What must be included in a credit contract?
The National Credit Code (the “Code”) sets out the required form and content of credit contracts. If you hold an Australian credit licence (“ACL”) and you are providing credit to consumers, you must ensure that the credit contracts meet these requirements which are set out below.
Form of contract document
A credit contract must be in the form of a written document:
signed by both the debtor and credit provider; or
signed by the credit provider and the document constitutes an offer to the debtor that is accepted by the debtor in accordance with the terms of the offer. Under this option, the debtor can accept the credit provider’s offer by drawing down on the credit or any other act which satisfies the conditions of the offer and constitutes an acceptance of the offer at law.
If a credit contract is formed by more than one document, only one of the documents needs to be signed on the condition that the other documents are referred to in the signed document.
A credit contract may be made in accordance with the Electronic Transactions Act 1999 (Cth). This allows for the requirement of giving documents and signing to be met electronically.
Content of contract document
A credit contract must include the following information:
Credit provider: the credit provider's name and Australian credit licence number;
Australian credit licence number: for any document that is required to be created, produced, given or published by the Code – which would include a credit contract document – an Australian credit licensee must include its licence number and identify in the document that the number is an Australian credit licence number;
Amount of credit: information regarding the amount of credit which includes:
if the amount of credit is ascertainable, details of that amount of credit, the payee(s) and the amounts payable to the payee or to each of the payees.
if the amount of the credit is not ascertainable, the maximum amount of credit agreed to be provided, or the credit limit under the contract (if any);
Credit for land or goods: if you are a supplier for a sale of land or goods by instalments and credit is provided for such a sale, a description of the land or goods and their cash price;
Annual percentage rates and interest charges: for credit contracts that are not small amount credit contracts under the Code:
information regarding the annual percentage rate(s) which includes:
the applicable annual percentage rate(s);
if there is more than one rate, how each rate applies; and
if the rate is determined by referring to a reference rate, the name of the reference rate or its description; how the annual percentage rate(s) is/are determined from the reference rate (i.e. the margin above or below the reference rate to be applied); how the reference rate can be determined (i.e. where and when the reference rate is published or how the debtor can ascertain the applicable rate); and the annual percentage rate(s) at the time of the credit contract;
information regarding interest charges which sets out:
the calculation method of the interest charges payable and the frequency that the charges are to be debited under the credit contract; and
the total amount of interest charges payable under the contract (if ascertainable);
Repayments: details of the repayments which include:
the amount of repayments or the calculation method of the repayment amount;
the number of repayments and the total amount of repayments (if ascertainable); and
when the first repayment is to be made (if ascertainable) and the frequency of repayments;
Credit fees and charges: details of any credit fees and charges including: a statement that such fees and charges are/may become payable and when such fee or charge is payable (if ascertainable); the amount of any such fee or charge or their calculation method (if ascertainable); and the total amount of credit fees and charges payable under the contract to the extent that they are ascertainable;
Changes affecting interest, fees and charges: a statement regarding any potential changes which affect interest and credit fees and charges, and how the debtor will be informed of the changes;
Statements of account: the frequency of which statements of account are to be provided to the debtor (except in the case of a credit contract for which the annual percentage rate is fixed for the whole term and cannot be varied);
Default rate: information regarding any default rate including what the rate is, and when and how it is to be applied;
Enforcement expenses: a statement that the enforcement expenses which may become payable under the credit contract if a breach occurs;
Mortgages or guarantees: if a mortgage or guarantee is taken in relation to the credit contract, a statement to that effect. In addition, for mortgages, the credit contract must also include a description of the property subject to, or proposed to be subject to the mortgage (if ascertainable);
Commission: details of any commission to be paid by or to the credit provider in relation to the credit under the contract, including a statement of the fact that commission is to be paid, the commission amount, and the payer and payee of the commission;
Insurance financing: if credit under the contract is to finance an insurance, the credit contract must include details of the insurer, the type of insurance, the amount payable to the insurer or its calculation, and any commission to be paid by the insurer for the introduction of the insurance business;
Reverse mortgage: in the case of a credit contract for a reverse mortgage, provisions for persons other than the debtor to occupy reverse mortgaged property; and
Warning statement: a warning statement in the applicable form prescribed under the National Consumer Credit Protection Regulations 2010 (Cth) (the “Regulations”). In particular, Form 6 is to be used when the document signed by the debtor is an offer. Form 7 is to be used when the document signed by the debtor is an acceptance of an offer made by the credit provider.
Precontractual disclosure
Before the credit contract is entered into, or before an offer is made to the debtor (whichever occurs first), the following information must be given to the debtor:
an information statement regarding the debtor’s statutory rights and obligations in Form 5 of the Regulations (which can be appended at the end of the terms and conditions for the credit contract); and
a precontractual statement setting out the matters listed above that must be included in the contract document.
The precontractual statement can be the proposed credit contract itself or a separate document. Standard industry practice is to use the contact document as the precontractual statement.
Some of the information that must be in the precontractual statement (referred to as “relevant financial information” under the Regulations) must be set out in table format. This table, known as the financial table, must be placed at the beginning of the precontractual statement (e.g. the credit contract itself).
If you require a standard form credit contract for your customers, we recommend seeking legal advice to ensure you are meeting the obligations under the Code.
Contact us if you need assistance.