1. Credit Contracts Faith Cheok Consumer Credit Legal Service (WA) Inc September 2011 This presentation is for information only. You must seek legal advice in relation to any particular circumstances. This presentation is for information only. You must seek legal advice in relation to any particular circumstances.

2. Vulnerable and disadvantaged consumers Vulnerable and disadvantaged consumers Fair relationships with banks & financial institutions Fair relationships with banks & financial institutions Established February 1991 Case files Caller help line 100 + advice and cases per month

4. Regulation of Credit Credit reform 2010/2011 New Regulator – ASIC New Regulator – ASIC Licensing and compulsory EDR Licensing and compulsory EDR The National Consumer Credit Protection Act 2009 (and regulations) (“NCCP Act”) commenced 1 July 2010 The National Consumer Credit Protection Act 2009 (and regulations) (“NCCP Act”) commenced 1 July 2010 The National Credit Code (“NCC”) The National Credit Code (“NCC”) - Uniform Consumer Credit Code (“UCCC”) amended & adopted as a schedule to the NCCP Act

5. What loans are covered by the NCCP and NCC? Loans for personal, domestic, household purposes such as home loans, credit cards, motor vehicles loans and personal loans (same as UCCC) Loans for personal, domestic, household purposes such as home loans, credit cards, motor vehicles loans and personal loans (same as UCCC) Loans for investment in residential property and re-finances of such loans (new) Loans for investment in residential property and re-finances of such loans (new) Pawnbroking is only covered by the unjust contract provisions Pawnbroking is only covered by the unjust contract provisions

6. Australian Credit Licence Who needs a licence? Who needs a licence? Persons who engage in credit activities Persons who engage in credit activities Exceptions: credit rep, employee or exempt Exceptions: credit rep, employee or exempt

7. Dispute Resolution Each licensee and credit representative must: Have an IDR procedure Have an IDR procedure Be a member of an EDR scheme - FOS or COSL Be a member of an EDR scheme - FOS or COSL

8. EDR Benefits of EDR for consumers: Free alternative to court Free alternative to court No possibility of a costs order No possibility of a costs order Accessible – complaints can be made by unrepresented consumers or lay advocates Accessible – complaints can be made by unrepresented consumers or lay advocates No physical appearance necessary – largely paper & telephone-based No physical appearance necessary – largely paper & telephone-based EDR possible even after legal proceedings commenced unless judgment entered (but COSL possible) EDR possible even after legal proceedings commenced unless judgment entered (but COSL possible) Note limitations of EDR Note limitations of EDR

9. Responsible Lending The NCCP has created RL obligations. Obligations apply to brokers and lenders (and any other intermediary interfacing with the consumer or making lending decisions). Obligations apply to brokers and lenders (and any other intermediary interfacing with the consumer or making lending decisions). They apply to loans and consumer leases. They apply to loans and consumer leases.

10. Responsible Lending Disclosure: a Credit Guide about the licensee; a Credit Guide about the licensee; Credit service providers (brokers) must provide the consumer with a quote prior to providing credit assistance Credit service providers (brokers) must provide the consumer with a quote prior to providing credit assistanceAssessment The requirement to assess whether a loan is “not unsuitable ”. The requirement to assess whether a loan is “not unsuitable ”.

11. Responsible Lending Brokers/lenders must not suggest, recommend or approve a loan or lease unless they have conducted the above assessment and concluded that the loan is “not unsuitable”. A loan must be assessed as “unsuitable” if: The consumer will not be able to pay, or not without substantial hardship; and /or The consumer will not be able to pay, or not without substantial hardship; and /or The loan does not meet the consumer’s needs and requirements. The loan does not meet the consumer’s needs and requirements.

12. Responsible Lending Lenders and brokers must: Make reasonable enquiries about the borrower’s financial circumstances Make reasonable enquiries about the borrower’s financial circumstances Make reasonable enquiries about the borrower’s needs and requirements Make reasonable enquiries about the borrower’s needs and requirements Take reasonable steps to verify the above information Take reasonable steps to verify the above information

13. Responsible Lending There is a presumption that, if the consumer could only comply with the terms of a loan by selling their principal residence, then the consumer could only comply with substantial hardship. Note: this must be foreseeable at the time of the assessment, not as a result of a later, unplanned occurrence such as illness or unemployment.

14. Responsible Lending The end to questionable practices? Complaints can plead both the responsible lending provisions and unjust contract under section 76 (UCCC s70) Complaints can plead both the responsible lending provisions and unjust contract under section 76 (UCCC s70)

15. Credit contract - default A client is in default if they are just 1 day late A client is in default if they are just 1 day late CP cannot take any action against the client until a default notice has been sent CP cannot take any action against the client until a default notice has been sent

16. Default Notices – s88 of the National Credit Code Must specify The default (arrears) The default (arrears) Action necessary to remedy the default Action necessary to remedy the default Period for remedying default Period for remedying default Subsequent default of the same kind during notice period will allow lender to begin enforcement proceedings Subsequent default of the same kind during notice period will allow lender to begin enforcement proceedings Exceptions in certain circumstances Exceptions in certain circumstances

17. Default - Summary Debtor has 30 days from date of default notice to remedy the default. Debtor has 30 days from date of default notice to remedy the default. If they do so, the credit contract is reinstated. If they do so, the credit contract is reinstated. If they do not remedy the default, CP can initiate enforcement proceedings. If they do not remedy the default, CP can initiate enforcement proceedings.

18. Repossession of goods (usually cars) Restrictions Less than 25% or $10,000.00, whichever is less (s91 NCC) Less than 25% or $10,000.00, whichever is less (s91 NCC) Consent to enter residential premises required (s99 NCC) Consent to enter residential premises required (s99 NCC) Options at this Stage Pay arrears and costs before repossession Pay arrears and costs before repossession Hardship Variation Hardship Variation EDR Scheme EDR Scheme Refinance/pay out contract Refinance/pay out contract Voluntarily Surrender Voluntarily Surrender Repossession CP may repossess goods if default not remedied

19. After repossession of goods Options at this Stage Pay arrears and enforcement expenses (goods must be returned) Pay arrears and enforcement expenses (goods must be returned) Pay out contract (goods must be returned) Pay out contract (goods must be returned) Nominate purchaser Nominate purchaser Hardship Variation Hardship Variation EDR Scheme EDR Scheme See section 102 NCC for required procedure: Within 14 days of repossession CP to give notice: estimated value of goods, arrears and enforcement expenses Within 14 days of repossession CP to give notice: estimated value of goods, arrears and enforcement expenses Goods not to be sold for 21 days Goods not to be sold for 21 days If arrears and enforcement expenses paid up in this 21-day period, CP must return goods If arrears and enforcement expenses paid up in this 21-day period, CP must return goods Otherwise CP must sell car for the best price reasonably obtainable as soon as reasonably practicable Otherwise CP must sell car for the best price reasonably obtainable as soon as reasonably practicable

20. Credit Provider must send a notice stating: Amount the vehicle was sold for Amount the vehicle was sold for Amount owing Amount owing Proposed recovery action Proposed recovery action Options Check sale price – was it reasonable (s104), check Red Book website Check sale price – was it reasonable (s104), check Red Book website Shortfall debt – pay in full, payment arrangement, bankruptcy etc Shortfall debt – pay in full, payment arrangement, bankruptcy etc After Goods are Sold

21. Repossession of Real Property Requirements of default notice must satisfy: Section 88 of National Credit Code; and Section 88 of National Credit Code; and Section 106 of the Transfer of Land Act – personal service or by registered post. Section 106 of the Transfer of Land Act – personal service or by registered post. Notices may be combined ------>Before mortgagee can start enforcement proceedings

22. Repossession of Real Property (cont’d) Negotiations? Negotiations? hardship variation per NCC? hardship variation per NCC? Other options –EDR, refinance, sell? Other options –EDR, refinance, sell?

23. Enforcing the Mortgage Ways to enforce: 1. Request vacant possession (Section 108 of Transfer of Land Act); or 2. Start legal proceedings in the Supreme Court for possession and/or payment of all monies due.

24. Enforcement methods What if judgment debt is unpaid? Property (Seizure and Sale) order Means Enquiries debt appropriation order; earnings appropriation order; Receiver (wind-up proceedings); Property (Seizure & Delivery) order

25. PSDO

26. PSDOs Property Seizure and Delivery Orders Direct the Sheriff and/or his bailiff delegates to take delivery of property (generally real property) and deliver it to the applicant; The Enforcement Officer will generally (but is not obliged to) post notice of the intended eviction date; The Sheriff’s Office manages enforcement of all PSDOs issued out of the Supreme and District Court (usually re default on mortgage repayments) The Bailiffs manage enforcement of PSDOs issued out of the Magistrates Court (usually re tenants’ default on rental payments)

27. PSDO