What is the Consumer Credit Code?

The Consumer Credit Code was developed in response to business and consumer concerns as a national initiative to standardise credit practice in Australia.

If you buy goods, services or land now and pay a charge for them later, then you are being provided with credit. You may have borrowed money from a bank, paid for the goods on a credit card or simply owe money to a business. If you pay a business for credit and use it mainly for personal, household or domestic purposes, the Consumer Credit Code will affect you.

The  Consumer Credit Code covers a considerably wider range of credit transactions than previous laws. A credit provider is defined as any business which provides finance to purchase goods, services and land or to lease goods. The Consumer Credit Code applies to these credit providers if they charge for the credit and if their customers are individuals or residential strata corporations who use it mostly for personal, household or domestic purposes.

Read on for how the Consumer Credit Code affects you and your business.

How will the Code will Benefit You?

The Consumer Credit Code governs all credit transactions taking place in Australia. You have the same standard coverage wherever you live and however you use credit.

The Code not only introduces standardisation, it also presents credit information in a clear and easy to understand format. Credit providers such as banks, building societies, credit unions, finance companies and businesses, must tell you what your rights and obligations are in any credit arrangement. They are required by law to truthfully disclose all relevant information about your arrangement in a written contract, including interest rates, fees, commissions and other information which in the past was often hidden.

While the aim is to prevent many of the credit problems faced by consumers, the Code recognises that it is still important to protect consumers if they get into trouble. If you lose your job or are sick, you can ask to have your contract changed so that you can better meet your repayments. Credit providers are required to be careful not to make contracts with consumers who would find it difficult to meet their repayments. A court can also order changes to a contract if it is considered unjust.

Code Principles and Administration

Objectives

Essentially the objectives of the Code are to provide laws which apply equally to all forms of consumer lending and to all credit providers, and which are uniform in all jurisdictions in Australia.

The legislation is based on the principles of truth-in lending which will allow borrowers to make informed choices when purchasing credit.

The Code applies rules which regulate the credit provider's conduct throughout the life of a loan, but without restricting product flexibility and consumer choice. The policy of the legislation is to rely generally on competitive forces to provide price restraint but to provide significant redress mechanisms for borrowers in the event that credit providers fail to comply with the legislation.

The Code is designed to apply to a deregulated credit market and provide standards for the provision of credit which will not be overtaken by changes in the financial marketplace.

Legislative Structure

The legislative structure of the Code is based upon a template scheme. This means that template legislation has been passed (in Queensland: Consumer Credit (Queensland) Act 1994 and the Consumer Credit Regulation (Queensland) 1995).

All States and Territories have passed enabling legislation which adopts the template legislation and applies it in the State or Territory as "in force from time to time". By doing this, any amendments (changes) to the Code or Regulations only need to be made to the template legislation; they will then automatically apply in other states without amendment to those States' Enabling Acts.  See the State Information for a link to the WA legislation.

Note: Prior to July 2003 Western Australia's Consumer Credit Code was enacted as "alternative but consistent" legislation rather than by adopting the "template" Code. As a result of amendments to the Consumer Credit (Western Australia) Act 1996 which commenced in July 2003, the template Code applies as a law in WA. However, in line with the Tasmanian model, subsequent amendments made to the template Code in Queensland, only apply as a law in WA following an Order being published in the Gazette by the Governor. The Order cannot be made unless each House of Parliament has first approved a draft of the Order. WA's legislation retained some slight differences see the State Information for a link to the WA legislation.

Under the Uniform Consumer Credit Laws Agreement 1993 (AUCLA) the Ministerial Council for Uniform Credit Laws (an offshoot of the Ministerial Council on Consumer Affairs) has to agree to amendments to the Code by a two-thirds majority.

All states and territories are required by the AUCLA not to introduce legislation into their parliaments which conflicts with or negates the Code.

National Management

While the Consumer Credit Code is essentially "national" legislation, its administration is the responsibility of eight different State and Territory Governments.

Recognising the need for some formal structure to ensure consistency in the Code's implementation and application, the Standing Committee of Officials of Consumer Affairs (which reports to the Ministerial Council on Consumer Affairs) established the Uniform Consumer Credit Code Management Committee (UCCCMC) in 1996.

The Committee's role is to monitor and co-ordinate all activities relating to the Consumer Credit Code in order to ensure consistency in the Code's implementation and administration across jurisdictions.

Specific functions include consideration of amendments to the Code and Regulations, as well as review of Code exemption applications. The Committee is responsible for developing and administering procedures, schemes and arrangements designed to ensure consistency in the implementation of the Code.

The Committee comprises a representative from each jurisdiction and is presently chaired by Victoria. A complete list of Committee members and contact details appears below.

One of the intentions behind the creation of the Committee was to provide stakeholders with a national focus for Credit Code issues. Consequently, the Committee is able to receive submissions directly through its chair without the need for the correspondent to first negotiate the bureaucracies of one or more jurisdictions. This means that if an industry or consumer group has concerns over a particular issue, they can bring this directly to the attention of the Committee.

Mandatory Comparison Rates

New Part 9A of Uniform Consumer Credit Code

The Consumer Credit Code (Queensland) Amendment Bill 2002 was introduced into the Queensland Parliament on 6 March 2002 and was passed on 18 April 2002. The Act provides that:

•  a comparison rate must be included in any advertisement for a fixed term credit product that contains    an annual percentage rate;

•  a credit provider, finance broker and linked supplier, must display and have available for collection by    members of the public, copies of a comparison rate schedule; and

•  the limitation period for the commencement of civil penalty applications under the Code is six years.

Comparison Rates - A Consumer Guide

What is a comparison rate?

A comparison rate is a tool to help consumers identify the true cost of a loan.

It is a rate which includes both the interest rate and fees and charges relating to a loan, reduced to a single percentage figure. For example, a bank's advertised interest rate may be 5.49% and its comparison rate 6.75%.

When must I be provided with a comparison rate?

Comparison rates only have to be provided for:

•  credit which is wholly or mainly for personal, domestic or household purposes;

•  fixed term credit - that is, credit that must be repaid within a specified time period. (A home loan with a    term of 25 years, and a car loan with a term of 5 years are examples of fixed term credit. In contrast,    credit cards, which do not have to repaid within a particular time period, are examples of continuing    credit).

From 1 July 2003:

•  a comparison rate must be included in any advertisement for fixed term consumer credit which    contains an interest rate; and

•  consumers must be provided with comparison rate schedules - that is, lists of comparison rates for a    standard range of loan amounts and terms - by credit providers, finance brokers, and linked    suppliers (suppliers of goods and services who refer customers in need of finance to particular credit    providers).

How is a comparison rate calculated?

Comparison rates are calculated in accordance with a standard formula, which takes into account:

•  the amount of the loan;

•  the term of the loan;

•  the repayment frequency;

•  the interest rate; and

•  the fees and charges connected with the loan, except for
  

  •  government charges, such as stamp duty or mortgage registration fees;

  •  fees and charges which may or may not be charged, because they depend on some event    which may or may not occur (for example, fees for early repayment or redraw fees); and

  •  fees and charges which are not ascertainable at the time the comparison rate is provided.

Comparison rates in advertisements

As different loan amounts and terms produce different comparison rates, comparison rates in advertisements must be based on the amount and term in a legislated standard list that is most typical of the loan being advertised.

For example, the standard list includes a loan of $30,000 for 5 years, which is similar to a typical car loan, and $150,000 for 25 years, which is similar to a typical home loan.

A credit advertisement must clearly state the amount and term on which a comparison rate is based.

Comparison rate schedules

A comparison rate schedule is a list of comparison rates for a range of standard loan amounts and terms for a particular credit product.

The standard amounts and terms have been set in legislation and a comparison rate must be provided for all of the listed amounts that are generally available for that credit product.

As they use the same loan amounts and terms, comparison rate schedules can be used to compare the comparison rates of different credit products.

Comparison rate schedules must be made available at any premises of a credit provider, finance broker or linked supplier at which consumer credit products are advertised or at which members of the public can lodge credit applications in person.

A relevant comparison rate schedule must also accompany any credit application that is sent or given to you by a credit provider, finance broker or linked supplier. Whenever credit products are advertised on the internet, electronic access to a relevant comparison rate schedule must also be made available.

Points to remember when using comparison rates

1. A comparison rate can be a useful tool for comparing the cost of different loans, but it is important to consider all of a loan's features and not just focus on the comparison rate.

Remember that the comparison rate does not include government fees and charges or fees and charges which will only charged in certain circumstances. Therefore the comparison rate may not provide a complete picture of the total cost of a loan.

A comparison rate also does not take into account some factors which may make a loan more attractive, such as fee free banking, or flexible repayment arrangements. You should give careful consideration to whether these features are important to you and the effect they will have on the cost of the loan.

2. The amounts and terms shown on a comparison rate schedule do not represent all the possible combinations of amounts and terms.

This means the amount and term of your particular loan may not be included in the comparison rate schedule. In order to get an idea of the comparison rate which applies to your loan, look at the comparison rate for the amount and term closest to the amount and term of your loan.

Credit providers, finance brokers and suppliers linked to credit providers are not required to provide you with a comparison rate for your particular loan amount and term, but some may be willing to do so if you ask them.

3. Credit advertisements and comparison rate schedules may sometimes state whether a comparison rate is based on a secured loan (that is, a loan for which the credit provider takes a mortgage over property) or an unsecured loan (where no mortgage is taken).

This is because there can be a significant difference in the comparison rate for a secured loan and an unsecured loan of the same value, due to the higher interest rates usually charged for unsecured loans and the higher up-front fees for secured loans.

If a comparison rate is based on a secured loan, it is unlikely to be accurate for an unsecured loan of the same value, and vice versa.

4. Where can I get further information?

A list of frequently asked questions about comparison rates is available at www.creditcode.gov.au.

Questions can also be directed to your nearest Fair Trading Centre.

Comparison Rates - Frequently Asked Questions

Why don't comparison rates have to be provided for continuing credit products?
The comparison rate formula requires the amount and term of a loan to be known. In the case of continuing credit products such as credit cards, however, neither the amount nor the term of the loan are known in advance.

What does the warning accompanying a comparison rate mean?
The warning advises consumers that the comparison rate is accurate only for the particular loan amount and term on which it is based, as different amounts and terms will produce different comparison rates.

The warning also advises consumers of the limitations of comparison rates, by noting that:

•  as a comparison rate does not include government fees and charges or fees and charges which are    only charged in certain circumstances, it may not provide a complete picture of the total cost of a    loan;

  •  a comparison rate does not take into account some factors which may make a loan more    attractive, such as fee free banking, or flexible repayment arrangements.

The warning is intended to make consumers aware that, while a comparison rate can be a useful tool for comparing the cost of different loans, it is important to consider all of a loan's features and not just focus on the comparison rate.

Are credit application and establishment fees included in the comparison rate calculation?
Yes. The comparison rate formula includes credit fees and charges which are payable before credit is provided and which are payable even if the credit is not provided.

Are fees paid to brokers, lawyers and valuers included in the comparison rate calculation?
The comparison rate calculation includes fees and charges payable in connection with a credit contract or mortgage, except for:

•  government charges, such as stamp duty or mortgage registration fees;

•  fees and charges which may or may not be charged, because they depend on some event which may    or may not occur (for example, fees for early repayment or redraw fees); and

•  fees and charges which are not ascertainable at the time the comparison rate is provided.

Fees charged by brokers, lawyers, and valuers will only be included in the comparison rate calculation if they are payable in connection with the credit contract.

Generally, if you have no choice but to pay a fee or charge, it will be included in the comparison rate, provided the charge is ascertainable whether the comparison rate is provided and it is not a government fee or charge.

Therefore if the credit provider requires you to pay a valuation fee, for example, this will be included in the comparison rate calculation. However if you employ a valuer independently of the credit provider the fee will not be included in the comparison rate.

What can I do if the amount or term of my loan are not listed in the comparison rate schedule?
The amounts and terms shown on a comparison rate schedule do not represent all the possible combinations of amounts and terms.

This means the amount and term of your particular loan may not be included in the comparison rate schedule. In order to get an idea of the comparison rate which applies to your loan, look at the comparison rate for the amount and term closest to the amount and term of your loan.

If I do not expect to keep a loan for the full term, does that make any difference to the comparison rate?
No. The comparison rate must be calculated in accordance with a standard formula, which takes into account the term of the loan as stated in the credit contract. The contractual term is always used in the calculation of the comparison rate, whether or not the consumer intends to keep the loan for that term.

Does the comparison rate differ for interest only and principal and interest loans of the same amounts and terms?
The comparison rate will usually be slightly higher for an interest only loan than for an equivalent principal and interest loan, because slightly more interest is paid on an interest only loan.

Are home loans which feature a line of credit covered by the comparison rate requirements?
The home loan is a fixed term credit product, and is therefore covered by the comparison rate requirements. The line of credit is an extra feature, and is not covered by the comparison rate requirements as it is a continuing credit product.

This means that the comparison rate for a home loan with a line of credit only applies to the fixed term home loan.

If a credit application is made over the telephone, must a comparison rate be provided?
No, a comparison rate doesn't have to be provided if a credit application is made over the phone.

Are advertisements which say that a loan is interest free required to contain a comparison rate?
No. These advertisements do not feature an interest rate and so do not have to provide a comparison rate.

Do advertisements which state how much you will save on a loan have to contain a comparison rate?
Not unless they also contain an interest rate. Comparison rates only have to be provided in advertisements which feature an interest rate.

Does the repayment frequency affect the comparison rate, and if so, could the comparison rate be manipulated by using the repayment frequency that produces the lowest comparison rate?
Different repayment frequencies have only a very minor effect on the comparison rate. For example, changing the repayment frequency from fortnightly to weekly on a loan with an interest rate of between 6% and 10% will usually reduce the comparison rate by about 0.01%.

The comparison rate formula requires the comparison rate to be calculated on the basis of the repayment frequency which is required by the credit contract. Most credit providers have a standard contract for their credit products, which will stipulate a certain repayment frequency.

Consumer Credit Code Information

Please choose your state or territory:
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The information provided in this web site is of a general nature only and does not replace the Code itself. You should obtain your own copy of the Code and seek independent legal advice if you believe you are affected by the Code.

Examples of credit the code does NOT cover!

Credit that is for a period of 62 days or less, except where the fees and charges exceed 5% of the amount of loan or where the interest rate is greater than 24%p.a

Credit provided without any prior agreement (eg. when a cheque account becomes overdrawn but there is no agreed overdraft facility)

Continuing credit where no interest is paid but where account charges do not exceed $200 in the first year or $125 in any subsequent year

The debit part of a joint debit and credit facility

Bills of exchange or promissory notes

Examples of credit the code does cover!

   Personal Loans
   Credit Cards
   Overdrafts
   Housing Loans
   Pay Day Loans

   Mortgages
   Hire of Goods
   Continuing Credit Accounts
   Guarantees

Specific parts of the Code apply to different types of credit and hiring contracts, but they are all covered by the Code's principles of truth in lending and fairness in the marketplace.

View the Australian Uniform Credit Laws Agreement 1993