The Assistant Treasurer has released for public consultation the Exposure Draft of three parts of the National Consumer Credit Protection Amendment (Enhancements) Bill 2011 and draft regulations.
The drafts contain refinements to existing provisions of the National Credit Code as well as two elements of Phase Two of the National Credit Reforms: loans to persons over 55 (whether by reverse mortgage or otherwise) and consumer leases.
The draft includes:
- broadening of the grounds of variations that can be requested by consumers on the basis of financial hardship and changes to procedures in respect of borrowers applying for hardship variations;
- introducing a remedy for unfair or dishonest conduct by providers of credit services;
- restricting the use of specified terms and regulating representations;
- extending the prohibition on unsolicited canvassing (door-to-door selling);
- providing ASIC with power to appear on credit applications in its own right as well as on behalf of consumers;
- technical drafting corrections (correcting headings and cross-references).
Reverse mortgages and Seniors protection
The draft Bill defines a reverse mortgage as one only entered into with persons aged at least 55 years old where full repayment of the debt is not required until:
• each borrower dies;
• the dwelling or land is sold;
• each borrower permanently vacates the home;
• the credit provider (or associated person) exercises their legal rights under the contract to take possession of the home;
• a term in the contract ends (such as a fixed term loan); or
• the borrower reaches a certain age (such as 85 years old).
The provisions in the draft bill include:
- Reverse mortgage specific responsible lending conduct obligations
- Non-title holding resident arrangements (to be a key requirement)
- providing an Information Statement
- Excluded default clauses
- Requirement for independent legal advice
- Mandatory default procedure
- Statutory negative equity protection (both before and after sale)
The draft Regulations provide that it will be presumed that a credit contract will be unsuitable for a borrower under the following circumstances:
• that the credit contract is not a reverse mortgage;
• the borrower is at least 55 year of age and is not in full-time employment when the credit contract will be entered into ;
• the amount owing under the contract can only be repaid by selling the borrower’s principal place of residence; and
• if reasonable inquiries about the consumer’s requirements and objectives establish that the consumer would use the credit provided under the contract predominantly to pay for regular or recurring household expenses, or to pay for expenses relating to the health of the consumer, or another resident of the property aged over 55 years old. This would not include the consumer’s use of the credit provided under the credit limit in the contract as part of discharging the consumer’s obligations under another credit contract that is secured by a mortgage over the consumer’s principal place of residence.
The draft Bill contains changes designed to achieve regulatory consistency between leases and credit contracts in respect of the form of leases, alterations, fees and charges, statements of account, variations, reopening and enforcement procedures.
A new section will impose an obligation on the lessor to provide a statement to the lessee at the end of a lease. The end of lease statement would notify the lessee that their lease was coming to an end. Further details about the sort of information that must be disclosed in the statement will be prescribed in subsequent regulations.
Submissions close on 17 August 2011. Legislation is expected to be introduced in to Parliament later this year with commencement scheduled for 1 July 2012.