CP has issued Statement of Claim, no judgement Lodge in EDR immediately; on-line best ; get case number; inform creditor of EDR action and case number Follow up with EDR to ensure client s dispute is in EDR system For how to apply to EDR: see CLT S2 P15 ; S3 P3-18

36 EDR and Financial Hardship (CLT:S1, P16;30) EDR schemes can make determinations on financial hardship under the Credit Law Value of dispute not value of contract so even with high value home loan, amount in dispute will be the repayments sought to be postponed A few hints when going to EDR Client may have to complete statement of financial position to show repayment is affordable, reasonable Don t agree to arrgt. client can t afford Client should keep making regular repayments Always lodge dispute in writing Get legal advice if legal action taken Get agreement on arrears and arrangement after hardship var n ends

37 What if Credit Law does not Apply? (CLT S1,P31) Three Codes of Practice available (see CLT S3,P49 Code of Banking Practice (most banks) Mutual Banking code of Practice (building socs & credit unions ) Mortgage & Finance Association of Aust (MFAA) Credit providers have obligation to consider financial hardship requests under these codes Go to EDR if they don t comply with their obligations

38 Treat Home Loans as Top Priority Multiple debts...? Saving the home comes first Tell client to pay what they can for now Check whether Credit Law applies and/or relevant Codes of Practice Send letter requesting financial hardship arrangement See sample letters for Credit Law and No Credit Law (CLT S2, P11-13) If rejected by lender or if they have taken legal proceedings (but no judgement yet) go to IDR Get legal advice if legal action has commenced

39 Requesting Information Reasons for requesting loan documents (CLT S2,P39) Don t have documents to assist with dispute Client believes amount owing is incorrect Client has lost documents Creditor has not supplied them See whether it is an old debt (over 6 years)

40 What documents do you need? Purpose What you need Possible unjustness -Copy of loan app, credit -home, pers. loan contract; assessment under s 129 NCC Unjustness- credit card To repay loan in full See if statute barred - Copy of loan app, limit increases; assessment under s 129 NCC -Payout figure, how calc. -Account statement to check date last paid

41 Time Limits to provide Information For contracts, notices, statement of account Loan given less than a year: 14 days from date of request Loan more than a year ago: 30 days from date of request For loan payout figure: 7 days from the request See sample letter as guide to request (CLT S2,P42)

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43 Stages of enforcement & options This presentation is for information only. You must seek legal advice in relation to any particular circumstances.

44 General enforcement process Usually, a default required before legal action can be commenced. Most common default is failure to pay. Notice under section 88 National Credit Code. 30 days to pay amount of default and usual repayment. If default notice is not complied with, credit provider can make whole loan repayable and commence court proceedings to recover the whole debt, and repossess secured property (if loan is secured) CLT 1, p 47-48

45 Before legal proceedings No default notice Default notice not expired Default notice expired

46 Options before legal proceedings Hardship application - Hardship department/idr Lodge dispute with Internal Dispute Resolution(IDR) Lodge dispute with External Dispute Resolution (EDR) Consumer may apply to EDR for return of good/vehicle Complain to ASIC/government bodies Get legal advice if consumer wishes to start proceedings in court Other options including bankruptcy

47 During legal proceedings Court action has commenced when the default notice has expired and there is Statement of Claim 28 days to respond from the date they received the Statement of Claim. Statement of claim received but not yet expired Statement of claim expired Statement of claim expired, but no judgment

48 Important! EDR during legal proceedings You can lodge in EDR at early stage of legal action but before Judgment (ie. court decision). Court action stops until the matter is dealt with by EDR. Lodge in EDR on basis of financial hardship and/or reason why debt claimed is not owed. Tips in EDR Make sure the legal proceedings are discontinued Make sure no costs have been added by the credit provider for dealing with matter in EDR Try to negotiate so that consumer does not have to pay costs of credit provider commencing court proceedings

49 After court judgment If the plaintiff obtains Judgment (because defendant lost the case, confessed the debt or did nothing) they can do any of the following: Sheriff can take and sell certain assets. Garnishee wages or bank account. Force judgment debtor to become bankrupt (threshold is $5000). Examine judgment debtor in court to find out their income, assets and liabilities.

50 Options after judgment Limited opportunity to lodge in EDR after credit provider obtains judgment in court FOS can consider mortgagee sale in mortgage matters COSL can intervene to stop enforcement action after judgment Negotiate more time Negotiate a hardship variation Apply to court to set aside judgment (seek legal advice first) Apply to court for a stay of enforcement Other options including bankruptcy

51 Repossession of home Method 1 - Vacant possession. Take possession after default notice expires, property is vacant. Method 2 Surrender property. Method 3 - Court proceedings. Default notice Legal proceedings Court judgment Court order for possession Sheriff changes locks after giving notice CLT 1, p 59

52 Repossession of goods (incl. cars) Default notice Security property can be repossessed for failure to comply with default notice Written notice within 14 days after repossession to give option of paying the arrears and enforcement costs or paying contract in full to get property back 21 days to respond to notice After 21 days, the goods may be sold After sale, notice giving amount the sale price and any shortfall amount left to pay CLT1, p 53

53 Repossession of leased goods Notice of Repossession, under s 178 of the National Credit Code 30 days written notice of intention to take possession of leased goods

54 What is a lease? S 174 NCC outlines what should be included in a lease agreement Lessee to get a copy of the lease + Information Statement outlining the lessee s rights and obligations within 14 days of the signing of the agreement WARNING: Some traders, car dealers, finance brokers sign people up for consumer leases when in fact the consumer wants to enter a loan contract. This transaction may be reopened as unjust.