Consumer credit reform – the new ‘Key Facts Sheet’

Background

Recent amendments to the National Consumer Credit Protection Act 2009 (Cth) (National Credit Act) and the regulations to the National Credit Act (Regulations)have introduced a requirement for licensed credit providers to make a personalised Key Facts Sheet available to consumers in respect of ‘standard home loans’ from 1 January 2012.

The amendments to the National Credit Act have also introduced a similar requirement for licensed credit providers who issue credit cards.  These rules commence on 1 July 2012. 

This publication will, however, focus on the changes with respect to ‘standard home loans’.

When is a Key Fact Sheet required for home loans?

The Key Facts Sheet obligations will apply to ‘standard home loans’.

A standard home loan is a standard form of credit contract under which:

• a licensed credit provider provides credit which is used to:
  
  
  • purchase residential property; or
    
    
  • to refinance credit that has been provided wholly or predominately to purchase residential property;
    
    
• the consumer is obliged to make principal and interest payments for the whole of the term of the loan; and
  
  
• the interest rate is either variable or fixed for the whole or part of the loan.

Accordingly, loan contracts which involve ‘interest only’ payments for whatever period or part variable and part fixed interest rates on the loan balance (commonly described as ‘split loans’) will not be standard home loans and, therefore, will not be subject to the Key Facts Sheet regime.

Content of Key Facts Sheets for home loans

The Regulations set out the prescribed form of the Key Facts Sheet required to be used.

A Key Facts Sheet must include a personalised comparison rate (including fees payable) which is to be calculated using the existing formula for comparison rates under the National Credit Code.  However, the determination of the personalised comparison rate must be based on the loan amount specified by the consumer when applying for, or making an inquiry about, a standard home loan on the credit provider’s website or otherwise making a request for a Key Fact Sheet with respect to a standard home loan.

Where/when is a Key Facts Sheet to be provided?

Website

If a licensed credit provider has a website that can be used by consumers to apply for, or make an enquiry about, one or more standard home loans, the website must inform the consumer:

• that they may use the website to generate a Key Facts Sheet for each standard home loan of the credit provider;
  
  
• of the information the consumer will need to enter in order to generate a Key Facts Sheet;
  
  
• how to generate a Key Facts Sheet; and
  
  
• that if the consumer enters the information and follows the instructions, the consumer can used the website to generate a Key Facts Sheet containing current information in a form that can be printed by the consumer.

Therefore, the website must also allow the consumer to generate and print the Key Facts Sheet in the form prescribed by the Regulations.

Other situations

Licensed credit providers will also be required to provide a Key Facts Sheet in circumstances where a consumer:

• requests one (other than through their website) such as in person or over the phone; and
  
  
• has given the credit provider the consumer’s name and the contact details required by the Regulations.

Interestingly, at this stage, the Regulations do not require a consumer to provide, or a credit provider to obtain, any particular contact details. 

The Regulations may also specify further situations in which a Key Facts Sheet must be provided to consumers (but none have been announced to date).

The failure by a licensed credit provider to provide a Key Facts Sheet through their website or in the other situations required will be a criminal offence and may also attract a civil penalty of up to $220,000 for each breach.

Practical issues

Aside from developing a website which complies with the Key Facts Sheet requirements, credit providers will need to ensure that they have appropriate internal policies and procedures in place to ensure that a consumer’s key contact details and the details of the loan required (i.e. the product type and loan amount) are obtained when a consumer requests a Key Facts Sheet other than through the credit provider’s website.

Lavan Legal comment

Licensed credit providers providing standard home loans will need to take appropriate steps now to implement this latest consumer credit reform to the extent they have not already done so.

Should you require any specific advice or assistance in relation to the Key Facts Sheet regime with respect to home loans or credit cards, please do not hesitate to contact: