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Credit law toolkit

Payday lending-Fringe lending

Main points

  • Loans with terms of less than 15 days are banned
  • Small Amount Credit Contracts (SACCs) are loans up to $2000 for terms up to 12 months. Charges (including interest) are capped at a 20% establishment fee and charges of 4% per month (flat rate). No security can be taken for the loan
  • Medium Amount Credit Contracts (MACCs) are loans between $2001 and $5000. Charges (including interest) are capped at a 20% establishment fee and 48% p.a. Security can be taken for the loan.
  • Additional responsible lending requirements apply to SACCs
  • The total repayments of small amount loans cannot exceed 20% of the Centrelink income of the consumer (where Centrelink payments are at least than 50% of their total income)

Small Amount Credit Contracts

SACCs are small amount loans $2000 and under for a term of 12 months or less. These types of loans are often called payday loans even though the term is significantly longer than 2 weeks.

Loans under 15 days are banned under the NCCP.

The cost of credit on SACCs is capped. This means that credit providers offering SACCs can only charge the following:

  • a 20% establishment fee calculated on the amount being borrowed
  • a fee of 4% per month
  • government fees (if applicable)
  • default fees and enforcement costs

The monthly fee of 4% is charged on the total amount borrowed not the outstanding balance – that means it is charged on the amount of the original loan regardless of whether some of that amount has already been repaid. The fee can be charged for a whole month even though the loan may only be outstanding for a small part of that month.

The 20% establishment fee cannot be charged if any part of a SACC is used to refinance any part of another SACC.

There is currently no requirement to disclose an Annual Percentage Rate for SACCs.

The maximum amount that can be charged for the loan is twice the amount borrowed. This includes default fees but not enforcement costs such as solicitor’s costs or court costs.

Security cannot be taken for a SACC.

Medium Amount Credit Contracts

MACCs are loans between $2001 and $5000. The term of the loan must be between 15 days and 24 months.

An establishment fee of 20% of the loan amount can be charged and interest is capped at 48% p.a.

Security can be taken for a MACC and can include a mortgage over goods, car and/or real estate. The prohibited security provision (s.50) still applies.

Responsible lending

The responsible lending requirements set out in chapter 11 apply to both SACCs and MACCs.

There are additional responsible lending obligations for credit providers who provide SACCs:

  • there is a presumption that the contract will be assessed as unsuitable if the consumer is in default under another SACC at the time of the application (s.123(3A)) unless the lender can prove that it was not unsuitable in the circumstances
  • there is a presumption that the contract will be assessed as unsuitable if in the 90 day period prior to the loan application the consumer has already had two other SACCs (s.123(3A)) unless the lender can prove that it was not unsuitable in the circumstances
  • consumer bank account statements must be obtained and reviewed for 90 days prior to the application for the SACC (s.117(1A)) as part of the assessment
  • if the repayments on all SACCs for the borrower exceeds 20% of the income of a person whose main (at least 50%) source of income then the loan must not be granted (s.133CC)

SACC lenders are also required to give potential customers a notice about the fact that small loans can be expensive and to provide referrals to explore alternative options to meet their needs. The warning must be given on the premises, over the telephone or online depending on how the borrower accesses the service.