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Credit Law and Casework basics

Credit Law and Casework basics. 20 th July 2016 Lachlan Edwards Solicitor Consumer Action Law Centre Worker advice line: 9602 3326 Rural access: 1300 881 020 advice@consumeraction.org.au www.consumeraction.org.au. Learning Outcomes.

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Credit Law and Casework basics

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  1. Credit Law and Casework basics 20th July 2016 Lachlan Edwards Solicitor Consumer Action Law Centre Worker advice line: 9602 3326 Rural access: 1300 881 020advice@consumeraction.org.au www.consumeraction.org.au

  2. Learning Outcomes • Key aspects of the National Consumer Credit Protection Act (NCCPA)- when and how to use these aspects in client advocacy • Key aspects of the National Credit Code (NCC); when to use the Code and whether to use it concurrently with the NCCPA and other tools through case study examples • Ways of using both the law and code in the context of advocacy to get the best outcomes for the client • Why/ when to apply use of External Dispute Resolution (EDR) in the context of the client situation

  3. How does that help me? You’ll learn: • Why credit law is key in FC work • When credit law applies to your client’s cases • How credit law can help you get good outcomes for your client’s case • Where to go next if the creditor disagrees

  4. How do these laws help my clients? The NCCPAand NCC provide important rights and protections that you need to know in order to help your clients. They are: • assistance if they are sick or lose a job • restrictions on providing them contracts they can’t afford • information about contracts they enter • rights when they are taken advantage of

  5. When do the credit laws apply?

  6. Types of contracts • Credit contracts e.g. Credit card, car/home loan, pay day loans • Lease contracts: rental items such as cars, white goods eg. Radio Rentals & Motor Finance Wizard • Mortgages • Guarantees

  7. What is ‘credit’?

  8. What is ‘credit’? Definitions • Payment of a debt owed by one person to another is deferred • One person incurs a deferred debt to another

  9. When do credit laws apply? • Borrower must be a person • Lender must be a business • A “charge” for providing credit • Purpose must be a personal, domestic or household purpose or to purchase, renovate or improve a residentialinvestment property

  10. The Act doesn’t apply to... • Residential tenancies • Pawnbrokers (note exception) • Loans from an employer to an employee (dependant on the terms of the loan) • All other contracts eg: contracts of sale for goods or services

  11. Does the credit law apply to… • Electricity or gas contracts? • Credit cards? • Insurance premiums paid by instalments? • Rent to buy contracts? • Loans to buy shares? • Lines of credit for a small business?

  12. How does the credit law help my client’s case?

  13. Key Protections in Credit Law

  14. Key Protections in Credit Law

  15. Responsible lending When applying for a loan, creditors* must: • make reasonable inquiries about the consumer’s financial situation and requirements or objectives • take reasonable steps to verify the consumer’s financial situation and requirements and objectives • make an assessment of unsuitability

  16. Responsible lending

  17. Responsible lending • Creditors are prohibited from entering into (or increasing limits of) unsuitable contracts with consumers. • A contract is unsuitable if, at the time it’s entered into: • It’s likely the consumer can’t afford to repay it (or not without major hardship) OR • it doesn’t meet the consumer’s requirements or objectives

  18. How does this help my client? Damages = $ your client paid minus$ client borrowed/cost of goods Example Paul took out 62 payday loans over 3 years Damages = $18,303.23 (amount paid) minus $13,028.00 (total cash he actually received) TOTAL REFUND: $5,275.00

  19. Pay day lending (SACCs) What’s a Small Amount Credit Contract (SACC)? • $2,000 or less • 16 days to 12 months • Max costs: 20% establishment plus 4% monthly • Unsecured, not a credit card

  20. Pay day lending (SACCs) • Small amount credit contract provisions: • Lender must see 90 days bank statements • Repayments can’t be more than 20% of income if Centrelink over 50% of income • Presumed unsuitable if: • Two + SACCs in 90 days before the loan • Existing pay day loan already in default

  21. Responsible lending – possible client outcomes • Successful outcome based on putting client back in position had breaches not occurred. Examples: • Client pays principle but interest, fees, charges are not repaid • Client is refunded money paid above what they could afford. • Secured loans – keeping or giving back the car is a complicated issue.

  22. Hardship • Consumers can request change to their loan agreement (repayments, interest etc) • A change can be requested where the consumer has reasonable cause • The creditor can request information to help offer appropriate assistance • The credit provider can refuse the change where they don’t believe: • there is reasonable cause for the change, or • even with the change, the consumer wouldn’t be able to repay the contract

  23. Code of Banking Practice Not law but contains protections against: • Maladministration • Direct debits • Guarantees • Hardship • Chargebacks

  24. How can I use the credit law to advance my client’s case?

  25. Case study # 1 - Sandu Sandu is a single parent who receives parenting payment. Amongst her financial situation she mentions that the company that she rents her fridge off is saying that she is behind on her repayments and is going to take her fridge from her if she doesn’t pay $200 by the end of the month. • What questions would you ask her? • What are her options?

  26. Case study # 1 - Sandu Sandu says: • She receives $600 per week. • Her rent is $300 • After expenses she has no money left at the end of the week • Her normal repayment on the fridge contract is $20 per week. The rental company calls and demands answers. • What would you do?

  27. Case study # 1 - Sandu The rental company agrees to put things on hold for 3 months by giving Sandu hardship. You investigate Sandu’s finances at the time of entering the contract and she was overcommitted • What are her options? • Can she raise any legal arguments now that she has hardship?

  28. Case study # 2 – Jane Jane receives DSP because her bad back means she is unlikely to work again. She lives in public housing and has no assets. Since stopping work, Jane has struggled financially. As well as debt on some credit cards, has a loan from Fast financials who are threatening to take her car. • What questions would you ask her?

  29. Case study # 2 – Jane You request documents and the contracts show that she has had a lot of loans and the payments are significant. • What arguments could Jane make? • What would be your strategy here?

  30. Case study # 3 - Jonny Jonny is referred to you by his social worker. He is 20 and has a drug addiction which has caused him to struggle financially. Jonny tells you that he has been getting regular small loans from Money Makers every month for as long as he can remember. He doesn’t know how many loans he has got from them but it is a lot. • What questions would you ask him?

  31. Case study # 3 - Jonny Jonny’s most loan repayments is $50 for 26 weeks and then $12 for 26 weeks. He tells you: • he receives $600 per fortnight. • his rent is $150 per week. • he rents his laptop and stereo paying $150 per month • after expenses he has no money left at the end of the week • Complete the table on your Case Study worksheet

  32. Case study # 3 - Jonny Jonny is overcommitted based on your calculations. • What are Johnny’s options for dealing with the debt? • What would your advice to Johnny be?

  33. Where next for my client’s case if the creditor disagrees?

  34. Ombudsman Schemes: FOS & CIO Who are they? • Financial Ombudsman Service and the Credit & Investments Ombudsman Service • They resolve complaints about lenders, brokers etc • They can make binding decisions • All licensed lenders, brokers etc must be a member of either service

  35. EDR Schemes – FOS and CIO How can they help? • Operate informally - on the papers and the phone, no hearings • Free • Stops enforcement action while dealt with • Decisions binding for creditors • Consumer is not bound by their decision • No need for a lawyer • FOS – fast track process

  36. Regulator - ASIC How can they help? • They are the “police” for creditors, brokers, lessors etc • They can take action to enforce compliance with the law e.g. The Cash Store case • They don’t take action for your client

  37. Session Review • Australian credit laws give your clients right and protections • The credit laws only apply to certain types of contracts • You can use the credit law to get good outcomes for your client • If the creditor doesn’t come to an agreement, you can complain to Ombudsman schemes

  38. What are the options? Regulators ASIC Law Credit Act / Code Complaints Client Problem 1. IDR 2. EDR 3. Court FC Advice CALC

  39. Resources Fact sheets and letters • http://consumeraction.org.au/help-for-consumers/support-for-advisers/ • http://consumeraction.org.au/help-for-consumers/fact-sheets/ Information about the law • www.lawhandbook.org.au

  40. Contact details Consumer Action Law Centre Level 6, 179 Queen Street Melbourne VIC 3000 Worker Advice Line: (03) 9602 3326 Rural access: 1300 881 020 Mon – Fri 10am to 1pm and 2pm to 5pm Email: advice@consumeraction.org.au

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