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16-376MR Consumers will no longer be charged direct debit fees for payday loans
Following an independent review of payday lending laws, ASIC has taken steps to ensure consumers are not charged direct debit fees when taking out a small amount loan.
This new rule will apply to any payday loan provided from 1 February 2017. It is facilitated by the repeal of interim ASIC Class Order [CO 13/818] Certain small amount credit contracts.
Loans that commence before 1 February 2017 will continue to operate under the existing rules and third party direct debit fees will be able to be charged on those loans. However, if a contract is varied after 31 January 2017, no further direct debit fees may be charged.
On 1 July 2013, restrictions were introduced for small amount credit contracts (SACCs) that limit the fees and charges that consumers can be asked to pay. Cost caps apply to establishment fees and monthly fees (both of which are subject to maximum limits based on a percentage of the adjusted credit amount), default fees and government fees and charges.
In response to a Government request, ASIC made Class Order [CO 13/818] on an interim basis to allow the charging of direct debit fees by third party companies in certain circumstances.
In August 2015, to fulfil a statutory requirement under the National Credit Act, an independent review panel (the Panel) was established by the Government to examine and report on the effectiveness of the laws relating to SACCs. Two phases of consultation were undertaken during the course of the review, with the Panel considering written submissions together with holding roundtables and bilateral meetings with interested stakeholders.
The Panel's final report released in March 2016 included a recommendation that "Direct debit fees should be incorporated into the existing SACC fee cap". The then Minister for Small Business and Assistant Treasurer, The Hon Kelly O'Dwyer MP, when releasing the final report, stated that, "The Government is supportive of ASIC acting on this recommendation when it considers it appropriate".
As a result, ASIC has now repealed [CO 13/818] and after consulting stakeholders has provided a 12 month grandfathering period to ensure a smooth transition for both consumers and industry. This means that for loans which commence from 1 February 2017, third party direct debit agencies will no longer be able to charge consumers a fee when processing a repayment on that loan. Third party agencies, who have entered into an agreement with consumers for a loan which commenced prior to 1 February 2017 will continue under [CO 13/818] to be able to charge consumers a fee when processing a repayment on that loan except in circumstances where the contract is varied after 31 January 2017.
Further information and relevant documents:
- Class Order [CO 13/818]
- ASIC Credit (Repeal) Instrument 2016/1067 (registration pending)
- Media release of the Hon Kelly O'Dwyer MP, the then Minister for Small Business and Assistant Treasurer: Small amount amount credit contract report released (19 April 2016).
This media release was amended on 23 December 2016.