What protections does the credit legislation put in place?

Credit providers and credit assistance providers across the industry need to be licensed to engage in regulated credit activities. The laws ASIC administers in relation to credit also include responsible lending obligations, protections around hardship and unfair contract terms in standard form consumer contracts.

What information is available for consumers?

ASIC's Moneysmart website contains comprehensive information on credit for consumers.

How should I deal with consumer complaints?

For information on dealing with consumer complaints, including those relating to hardship notices, see Regulatory Guide 271 Internal dispute resolution (RG 271). RG 271 explains what credit licensees, credit representatives and other relevant entities must do to have a dispute resolution system in place that meets ASIC’s requirements.

How much time does a credit provider have to respond to a hardship notice?

If the credit provider has sufficient information to decide whether and how they would change the contract to address the debtor's inability to meet their obligations, the credit provider has 21 days to notify the debtor of their decision: see section 72(4) and (5). The 21-day period begins the day after the hardship notice is received. See also Table 1.

What happens if the credit provider does not have sufficient information to respond to the hardship notice?

If the credit provider does not have enough information to decide whether and how to change the contract, the provider may request further information (verbally or in writing) from the debtor. The provider has 21 days to request this information: see section 72(2). Note that this 21-day period begins the day after the hardship notice is received.

The information requested must be relevant to deciding:

• whether the debtor is or will be unable to meet the debtor's obligations under the contract, or
• how to change the contract if the debtor is or will be unable to meet those obligations.

When requesting the information, the credit provider should advise the debtor that they need to provide the information within 21 days of the date of the request: see section 72(2).

If the credit provider does not receive any information from the debtor, the provider has 28 days from when the information was requested to respond to the hardship notice: see section 72(5). In other words, if the provider does not receive any information within 21 days of requesting the information, the provider must respond to the hardship notice within the following seven days.

If the debtor provides the information requested by the credit provider, the provider has 21 days from when the information was received to respond to the hardship notice.

Table 1 summarises the timeframes for responding to a hardship notice.

Table 1: Timeframes for responding to a hardship notice

What information needs to be given to a debtor after they enter into an agreement to change the credit contract?

If, after receiving a hardship notice, a credit provider enters into an agreement with the debtor to change the credit contract, and the change defers or reduces the debtor’s obligations for a period greater than 90 days, the provider must give the debtor a written notice that sets out the changes to the contract. The provider must give the debtor this notice no later than 30 days after the date of the agreement: see section 73(1). If the credit provider agrees to a change to a credit contract that defers or reduces the debtor’s obligations for a period not exceeding 90 days, no notice is required: see section 73(1A).

What information needs to be given to a debtor if the credit provider does not agree to change the credit contract?

If, after receiving a hardship notice, a credit provider does not agree to change the credit contract, the credit provider must notify the debtor of:

• the fact that they do not agree to change the contract
• the reasons they do not agree, and
• contact details for the Australian Financial Complaints Authority (AFCA) and the debtor’s rights to complain to AFCA about the credit provider’s decision.

Can the credit provider take security over household items?

Section 50 of the National Credit Code prohibits taking certain types of securities. For example, a mortgage must not be taken over goods that are essential household goods. 'Essential household goods' is given the same meaning as in the Bankruptcy Act 1966 and includes property that is reasonably necessary for the domestic use of the bankrupt's household.

However, there are some circumstances where a mortgage over household goods is acceptable. An example is when the advance is used to purchase the goods over which the mortgage is taken.

Has ASIC issued guidance about compliance with the 'unfair contract terms' legislation?

ASIC administers the laws that deal with unfair terms in standard form small business contracts and consumer contracts for financial products and services. These laws were extended to also apply to insurance contracts from 5 April 2021.

Amendments to the laws which commenced on 9 November 2023 introduced a civil penalty regime that prohibits the use of, and reliance on, unfair contract terms in standard form contracts.

ASIC has published guidance on these laws in:

• Information Sheet 210 Unfair contract term protections for consumers (INFO 210)
• Information Sheet 211 Unfair contract term protections for small businesses (INFO 211).