FAQs: Dealing with consumers and credit
This information sheet (INFO 105) covers frequently asked questions on consumers and credit under the National Consumer Credit Protection Act 2009 (National Credit Act). It covers:
- dealing with consumers
- hardship variations
- responding to a request for hardship variation (credit contracts entered into before 1 March 2013)
- responding to a hardship notice (credit contracts entered into on or after 1 March 2013)
- responsible lending
- security over household items
- unfair contract terms.
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 165 Licensing: Internal and external dispute resolution (RG 165). RG 165 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.
RG 165 applies to complaints received by financial firms before 5 October 2021, when Regulatory Guide 271 Internal dispute resolution (RG 271)comes into effect. We will withdraw RG 165 on 5 October 2022.
Section 72 of the National Credit Code (which is Schedule 1 to the National Credit Act) allows a debtor to request a change to the terms of their credit contract on the grounds of financial hardship. See the FAQs below for information about how to respond to a request for hardship variation for contracts that were entered into before 1 March 2013.
How much time does a credit provider have to respond to a request for a hardship variation?
Credit providers are required to respond in writing within 21 days. It is important that credit providers respond quickly and appropriately to requests for assistance by debtors experiencing financial difficulties. However, credit providers also need to properly understand the nature and impact of those difficulties, as well as be able to assess whether it is reasonable to expect that the debtor could meet revised obligations if the contract is varied as requested.
For those reasons, we consider that the 21-day period commences after the debtor makes an application with sufficient information to allow the credit provider to make a final decision.
What happens if the credit provider does not have sufficient information to respond to the hardship notice?
When a request for a variation is made without sufficient information, the credit provider will need to identify what further information is required to make a final decision and advise the debtor as soon as practicable. Until that information is provided, our view is that an application has not been made, and so the 21-day period will not have commenced.
A request for further information should be limited to information that is genuinely needed to allow a final decision to be made, and any such request should not unreasonably or unnecessarily delay the process. When a credit provider has sufficient information to allow a final decision to be made, a request for further information will not stop the 21 days running.
See also Does responsible lending apply to hardship variations? under Responsible lending below.
On 1 March 2013, the obligations in section 72 of the National Credit Code were amended. Under the amended obligations, a debtor may give the credit provider notice, either verbally or in writing, of their inability to meet their obligations under a credit contract (a hardship notice).
See the FAQs below for information about how to respond to a hardship notice. The information applies to credit contracts that were entered into on or after 1 March 2013.
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
If the credit provider:
the provider has:
has enough information to decide whether to change the contract
21 days after the date of receiving the hardship notice
requests more information but does not receive the required information
28 days after the date the information was requested
requests more information and does receive the required information
21 days after the date the information was received
Note: The information in this table applies to contracts entered into on or after 1 March 2013.
Should a credit provider give a debtor additional time to provide requested information?
There may be circumstances where it is appropriate to allow debtors additional time to provide requested information – for example, where the debtor experiences a delay in getting medical reports from doctors, or certain financial information from an employer. The debtor’s circumstances may also make it difficult for them to respond to the information request in a timely way.
For these reasons, where a debtor has shown a willingness to comply with the request but is not able to provide all the information in the timeframe required, we are of the view that a credit provider may exercise their discretion to wait until all the requested information is received. This means that the final 21-day period to respond to the hardship notice will not commence until that information is received.
That discretion should be exercised appropriately and, where it is exercised, lenders should ensure that allowing additional time does not result in an unreasonable delay. An unreasonable delay may exist where it is clear that no further information is likely to be forthcoming, and the continuing delay is likely to operate to the detriment of the debtor (e.g. through accruing unnecessary fees and interest). An unreasonable delay could constitute, or be part of conduct constituting, unconscionable conduct.
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, 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).
Does responsible lending apply to credit card limit increases?
A credit card limit increase is subject to the responsible lending provisions. See Regulatory Guide 209 Credit licensing: Responsible lending conduct (RG 209) for more information.
The responsible lending provisions do not apply to hardship variations unless:
- additional credit is provided (which would be unlikely in the majority of cases), or
- existing obligations are refinanced (creating a new contract instead of varying the existing contract).
However, a consumer’s capacity to meet revised payment obligations is important – if a credit provider fails to give sufficient regard to affordability, the variation could be challenged as unjust: see section 76 of the National Credit Code.
How can the credit provider verify a consumer’s financial situation over the weekend to assess the suitability of a loan?
There is no exemption in legislation for out-of-hours trading. In some cases, verification may have to take place in (and therefore wait until) normal business hours.
Can a consumer apply for credit through more than one channel (e.g. face-to-face and online applications)?
Yes. The legislation does not discriminate between different channels. The same laws and standards will apply to face-to-face and online applications. This is reflected in our guidance in RG 209.
Does the credit legislation address business purpose declarations (BPDs) being used as an avoidance mechanism?
The National Credit Act and National Credit Code do not apply to business loans. This can create incentives for false declarations that state that a loan is for business purposes (and therefore should be unregulated).
The credit legislation states that a BPD is ineffective where:
- the credit provider (or a prescribed person) knew, or had reason to believe, that the credit was to be used for regulated purposes, or
- the credit provider (or a prescribed person) would have known, or had reason to believe, that the credit was to be used for regulated purposes if they had made reasonable inquiries.
‘Prescribed person’ is defined in the National Consumer Credit Protection Regulations 2010 so that, if a third party is involved in arranging or obtaining the BPD, their knowledge will be relevant to whether the declaration is effective.
It is also a strict liability offence to induce a person to make a false or misleading BPD.
What do ‘reasonable inquiries’ mean in relation to responsible lending and what sort of documents will the credit provider need to obtain?
The responsible lending obligations require credit providers and credit assistance providers to take reasonable steps to verify a consumer’s financial situation. In general, we consider that this obligation is scalable – what credit providers and credit assistance providers need to do to make reasonable inquiries and take reasonable steps to verify information in relation to a particular consumer will vary depending on the circumstances.
Note: On 25 September 2020, the Government announced proposed reforms to the responsible lending obligations contained in Ch 3 of the National Credit Act. The proposed reforms will amend the obligations that apply before entry into a credit product or the provision of credit assistance. ASIC’s guidance relating to the current responsible lending obligations will be reviewed and updated when the proposed reforms are finalised.
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 law that deals with unfair terms in standard form small business contracts and consumer contracts for financial products and services.
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).
Where can I get more information?
- RG 165 Licensing: Internal and external dispute resolution
- RG 209 Credit licensing: Responsible lending conduct
- RG 271 Internal dispute resolution
- INFO 210 Unfair contract term protections for consumers
- INFO 211 Unfair contract term protections for small businesses
- Visit our Credit page for the latest information on credit
- Go to www.moneysmart.gov.au for credit information and resources for consumers
- Contact us online or call 1300 300 630.
Please note that this information sheet is a summary giving you basic information about a particular topic. It does not cover the whole of the relevant law regarding that topic, and it is not a substitute for professional advice. Omission of any matter on this information sheet will not relieve a company or its officers from any penalty incurred by failing to comply with the statutory obligations of the National Credit Act.
You should also note that because this information sheet avoids legal language wherever possible, it might include some generalisations about the application of the law. Some provisions of the law referred to have exceptions or important qualifications. In most cases your particular circumstances must be taken into account when determining how the law applies to you.
This is Information Sheet 105 (INFO 105), updated October 2020.