LAW3108 Finance Law

Module 4

Debtor and CreditorConsumer Credit

1. Regulation of the Australian Financial System

Financial Institutions Financial Transactions

2. Regulation of FinancialMarkets and Instruments

3. Payments System

Domestic International

4. Debtor and Creditor 5. Legal Aspects of International Trade & Finance

6. Professional Liability

Objectives:Consumer Credit– identify the types of credit which may be made

available to a consumer and the relevant law that regulates the transaction

– decide when the Hire Purchase Act and Consumer Credit Act will apply (Bills of Sale Act is dealt with in securities)

– advise on these Acts’ basic provisions and the consequences of such regulation on factual problems

Lecture Overview

• 1. Types of credit

• 2. Consumer Credit– Hire Purchase Act (HPA)– Consumer Credit Code (CCC)

1. Types of Credit• credit: form of financial accommodation

– compare with ‘loan’

• consumer credit c.f. business credit– transactions in common – specific transactions for consumers or business

eg lay by for consumers c.f. issue of debentures

• unsecured credit c.f. secured credit

1.1 Consumer Credit where creditor has ‘leverage’

• Lay by :– property (& risk) passes to purchaser– possession with vendor until payment

• Hire Purchase :– property with financier - may pass to hirer– letting of goods with option to purchase– s 2 definition HPA - CCC may apply

1.1 Consumer Credit where creditor has ‘leverage’

• Leases :– property with lessor - does not pass to lessee

– if a consumer lease, CCC may apply

• Bailment : – property with bailor (financier)- passes to bailee

(dealer) to permit retail sale

– CCC n/a - business not consumer credit

1.2 Other Consumer Credit: such ‘leverage’ lacking

• Instalment contract– property and possession passes to buyer– alternative: retention of title clause

• Personal Loan - CCC may apply

1.2 Other Consumer Credit: such ‘leverage’ lacking

• Credit Cards - CCC may apply– agreement - issuer and card holder– merchant agreement - (merchant’s bank

responsible for paying merchant)– sale contract - merchant and card holder – merchant’s bank reimbursed by issuer

2. Consumer Credit

• Hire Purchase Act (HPA)

• Consumer Credit Code (CCC)

2.1 Hire Purchase Act

• Hire Purchase Act 1959 (Qld) Maguire

• Turner (452-453) & E & M [117]

2.1.1 HP Agreements: Definition• s 2: letting of goods with option to purchase

• Note relationship HPA / CCC

2.1.2 HP Agreements: Contents

• Formation– s 3(1) Pre-contractual First Schedule written

statement to hirer

• Contents– s 3(2) form and contents– s 4 owner to serve written notice on hirer w/in 21

days – s 5 implied conditions and warranties – s 6 extended liability (dealer) for misrepres’n

2.1.3 HP Agreements: Termination

• Voluntary return– s 12 terminate hiring - not necessarily

obligations of hirer

• Repossession– s 13 Third Schedule notice - usually 7 days– s 13 Fourth Schedule notice (hirer & guarantor)

w/in 30 days– s 14 no disposal by owner for 21 days

2.1.4 HP Agreements: Guarantors & Reopening

• Guarantors– s 18 : liability of guarantor continues regardless

of repossession– s 19 : guarantor not bound in certain cases

unless independently advised

• Reopening– s 28 : power of court to reopen where harsh and

unconscionable transaction

Consumer Credit Legislation• Why legislate?

• “It is only since World War II that intensive marketing has masked the basic truth that it is always cheaper to pay cash.” P Bingham 1991

– Deregulation • proliferation of financial products

• exposed the more vulnerable to manipulation and exploitation

– Compliance culture• lifting corporate veil; stiffer penalties

Consumer Credit Legislation

• How to legislate?– constitutional / political issues

• History of Australian legislation– Money Lenders Acts; Hire Purchase Acts – Rogerson Report 1969 & Molomby Report 1972

– “Uniform” Credit Acts– Consumer Credit Act & Code - 1 Nov 1996

2.2 Consumer Credit Code

Read: Turner, Maguire

• Scope

• Effect • Formation also see industry Codes: EFT code; Codes of

Practice for banks, building societies, credit unions

• Life of the contract

• Enforcement

• Consumer Rights & Remedies

2.2.1 Scope

• s6(1) credit is provided under a contract

• s 6(1)(a) debtor - natural person (or strata corporation)

• s 6(1)(b) purpose - wholly or predominantly personal, domestic or household

• s 6(1)(c) charge is / may be made for providing credit

2.2.1 Scope (cont’d)

• s 6(1)(d) credit provider in the business of providing credit / part of or incidental to other business eg retailer

• s 4 credit provided if contract provides:– payment of a debt owed by the debtor to the

credit provider is deferred; or– the debtor incurs a deferred debt to the credit

provider

2.2.1 Scope (cont’d)

• s 6(5) purpose - personal / domestic / household:– more than half of credit for such purpose– if to obtain goods/services for different

purposes - most used for personal /domestic / household purpose

2.2.1 Scope (cont’d)

• s 11(1) rebuttable presumption that Code applies

• s 11(2)-(4) irrebuttable presumption Code does not apply where debtor declares credit to be applied wholly/predominantly for business/investment purposes

2.2.1 Scope (cont’d)

• s 7 Code not fully applicable to specified transactions including:– short term credit (max of 62 days)– bill facilities– lawful business of pawn broking – employee loans– credit excluded by regulations

2.2.1 Scope (cont’d)

• Related Transactions– s 8 related mortgages

– s 9 related guarantees

– s 132 related insurance contracts: eg• insurance over mortgaged property

• consumer credit insurance

2.2.1 Scope (cont’d)

• Related Transactions (continued)– s 116 related sale contracts (s 115)

• sale of goods / supply of services financed wholly/partly by provision of credit (supplier/linked credit provider)

• liability for suppliers’ misrepresentations

• rights to damages against supplier & linked credit provider

• defences s 119; limits on liability s 120

2.2.1 Scope (cont’d)

• Related Transactions (continued)– s 10 goods leases (hire purchase)

• deemed to be sale of goods by instalments

• mortgage over goods to credit provider

– s 147 consumer leases (no right/obligation to buy)

• s 148 prerequisites & s 149 exclusions (eg employee in connection with employment benefits)

2.2.2 Effect on Formation

• s 14 pre-contractual information and notices to debtor

• s 12 formal requirements for contracts

• s 15 content requirements for contracts

• s 17 alterations – signed/initialled in margin opposite

• s 18 copies to be given (also see s 163)

2.2.2 Formation (cont’d)

• pre-contractual information s 14 & s 15– financial details

• interest rate, loan amount, fees and charges etc

– debtor’s statutory rights and obligations– comparison rate (optional) s 14(3)– in form required by Regulations (Form 2)

2.2.3 Life of the Contract

• s 31 statements of account required

• changes to obligations permitted– ss 58 - 64 unilateral changes – s 65 change by agreement

• s 163 copies or documents and notices required - to debtors and guarantors and mortgagees

2.2.4 Enforcement

• primarily in contract between debtor and credit provider

• Restriction of rights and remedies in enforcement – s 80 against debtor/mortgagor– s 82 against guarantor – s 83 by repossession of mortgaged goods

2.2.5 Consumer Rights & Remedies

• s 70 re-open unjust transactions

• s 72 review unconscionable charges

• variations – negotiated (s 65) or hardship (s 66)

• early termination & payout (s19; s24; s75)

• voluntary return of goods - possible in certain circumstances (s 78)