Victorian unfair credit terms law: are your fees unfair?

If you provide credit to Victorian residents (even if your business is based outside Victoria) you are affected by the Victorian Fair Trading and Other Acts Amendment Act 2009 which commenced operation on 11 June 2009.

In particular you need to review your fees to determine whether they are unfair under the new law.

The new unfair contract law (set out in Part 2B of Victoria’s Fair Trading Act 1999) pre-empts the Commonwealth’s unfair contract terms law which is due to apply nationally from 1 January 2010,

Consumer Affairs Victoria (“CAV”) has published Guidelines on unfair terms in consumer credit contracts.

What is the impact of the unfair contract terms provisions of the Victorian Fair Trading Act?

Whilst the Guidelines consider a range of fees, credit card terms and reverse mortgages, it identifies 2 fees in particular:

1. There is a risk that CAV may consider an early termination fee to be “unfair” if it exceeds the “average reasonable administrative costs” relating to termination; it cannot include “general overheads such as rent, salaries and advertising”. CAV particularly objects to such a fee when the lender has unilateral rights to vary a contract’s terms.

2. There is a risk that Consumer Affairs Victoria may consider default fees to be unfair if it exceeds a “genuine pre-estimate” of your “costs arising from the consumer’s breach”.

Whilst CAV’s Guidelines are only guidelines it is worth reviewing your fees to test how they were calculated and to assess the risk that a court may find them unfair.

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